Categories
Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Is short term investment damaging future business prosperity?

For many years, the UK economy has depended heavily on consumer spending and on property speculation.
This may have led investors, even pension funds that require steady returns over many years, to focus too heavily on short term investment and gain and, therefore, on quarterly or annual reports and results thus undermining their willingness to wait for future returns.
However, the creative infrastructure that led to such inventions as the steam engine depended not only on “lightbulb” moments but also on people who were educated, skilled and above all had the time to think slowly and in depth.
Recently the Bank of England’s Chief Economist, Andy Haldane, has been worrying that the development of the internet has also undermined the ability to think slowly and in depth and thus the patience needed for business innovation and progress.
If UK businesses, from SMEs to large corporations, are to remain at the forefront of innovation they will need continued investment in the best brains, in research and development and in a decent infrastructure and that means investors willing to be patient for the long haul.
Is it time that more emphasis was put on education, training, employee development and perhaps even public investment in longer term projects to emphasise the importance of sustained effort and patience?

Categories
Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Are investors continuing to think short term?

 

A week ago ASOS, one of the UK’s most successful online retailers, announced plans to increase its investment in its warehousing and its IT as part of a longer term growth strategy.

Capital expenditure would therefore increase from £55 million to around £68 million and the outcome in the longer term would be an increase in ASOS’ sales capacity by £1 billion. In the short term the company’s operating margin up to August this year would be reduced from 7% to 6.5%.

Almost immediately after the announcement was published ASOS’ share value dropped by 20%.

Surely this company was being sensible in planning for growth in the longer term.  Isn’t this kind of thinking exactly what the business community should be doing?

Here yet again, we would argue, is an example of the kind of short term thinking that is endemic among investors and other “rent” seekers.  Or are we missing something here?

Categories
Banks, Lenders & Investors Business Development & Marketing General Turnaround

Short term thinking is wrecking the UK’s future

As if risk averse lenders were not problem enough UK businesses have long complained that there is too much short term thinking stifling any chance of recovery.
Increasingly we have career politicians with little or no experience of business or life outside Westminster and with little incentive to think beyond the next election, so we get tinkering with taxes and regulation on businesses without a long term strategic vision.
The financial Industry, too, is more concerned with short term rewards (dividends, gains and bonuses) than in long term investments in industries that make stuff or have innovative ideas.
Shareholders and investors have been focused on short term dividends or income rather than investing in the longer term.
We need to encourage money to be invested in the right places and for the long haul.
It seems, some are beginning to agree. At a conference in London on Friday, May 10, called Transforming Finance, academics, campaigners and financiers will gather to develop ways for building a better banking system. http://tinyurl.com/cxnvyyr
Among them will be Catherine Howarth, CE of Share Action, a lobby group which will be emphasising the point about the need to think over the longer term.