- Simultaneously they are opening up 0DTE options on certain stocks starting with large market caps but don't be surprised when this expands. Currently this was limited to large etfs like SPX. They are also extending trading hours towards 24/7 and eventually 365.
How they square increasing liquidity with delaying information is insane.
I know there is a lot of manipulation to make quarterly numbers and the tax code is convoluted but if companies reported dollars in and dollars out live to shareholders at least we would have an idea of how the company is doing in a general sense. And over time would learn the flow of the company and be able to make informed predictions on the overall health of the company. More information is usually better than less with very few exceptions.
If they want to delay the earnings call to every 6 months to talk about the business I have no problems with that.
- > if companies reported dollars in and dollars out live to shareholders at least we would have an idea of how the company is doing in a general sense.
A former manager used to run his own company, it was a satellite internet company sometime in the 2000s, they were going into the negative, so they had a big TV in the office, showing everyday what was coming in, and how much they made vs how much they owed. They did it to motivate everyone to go back into the green. Really interesting approach. Might not work at larger companies, but in a small shop where everyone knows everyone, it makes sense.
- Can motivate the employees to jump ship. Often time as an employee you are impacted dis proportionately on the downside than the upside.
- Smart employees understand this dynamic. When leadership hides information - it always means its bad. The first thing I noticed when I had a bout of bad employers was that they claimed "we can't share financial information because of XYZ investor/legal reason."
Those startups all had major financial problems within 6 months to 2 years. Management has strong incentives to hide bad information from employees.
- Most startups fail - it's almost definitional.
Trying to connect the dots like you are attempting to, is a foolish game.
- Yep, I've worked at two startups which started to really emphasise The Numbers in weekly all-hands meetings, and how we're all in it together to improve them, etc. Both of those jobs ended in redundancy.
- > if companies reported dollars in and dollars out live to shareholders at least we would have an idea of how the company is doing in a general sense.
Goodhart's law is knocking on your door right now.
- Help me understand what you are saying here. For those that don't know this one is "a measure becomes a target, it ceases to be a good measure".
I'm not advocating for a single metric that can be gamed. A business is fundamentally about dollars in and dollars out. Maybe add receivables in there and a few other metrics from the P&L. I'm not trying to be prescriptive here on purely cash in and out.
I do think there is a low friction way that companies could report daily certain metrics that over time would give their shareholders a sense of the company's health and trajectory.
- All data that is externally visible about a public company will be consumed by traders and used to inform their market behavior.
Companies know this, thus every action they perform that affects an externally visible number is calculated both for the actual intent of the action, and how that action effects the number and the consequent market behavior.
This is why you see all sorts of moves that aren't strictly helpful for the business itself like being overly picky about which fiscal quarter certain expenses are taken in, etc. The more numbers about a company that are publicly visible, the more the company has to play this game.
Of course, visibility for traders is important for market efficiency too. But there is a balance there where you don't want to turn the functioning of a business too much into a perceived popularity game where it spends too much of its effort just making the numbers "look right" orthogonal to what's best for the business's functioning.
- You can't just handwave assume a mechanism that games a real time system. Your 3rd paragraph explains how the current system adds another layer for gaming. Management can't predict what real time traders want to see, they can predict that less earnings this quarter are better than more earnings next. Your "balance" creates the problem in the first place.
Companies can already make press releases whenever they want yet non fraudulent ones fail to move the market in a predicable way. If someone is committing fraud I want to know about it instantly not in 3 or 6 months. This is just a gimme to Elon's scam empire from an organization he "has no respect for".
- in other words, they know how data impacts stock price and do their best to game the data.
- The data is how much money do you make in profit, companies try to game that already.
- Dollars/receivables in and dollars/deliverables out is just a question of rate, unless I'm missing something.
If a 10 billion dollar company has a per-second dollar out/in rate of $1,000,000 due to actual organic business, a company with $2,000,000 can set up an LLC it buys and sells from, and legally 'swap' $1,000,000 a second back and forth in services "bought and sold" to mimic the appearance of the $10B company, to generate business interest/confidence/investment.
That's an extreme example, but the point is that real-time money flow has nothing to do with the actual 'health' of a company.
- Extreme? Almost every AI related stock is investing in companies that then buy their product, efectively just giving stuff for free in exchange for better quarterly numbers.
- And thus we keep talking about AI bubble and when it bursts, not if it bursts
- ... and how much of the stonk market and the actually legitimate economy it will take down with it.
My personal opinion? The bubble burst will make 2007ff look harmless in comparison.
