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More Frequent Reporting or Less?

There’s a growing debate in the financial world over corporate earnings reporting. Public companies are currently required to report results on a quarterly basis. Warren Buffett and Jamie Dimon wrote an op-ed in the Wall Street Journal back in June about the short-termism that is caused by this need to report results every quarter. They argue that “quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability”. It’s hard to argue with this sentiment and it’s clear the pressure to meet short-term goals can often lead CEO’s to make suboptimal decisions for their companies.

Unfortunately, if we reduce or eliminate these reporting requirements, we lose the transparency that Dimon and Buffett concede “is an essential aspect of the U.S. public markets”. They aren’t arguing that companies stop reporting financial results, but rather that the results “should be provided on a timeline deemed appropriate for the needs of each specific company and its investors”.

More recently, the President has chimed in on this issue, tweeting that he asked the SEC to study the potential to “Stop quarterly reporting & go to a six month system. That would allow greater flexibility and save money”. This tweet led to enhanced discussions about our reporting system with those in the financial world staking out claims on both sides. Barry Ritholtz made an interesting argument in this article that we should be looking at monthly or even daily reporting of financial results.

So which would be better, more frequent reporting or less? I’m no expert on issues of corporate earnings reporting and I certainly won’t try to go up against the superior intellect and track record of people like Warren Buffett and Jamie Dimon. But there is an interesting parallel to personal finances and the work we do with clients and I will provide my thoughts on that.

We recently went through a major software transition that allows us to present investment performance reporting to our clients on a daily basis, as opposed to quarterly as we had done in the past. The reason for the upgrade wasn’t so that clients could check their portfolio every day, in fact this is a behavior that we try hard to discourage among our clients. However, we found that quarterly performance reports put too much focus on a specific time period with a set ending date every 3 months. What makes March 31, June 30, September 30 and December 31 so special they deserve such an outsized focus on the results ending on those dates?

In the past our process for calculating performance numbers was much more manual and labor-intensive, but now we are awash in a sea of data. With a click of our mouse or a shout out to Alexa we can find the current price of any investment vehicle. So why do we need to wait until the end of the quarter to review performance?

We do need to pick some ending date if we are going to appropriately review the performance of investment portfolios, but now we have the ability to do that whenever we meet with a client. Often those meetings don’t fit neatly into the few days after the end of a quarter, nor should they have to. By reporting performance on a daily basis it doesn’t matter what day of the quarter it is, both ourselves and our clients can see current performance numbers.

As Barry says, quarterly reporting “places an unhealthy emphasis on meeting or exceeding forecasts” and that “more frequent reporting makes the data less significant”. We have long known that our clients shouldn’t be focused on how their portfolio performed on a quarterly basis, but we also knew that we had to provide clients with a periodic review of their performance. Now that clients can view their performance any day they choose, they can spend less time worrying about quarterly performance and more time focusing on more important things.

Our focus has always been and will continue to be helping clients develop goals and to implement a comprehensive financial plan that will help them reach those goals. Investments are just one piece of the financial picture and without the quarterly focus on performance, we can spend more time focused on helping clients stay on track with their financial plan.

If you would like to learn more about how we help clients develop financial plans and manage their investments, feel free to schedule a meeting with me to learn more.

-Chris Benson, CPA, PFS

The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. Please see Additional Disclosures more information.