1 / 16

Get Shorty

This lecture explores the concept of short-termism in finance and its impact on investment decisions. It examines the neurological basis for short-term thinking and how technology affects our brain's perception of time. The lecture also discusses Gresham's Law for the 21st century and the effects of short-termism on stock markets and industry. It concludes with a discussion on potential solutions to address short-termism and improve long-term performance metrics.

jenniferwade
Télécharger la présentation

Get Shorty

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Get Shorty • Andrew G Haldane • Bank of England • The Sir Thomas Gresham Docklands Lecture • November 2011

  2. Is the World Myopic? • Twas Ever Thus • The Man with Two Brains • Gresham’s Law Revisited • Assessing the Evidence • What next?

  3. Twas Ever Thus • Jevons (1871): “The untutored savage, like a child, is wholly occupied with the pleasures and troubles of the moment; the morrow is dimly felt; the limit of his horizon is but a few days off” • Marshall (1890): “[Like] children who pick the plums out of their pudding to eat them at once” • Pigou (1920): “Our telescopic faculty is defective, and we see future pleasures on a diminished scale”

  4. The Man with Two Brains • Neuroscience provides the answer... • ...to the history of world growth since 1 million BC • Technology provides impetus to neurological rewiring... • ...reflected in tenure patterns (jobs, marriages, asset holdings)

  5. Stock Holding Periods US UK

  6. Gresham’s Law Revisited “The markets can stay irrational for longer than you or I can stay solvent”, J M Keynes • Self-destructive cycles: addiction; depression; workoholism • Self-destructive cycles in finance: Short horizon  volatility / misalignment / serial correlation  benefits short-run investor  harms long-run investor => Darwinian “survival of the shortest” • Gresham’s Law for the 21st century

  7. Dividends – Then and Now

  8. Surveys of Short-Termism • 60% of investment managers believed mandates created short-termism • 70% of investment managers rebalanced portfolios at least quarterly • Discount rates used by CEOs around 20% • 78% of CFOs would sacrifice economic value for smooth earnings

  9. Short-termism in the Stock Market E.g. r = 9%, cost = $60, x = 0.95 NPV rational = $5 NPV myopic = minus $13

  10. Short-termism in the Stock Market

  11. Sectoral short-termism Industry estimates of short-termism (1995-2004)

  12. The Effects of Short-termism Cumulative present value of future cashflows Years

  13. Short-termism and Investment OECD investment (2008) R&D intensity across countries (2007)

  14. Short-termism and Investment UK top 1000 R&D firms

  15. Short-termism and Investment Impact of Ownership • Study of 100,000 US firms (Asker et al 2011).

  16. What Next? • Long-term Performance Metrics - Rate of portfolio churn, R&D spend etc • Governance - fiduciary responsibility of Board / Executive - voting rights conditional on duration of holdings • Tax / Subsidies - duration-dependent capital gains tax • Remuneration / Dividends • longer deferral periods • “loyalty shares”

More Related