- When you realize companies can borrow against receivables and payables also....
But it eventually comes out, so while you can do it short-term, it's a terrible long-term strategy. Your stock will eventually crash and burn if you do too much of it.
- I'm fairly certain you're describing fraud.
- It's not actually fraud if there is some ostensible service they're performing. Business units within businesses 'pay' each other for 'services' all the time. Ditto for subsidiaries. Whether something is fraud might come down to intent alone.
The line between legal and illegal business transactions can be murky as hell.
- For it to not be fraud you'd have to actually exchange services proportional to the line items. That isn't what was described. Falsifying line items to juice your numbers is fraud plain and simple.
- The company I'm a director for licenses IP from my company. The company wouldn't exist without my IP (I'm one of the founders). Yet, I'm also a customer of the same. Dollars in/out, we're all kosher. This isn't fraud, it's just how companies work.
- So long as the prices are fair and reasonable, sure. But that doesn't enable you to run up an arbitrarily large bill without either doing an arbitrary amount of actual work or committing fraud.
- Yes. This is called “transfer pricing” and is tightly regulated in almost every country.
- Yet we see it happening all the time with various AI deals.
- How? "AI fincancing bad" is starting to seem like a new non sequitur meme. There's no imaginary thing being traded for indefensible valuations in AI dealings. Stock units at a certain valuation exchanged for an equivalant value in hardware is just a standard payment-in-kind transaction.
If the valuation turns out to change in the future, that's the hardware seller's risk.
It's not the same thing as buying a $20 million banana from a bahamian llc secretly owned by yourself, which is fraud.
- I thought in that case nvidia was (approximately) purchasing stock in exchange for hardware? Which AFAIK is the entire point of stock - selling it to raise needed capital.
- And if they actually constructed the deal that way, it would be fine. But by essentially creating a sham sale where they return the cash back to the customer in return for equity, Nvidia can book revenue and claim non-existent cash flow. The key is that the sale would not have happened without the corresponding equity deal. Nvidia had no discretion to use that cash any other way, so the "cash flow" in that case is illusory.
- I don't see the issue. Goods valued at that amount changed hands. Why shouldn't bartering be booked as cash flow? The regulator is going to require you to value it for them regardless.
- No, there is no proportionality aspect to the law. Once you’re in the support and software subscription realm, quite vast amount of “value” can be charged for with nothing being done.
- Only if you ignore the concept of fair market value. There are going rates for these things. If what you said is true you could trivially launder money by selling a single copy of an arbitrarily expensive piece of software that did nothing more than print "hello world". In practice that's not how the law works. Regulators and judges aren't drooling idiots.
Sure, you could inflate your numbers a bit and likely get away with it. But it's still fraud (getting away with it doesn't make it not a crime) and you will likely be caught if you overdo it.
- [dead]
- That's what all these accounting rules exist to stop. No, you can't pretend that equipment breaking doesn't happen. No, you need to account for fixing the roof etc.
- The difference between fraud and not fraud is if you can reach an agreement with auditors that it’s not fraud.
- I'm fairly certain he's describing the economy.
There are so many companies like this which are just moving money around rapidly in and out with little to no actual profit. Finance sector is easily gamed.
For example, anyone can become a billionaire; just start a company, issue 1 billion shares at slightly above $1 each, keep most of them for yourself; release just 10K shares to the market and then let traders trade those same shares back and forth among themselves at high frequency... With just over $10k each, they can keep moving 10k shares back and forth 10k times per day... They call it "High frequency trading."
There you have it; now you have a billion dollar company with a healthy trade volume of $100 million per day... Your stock is in-demand! And you just needed to find two traders with just $10k in the bank and a trading platform with low fees... Becoming a billionaire is not that difficult.
You can apply the same principle to revenue... Just increase the velocity of money in and out of your company and you can hit any financial target you want.
Doesn't mean it's a solid scheme but everyone likes the numbers they're seeing. Nobody is paying attention to actual buying power.
- While I agree that "billionaire" is a stupid word that 99% of the population don't understand, but can be manipulated with, it is not true that investors only look at market cap. Lots of analysis goes into IPOs.
- Correct. These kind of metrics invite fraud exactly because they are not rooted in reality. "Money circulation" is a bad metaphor. https://oleganza.com/all/money-does-not-circulate/
- Isn’t the ‘circulation’ or ‘rate’ question a misinterpretation of the model of P&L analysis the OP was suggesting…?
- SPY is an ETF and SPX is an index. The distinction is material.
