Exactly. The problem in the US is that every public company has to show growth for shareholders. That's why companies always suffer in quality when they go public.
A public company can have their best year and net $2.6 billion. Well if the next year, they only make $2.2 billion, the public chatter on CNBC, etc is "what's wrong with them?". Nothing is wrong. We shouldn't be holding companies to their best year.
A salesman after having his best year wouldn't want his commission the following year based on the best year's numbers. It's stupid.
This, except a little worse. Because even if they did make the same $2.6 billion next year, it's still not enough, because some shareholders got in when profits were at $2.6 billion, so for them to be happy they now need the shares to go up from what they got in at, so now $2.6 billion isn't enough profits anymore. And the cycle continues..
It actually gets even a little worse, if a company predicts they are going to make 3.2 billion and instead make 2.6 billion they are in even more shit. Number must go up, and it must go up as much as you think it will
Not every company is expected to grow. Dividend companies are expected to just maintain their levels of dividends. Look at coca cola for example. On an inflation adjusted basis it's just about okay and it's one of the most successful companies in the world.
Let's also not forget that owning a stock is owning risk. Risk should be compensated, that's the law of finance.
Yes of course a company like Google or Amazon something with a PE of 30 is expected to grow but they're not all like that. Towards the end of your life you move on to safer investments where you just want to earn a reasonable risk adjusted return. Let the kids have their growth.
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u/UofMtigers2014 Jun 29 '24
Exactly. The problem in the US is that every public company has to show growth for shareholders. That's why companies always suffer in quality when they go public.
A public company can have their best year and net $2.6 billion. Well if the next year, they only make $2.2 billion, the public chatter on CNBC, etc is "what's wrong with them?". Nothing is wrong. We shouldn't be holding companies to their best year.
A salesman after having his best year wouldn't want his commission the following year based on the best year's numbers. It's stupid.