Long-Term versus Short-Term

01 April 2010

A significant problem in today’s equity markets is that companies tend to be managed to thrive for the long-term while institutional investors tend to be preoccupied with success in the short-term.

“That’s great, I love your 5 year plan, but what are you doing to get the stock price up in the next 3 months?” said the money manager who was speaking to a CEO.

This becomes a significant communications challenge for IR as they craft the company’s message to investors.  Long-term is important to us (the company) but short term seems to be what matters (to investors).  What’s an IRO to do?

What if companies made the link between short-term deals/news/developments and the long-term vision. Imagine if you gave investors a roadmap they could follow as they judge whether or not to invest in your company.

Example – “We drilled a hole in the ground and found some gold.  Next we are going to drill a few more holes to see if we can find some more gold in the area.  We will then move quickly to scope out how much gold is in the area and develop a strategy for extracting it.  This will all lead to our ultimate vision of becoming a producer of gold within X number of months/years.  You can expect another update from us in <<insert timeframe>>.”

It sounds simple but too few companies do it.

Google has ambitious plans for the future, and they talk a lot about those plans, but investors don’t mind because Google delivers outstanding performance in the present.  They knock down short-term milestones while keeping their eye on the ball for the long-term.

Lay out a map for your investors.  Let them follow along as you progress (short-term).  Emphasize how you are meeting your stated objectives.  Keep reiterating the end goal (long-term).

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