/ES does not trade between 5pm and 6pm ET. SPX options aren't marked until 8:15 PM ET.
It's more plausible that large caps see MWF, then MTWHF possibly.
- Thanks.
T+0 all-year-round trading is good in many ways bad in others —like losing the real investor liquidity spawning window at 09:30 EST as opposed to pure market making.
Quarterly earnings were already a bad fit for many businesses so I agree with the measure to do away with them in principle. Someone proposed real-time and I think that would be a net positive if not very feasible. Yearly is a good compromise.
Companies that are not profitable YoY usually have a story so they probably can avoid having to rob Peter to pay Paul.
Then again, maybe everyone adapts and yearlies turn into the next quarterlies.
- Good additional info. I used a shortcut I figured most people would understand without getting into the weeds.
- [flagged]
- Please don't post snarky comments like this on HN. We're here for curious conversation. If you don't fully understand someone's comment, politely ask them to clarify.
- Can you enumerate some examples of when it having less information is better than having more?
- It’s a common complaint of value investors that boards (especially in this post-Sarbox world) are solely focused on quarterly earnings reports, to the detriment of long term strategy. One way to talk about the added and persistent value of some companies is to note that many of them have powerful, recalcitrant, or somehow anti-quarterly-cadence founders: buffet, zuck, you could make a list.
- So, the answer to "when having less information is better" is "when YOU have less information".
- Delisting and going private is always an option if you want to go at your own pace and talk to your investors 1:1.
- They would not be allowed to do so - too many shareholders. That’s why e.g. SpaceX will be going public even though Elon Musk would want to keep it private
- Musk wants liquidity. And SpaceX wants more cash right now than can be raised privately. Which is a pretty shocking amount of cash.
- Musk absolutely does not want SpaceX to stay private
- [flagged]
- I mean those personalities are also hyperfocused on share price.
- Yes, but focused on it being the highest it possibly can _tomorrow_ or the highest it possibly can be in ten years is a huge difference. Only some executives have the ability to take actions based on a long view without being replaced by the board. Usually founders and near-founders.
- I wouldn't say so - the ones I mentioned seem to be focused on long term value -- big difference.
- When your decisions are driven by fear, anxiety and FOMO, knowing less can lead to fewer irrational reactions.
That’s why people hide information from bad bosses.
- From a company perspective, compiling a quarterly report is a non-trivial amount of effort.
The company is employing additional resources (accountants) and distracting leadership (prepping talking points).
I'm not firmly in one camp or the other, but it is a substantial amount of effort to release on whatever cadence the SEC mandates.
- For the company it doesnt work well, you’re leaking too much info to competitors
- Maybe. I'l am also not saying they need to say where the dollars came from, went to, or what they were for. Aggregate daily flows. Could you do some deductive reasoning to make an informed guess especially when large sums are involved? Perhaps.
I am also of the (perhaps wrong) opinion that the majority of the important stuff leaks anyways, just not on a level playing field.
- If everyone is legally required to share it then we're all in the same boat.
- Financials aren't like technology or IP where having the information open to all (perhaps with limited monopolies on usage a la patents) is essentially for the betterment of all mankind, they can be more like order of battle in a war zone.
If your competitors know that your Florida subsidiary is running inefficiently and being subsidized by your successful business elsewhere, they can target their own operations in Florida, undercut you more than you can possibly sustain, force you to exit that market entirely, so that they can monopolize there.
- Sure, but others can also do that to your competitor. Hence my comment that everyone's in the same boat. The playing field would be level and the players would adapt to the new environment.
Of course I realize it's possible it might introduce systemic problems that I'm unaware of.
- Isn't this exactly what we should want from a market system? If your division in Florida is inefficient, then from the market perspective we should absolutely want competitors to enter the market and crush them.
I think the problem is that people have gotten so used to seeing capitalism from the companies' perspective (i.e.: profits good), and forgot that it is supposed to be all about the collective good. So if you think sustained high profits are good... then you have missed the whole point (the market should always be driving them towards near-zero).
- Well, that's a whole area of active research, referred to as "info hazards":
- There are multiples examples that are easy to see once you realise presenting information has a cost.
For example having daily morning 2 hour long stand ups provide more information for everyone involved. It's also worse for productivity and work atmosphere.
- This is a manipulation enabler. I’m surprised no one is mentioning this, but it’ll allow companies like SpaceX and Tesla to avoid scrutiny. The other changes the SEC and NASDAQ are rushing all have donors behind them. That’s how this openly corrupt administration works but it’s also how America has generally operated in the past, only to a smaller degree.
- >This is a manipulation enabler.
One facet of the Trump administration that still manages to surprise me is now some action that is nakedly corrupt, or stupid, or destructive will be undertaken, and people will scramble to come up with explanations for why it might be done in good faith, or as part of some clever plan. We've been watching Donald Trump operate in national politics for over a decade (and seen him in business for far longer). Why on Earth would anyone ever give him the benefit of the doubt at this point?
- rubes gonna rube
- [dead]
- > it’s also how America has generally operated in the past
It's not. That's why we have the rules that they are recinding, and why the US has long had among the the most transparent, safest, and liquid markets in the world.
Saying that 'it's always been this way' is a really concerted effort to bury one's head in the sand.
- I was talking about the broader way things work, not necessarily for the SEC specifically - although they’re also subject to this phenomenon. Lobbying in America, and the revolving door between industry and government agencies, is a core part of American politics and economics. Long before the Trump administration.
- Again, it was not always this way. It's like saying drownings happened before the tidal wave, so it's always been this way.
People will put up any defense against facing and acting on the reality of their situation.
- Don't invest in companies that disclose enough information.
They aren't banning quarterly reporting, they'd just no longer require it.
- there is no F500 company that likes quarterly filing.
this is why they've been lobbying for it, and with Trump in power they pushed and got it.
once it is gone none of them will do it, or at best will do it half-heartedly for a while.
5 years after its repeal there will be no large company doing it regularly
- I'm definitely curious to see what happens
My guess is that most report quarterly, my question is what they report. But we will see.
- Maybe just allow "insider trading".
- No legitimate business needs to settle trades more than once a day.
- Homework - What does Shannon Information Theory say about too much info beyond channel capacity?
- Sure but I should add I'm not saying this should be done in place of current reporting. It should be done in addition to. I'm advocating for more transparency augmented with periodic storytelling. Over time that noise becomes the pulse of the company.
Wrt Shannon, the channel capacity today vastly exceeds that of 1934 when quarterly reporting became standard. Give me more data and a filter any day over a once every 6 month black box. 6 month reporting is undersampling.
- How do we discuss Shannon if you dont tell us what your channel capacity is and how you compute it?
- I give up, what does it say?
- One of my favorite stories about logistics and quarterly earnings deadlines (from when I worked at a pharmaceutical company:
"In our business, a truckload of various drugs can easily reach $10-$15 million. Now, if that truck arrives at the depot at 11:59pm March 31st then it's first quarter earnings. If it arrives at 12:01am April 1st then it's second quarter earnings.
$15 million is a BIG shortfall, even for us, so you better believe those truck drivers will roll the stop signs, blow red lights etc to make sure that truck arrives before 11:59pm"
- That doesn't make any sense because the revenue is already booked for the sale which has nothing to do with when the delivery truck actually arrives.
- If it is cash based accounting, revenue and expenses are booked when the money changes hands.
If it is accrual-based acocunting, it takes place when the event legal triggering the change of ownership of goods in the transaction takes place, which depends on the shipping terms, which could be anywhere from when it is available for the buyer’s transport agent to pick up at the seller’s facility (EXW) to when it is delivered, unloaded, and at the buyers door (DDP) or any of a variety of places in between (FOB Origin, FOB Destination, and a bunch of other potential shipping terms with their own rules on when ownership—and responsibility—transfer from seller to buyer.)
- Yes, to add on -
- incoterms (https://www.dhl.com/content/dam/dhl/global/dhl-global-forwar...)
- cash flow statement v. income statement (accurals)
- Those diagrams of risk vs cost bared are helpful.
- This is not correct. A business this big would definitely be using accrual accounting (not cash) which generally means you count the revenue when the actual ownerships transfers to the buyer. Since the truck was operated by the seller, the transfer of ownership is almost certainly counted as when the buyer receives the goods.
- It's got to be one of these:
FOB Shipping Point (or Origin): Responsibility transfers to the buyer as soon as the goods leave the seller's premises. You book it when it leaves your loading dock.
FOB Destination: The seller retains risk and costs until the goods reach the buyer’s location.
The sale doesn't happen until the asset transfer occurs. Before that any cash you get from the sale is balanced by the liability to actually produce the good or refund the money. Or more likely you don't get any cash but can't record the bill as accounts receivable. It's not receivable until the transfer point is crossed.
- You can account a transaction that's been placed but not fulfilled. I think when someone orders $15m of goods, you can immediately book $15m accounts receivable (asset) and $15m goods owed (liability) as soon as you have the expectation it will happen. If the transaction falls through, you delete them.
- Under GAAP you cannot recognize revenue before the service is delivered or product is shipped. You can accrue revenue that is earned but not yet paid (if you are paid on Net 30, for example), but even if pre-paid you have to book that as deferred revenue, which is a liability (until you ship).
- There's no deleting anything in accounting.
- As someone with a partner who’s an accountant, I love seeing technologists be confidently wrong about accounting fundamentals vs. the type of technicalities that she has to deal with. Your comment highlights the absurdity of their confidence; kudos.
- Accounts receivable, revenue, and cash are related, but separate, accounting items.
- Ya but op's anecdote is cute and funny.
- That’s not why it doesn’t make sense. It doesn’t make sense because in the forward guidance you’d be able to say you expect the $15 million coming in.
- Over the long run, companies that spend resources on this micromanagement of earnings probably are not seeing the forest for the trees. I cringe thinking about how much time and top talent at a company is spent preparing for earnings rather than spending those hours improving the business itself.
- I worked at a previous listed company where a single $6MM order of hardware being pushed out a week made quarterly p&l positive. Im absolutely sure the same situation occurred every other quarter as well in some part of the business I didnt see.
- Sounds more realistic than a low level truck driver running stop signs.
- this kind of deal timeline management happens at all companies. this is why contracts get structured in complicated pricing structures to make it easier for revenue recognition to occur in the quarter it’s supposed to. the timeline can move from 3 months to 6 it’s still going to be a huge focus area for a lot of people at every company
- This is why Netflix broke up the final season of Stranger Things in such a weird way... they wanted new episodes at the end of quarters, to have good subscriber numbers for the quarter report
- Likewise, if you know you've already got the current quarter in the bag, but the next quarter is looking soft, you tell that truck driver to slow down!
- If you can't be arsed to ship it before the last day of the report, it's your fault and asking the truck driver to drive like a maniac to compensate is amateurish, dangerous.
That's not something I'd be proud of.
- It's an extreme example that shortens the time frame and shrinks the cast of characters to illustrate the point.
Substitute "telling the truck driver to run stop signs" with "order the factory to increase production", it's the same thing.
- Or, sometimes, you order the factory to _reduce_ output to 50% of what it can do for the last week of Q1 so you don't have excess unsold inventory on the books.
Then in Q2, you panic because you don't have enough inventory, so you order the factory to produce at 150% to catch up. Both 50% and 150% are inefficient factory states; if you weren't thinking about snapshot reporting you'd have just let it run at 100% and your Q1+Q2 results would be overall better.
I have personally seen this happen at a household-name Fortune 50 company. It's insane and causes real damage to the business in many ways.
- To be fair, this is a side effect of financial deadlines in general. A business reporting annually will still try to beat that deadline right up to the last second.
In this particular example a single truckload would be less significant annually than quarterly though.
- Okay, what's that to say it won't be the same but even worse on a 6mo reporting schedule?
- as the time period gets longer, the the more likely it is that the numbers represent the true performance of the business rather than randomness. That has to be balanced against the fact that investors get less frequent updates i.e. the information is now potentially 6 months out of date rather than 3 months at worst. But then its just a judgment call of the relative benefit of each - you could argue that with modern accounting systems, modern companies could deliver weekly or even daily earnings , which would give investors much more timely information, and the high frequency would probably mean it wouldn’t be worth making the effort for management to fudge the numbers to bring forward or delay revenue one day or one week. There would be a lot more variance in the numbers if they were daily, but thats a good thing - it would just reflect the underlying randomness, and then the investors could decide when the accumulated trend over a period of time is meaningful or not, instead of management wasting time massaging numbers into a fairy tale of steady growth.
- In every sales-led company quarter end is a shitshow. It'll be even worse if there's only one chance to bring the numbers back in instead of 2 or 3. It's used to put pressure on sales teams, but the net result over the year is never good because it sours relationships and reduces overall deal value.
The best thing would be continuous daily or weekly reporting with no defined year end. Unfortunately the entire global system of tax and accounting is set up around annual reporting, so change is impossible.
- How is 2 data points a year "representing the true performance of the business" but 4 data points a year is randomness?
You also get less frequent CPU usage % datapoints when you want to be sure about usage? That makes no sense at all.
- General Electric has a history of using that exact trick... just with jet engines and power generators and medical devices that can represent much larger amounts of revenue.
- Not just - Welch pioneered using GE Capital to “smooth” earnings - lots of judgment calls in those finance companies in the early 90s.
- GE's latest trick is to roll long term maintenance contracts into the price of the product and then sell off the unit holding the bag on the maintenance contract. Very shady but very clever.
- I don’t get it, why not just say “oh we were 15 million short that quarter and 15 million ahead this one so it’s all good”
Like why get hung up on these arbitrary cutoffs
- This is what confuses me about tech sales too. Why do I always get a discount for buying right at the end of the quarter? Seems like you could just get ahead on the next one.
- Because of how performance targets are defined. If sales figures “fell” or didn’t grow at the expected rate it can be worse than having a few more points over next quarter.
- Why do they define performance targets that way then? Are they making it hard on purpose for some reason?
- You have to set a deadline at some point. Now, I think any rational manager would agree if the sale shows up on April 1 instead of March 31st, that's totally fine. But HR/Finance systems aren't always rational.
- Because many people are lazy and need deadlines or else they won't work.
- This seems like bad news for regular investors, and good news for insiders.
Reporting is burdensome, sure, but being listed on public exchanges is not a requirement.
- > being listed on public exchanges is not a requirement
it used to be raise money. now that money is done privately. the result exacerbates the gap between private and public markets and ultimately between rich and poor. Private market participation is usually for accredited investors where you need $1m net worth.
Public markets are one of the best ways to create wealth in the US, if the historical record is any hint about the future. Fewer public companies gives regular investors less choice. So if you're a private company and you have 1/2 as many reports to file each year, well now you have a slightly less onerous reporting regime and slightly tilts in favor of going public.
- > it used to be raise money.
What in heavens gave you that idea? A well developed public stock market is such a new (and American thing) and it still makes up a small amount of the capital raised by businesses.
Even within large public companies, there's significant use of bank/private debt.
- > it used to be raise money. now that money is done privately.
Not anymore, private markets are quite illiquid right now.
- Makes companies short-sighted though. I wouldn't say that's necessarily good for regular investors.
- I wonder if requiring it twice a month would fix both issues, since it's too frequent to plan around (versus quarterly), while frequent enough to allow transparency (versus annually).
- Where is the proof? All the businesses with the highest demand for their shares are clearly not short-sighted.
Share buyers are clearly rewarding investing for the long term, even with quarterly reporting.
- > All the businesses with the highest demand for their shares are clearly not short-sighted.
Where is the proof?
As long as CEOs and executives compensation is tied to stock performance, which is highly tied to news and short term results, basic economics and game theory suggests that short-sightedness is indeed encouraged.
This is especially problematic for businesses where plannings have to be done 4/5/6+ years in advance like auto industry, aircrafts or semi conductors.
It takes an awful lot of time and money to plan a new processor architecture and build an ecosystem around it, from chip manufacturing to packaging.
- https://companiesmarketcap.com/
Go down that list and you can see almost all those businesses are ones that plowed and continue to plow billions of dollars into investments that will not pan out for many years.
I don’t think any of the top ones got to where they were with quarter to quarter goals.
- That's not proof of anything and most of the companies you find there are cashing on decades old businesses whether it's oil, ads or iPhones.
- “Cashing in” is on bets made many years ago is making my point. Amazon didn’t stop once it had the book market or even the online retail market (see AWS), Apple didn’t stop with ipod or iphone (see M processors/Airpods/Watch/etc), Meta didn’t stop with Facebook (see instagram/whatsapp/VR), Alphabet didn’t stop with Google (Waymo, Gmail, Drive), Eli Lilly with GLP-1 trials, etc.
They could stop, and switch to quarter to quarter decision making and juice their numbers even more. Maybe they will, and then eventually those businesses will drop in the rankings (IBM/GE/etc).
But the idea that quarterly reporting makes businesses short sighted is clearly false.
Leaders with short term motivations makes businesses short sighted (obviously). Sometimes, that’s justified because the business sector is winding down, sometimes it’s due to incompetence, and sometimes it’s due to greed.
- You know I can easily give you plenty of counter examples of decisions made for short term gains and stock pumping, right?
At the end of the day most of these CEOs are valued by the stock price and they need to follow investors expectations which are very often short sighted.
Intel, Boeing and countless others are obvious examples.
All the companies you listed went the "let's cut personnel or bets even if we're making gazzilions to appease the stock market".
- > You know I can easily give you plenty of counter examples of decisions made for short term gains and stock pumping, right?
nonethewiser made the claim that if quarterly financials are required, then businesses will make short term decisions.
Disproving this only requires me to provide 1 example, although I provided quite a few examples of businesses that provided quarterly financials and still made long term decisions.
I never claimed that quarterly financials prevent short term decisions, so your counterexamples are disproving a claim I did not make.
> All the companies you listed went the "let's cut personnel or bets even if we're making gazzilions to appease the stock market".
It is possible for businesses to change from making long term decisions to short term decisions (and back), and it is also possible that cutting personnel was not done solely to appease the stock market due to fluctuations in demand for labor.
- > being listed on public exchanges is not a requirement
Aren’t there some factors that require a company to go public? For example, I think there’s a limit on the number of investors (1000?).
- Listing on a public exchange is not a requirement, but it is generally a boon to the public interest. The theory is that if we close the gap in regulatory burden between public companies and large private companies, then maybe we'll see more IPOs like back in the 90's, before Sarbanes-Oxley and other new laws.
Now, with an admin that's disposed to deregulation, the usual approach to closing that gap is to loosen requirements on public companies. You don't see a lot of people advocating for closing the other half of the gap, where we increase the reporting requirements on private companies. Stricter requirements there seem justified if you look with a bit of realism at how many consumer-facing funds are holding little pieces of unicorns. A lot of people have a stake in SpaceX or Stripe, one way or another. I'd like to see at least a few proposals that make it less comfortable to stay private for so long.
- FWIW even if we weren't in this admin, I think it would be a harder sell to increase reporting requirements on private companies. The whole point of private capital and private companies is that LPs (edit: liquidity providers) are required to have some form of accreditation to prove that they aren't dumb money and that they have the capital to weather large drawdowns.
The problem of growing private capital markets and liquidity has been an issue for ~20 years now.
- Yeah. It's not obvious how to do it. I just wish that policy people would do some thinking in this direction.
(Nit: I believe that in venture contexts, LP = "limited partners". A "liquidity provider" usually means the same thing as a market maker, at which point you're talking about the secondary / listed / public markets.)
- (re Nit: depending on your terminology, liquidity provider can be many things and in modern markets one can argue that the concept of a "market maker" isn't a practical reality if how liquidity flows, but that's also why I wrote the edit to clarify which LP I was talking about)
- > The theory is that if we close the gap in regulatory burden between public companies and large private companies, then maybe we'll see more IPOs like back in the 90's, before Sarbanes-Oxley and other new laws.
And maybe more Enrons?
- Yes, maybe. The optimal number of scandals is sadly not zero, and any given piece of legislation tends to overreact, fighting the last battle without seeing all the potential second-order consequences. Even the most carefully-crafted laws are worth giving another look, periodically.
Note that FTX, for example, was privately held. If it had been born in the nineties, the norm would be for it to go public, and have at least a modicum of disclosure; staying private would have been weird, a red flag. Instead, "our generation's Enron" had no public markets oversight whatsoever, SOX or otherwise.
So yeah, it's necessary to find a balance. You are choosing between a little regulation on a lot of companies, or a lot of regulation on a smaller and smaller chunk of the economy each year.
- But Enron's bankruptcy affected people who could invest on the public market while FTX affected more directly "qualified investors" didn't it?
It seems the private/public split along the lines of "public companies should be more scrutinized" worked as intended.
- Not directly related to FTX, but to the public vs. private discourse, if I'm not mistaken there are now a lot of pension funds and related financial institutions which have redirected a big part of their funds towards privately-owned unicorns/big companies through indirect means, and if those privately-owned unicorns/big companies were to do some shady things those pension funds would be much less in the know compared to if they'd invested their money in public companies.
One could make the valid point that those pension funds shouldn't have been (indirectly) invested in those privately-owned unicorns to begin with, but doing that would have most probably come with opportunity costs for those pension funds (as for some reason or another private big companies have been seen as bringing in more money for each dollar spent compared to big public companies, at least when it comes to the last 8-10 years).
As the OP implies, there needs to be some sort of balance between public and private companies, each of them need to be, in effect, more like the other in the eyes of the State/taxman, State-run regulators and the like.
- Not quite, but only because the FTX case was weird. Many individuals from around the world were users. They didn't sign up to be investors, or even to be depositors in a banking sense, and so not all of them were qualified/accredited investors. However, SBF unilaterally and secretly treated them like investors, borrowing from them to finance various schemes. So no, FTX's fallout was not limited in that way.
The people and venture funds that officially owned FTX were a narrower group, and I assume they were all qualified investors. But the thing about our disclosure regime is that protecting the official owners of the company is only one goal, the one that serves as the pretext. Informally, various regs on public companies are designed to bring sunlight more generally, and to prevent a wider array of crimes and shenanigans than just defrauding the company's owners. Public companies also have rules and norms around governance which, had FTX been been subject to them, would have made a difference.
> It seems the private/public split along the lines of "public companies should be more scrutinized" worked as intended.
Only if the intention was also, "...and public companies should be an ever-shrinking share of the economy". There are a number of reasons why one might not have intended that. Ordinary investors miss out on early growth, and the good side-effect of general sunshine and governance norms only covers a sliver of the economy, missing many of the most dynamic firms that could use some scrutiny.
- > fighting the last battle without seeing all the potential second-order consequences. Even the most carefully-crafted laws are worth giving another look, periodically.
Dare I say the special interests that ghost write the bulk of the text of any given legislation are specifically banking on those second and Nth order consequences.
- It’s in the best interest for companies to list publicly though. We want as many people in the country invested in as many good companies. Equity in the country is mutual self interest. Similar to why we want a nation of home owners, not renters.
- 24/7 trading sounds like a nightmare. “Your retirement savings crashed 30% because there wasn’t enough liquidity to cover a 3am panic over non-news”.
- The beauty of it, though, is that it would recover almost immediately as systems arbitrage an obviously stupid situation.
- But on what time scale? Before a few connected entities make a profit or after?
- The time scale is at least a thousand times faster than necessary for your retirement savings to be safe.
The problem of investment companies selling stupidly at 3am solves itself as they either learn or go bankrupt. And the counterparties making money off those dumb moves don't need to be 'connected'.
- Not if I retire 300 times per minute
- Makes no difference unless you are a daytrader
- But that doesn’t matter to your retirement. Don’t sell your retirement at 3am and the liquidity at 3am isn’t your problem.
- Do you actively trade on a 401k or other savings instrument or do you leave it up to the bank/brokerage?
- Milliseconds?
Any overnight mispricing is going to become an arbitrage opportunity for market makers, hedge funds, and HFT firms...whom will then compete with each other to mine that arbitrage opportunity until profits go to zero, solving the market inefficiency and mispricing problem over time (and by over time, I mean like probably the first few nights and then it stops being an issue forever).
In other words, a liquidity-based mispricing that happens consistently every night is going to quickly stop being mispriced since its so predictable.
- Extracting value from the market as they do it and leaving everyone operating at normal time/capital scales with less. Or isn’t that what you meant?
- That's one way to think of it.
The other way to think of it is that these parties are essentially middle men who make a cut of the difference whenever someone buys/sells far from market price.
Basically if you mis price something they screw you rather than the counter party who would be interested in taking the other side at market.
I think this is stupid and does not add value, but I don't think it's harmful. It's like the stocks equivalent of a junk flipper.
- Yes, when you correct a mispricing in markets that is a valuable service and you tend to get paid in proportion to the mispricing you correct (this is why markets work so well, they provide dynamic incentives in a decentralized way).
In case you aren't aware, a world outside the US exists on different time zones and also invests in US capital markets.
Having 24/7 trading a massive value-add for the entire world who also invests in US companies, which benefits US companies tremendously given they will continue sucking up the world's capital.
This is yet another reason why global companies will continue going public in US markets instead of their own. Meanwhile Europe will continue struggling to form a capital markets union over the next 50 years while they slowly translate legal documents back and forth to each other in 42 languages, growing the fine dining economy of Brussels more than their domestic economies.
- If you're not trading overnight and there's a flash crash that corrects itself overnight... it's the people who are trading overnight taking money from each other.
- It’s easy to forget that “overnight” trading is the middle of someone’s day, somewhere. Generally Asia.
- Most Americans who invest money don't trade at all. They pay some guy at a bank to do it, and the guy at the bank is exactly the kind of guy who is trading at 3am.
- Most of the time things will work as they are supposed to and arbitrage will work as a damper. Every once in a while you'll get a self-reinforcing loop and then it will work as an a run-away amplifier.
- No, they stop hunt their way to depressed prices where they then buy anticipating the recovery while you closed out your “safe” retirement positions at -15%.
- You don’t put stop losses on retirement positions. That’s an incredibly dumb thing to do for long term investors.
It’s literally a “sell low” policy.
- You use a trailing stop loss. You get closed out 15% down from the top, not 15% down from purchase. The alternative in a 24 hour market is worse — the news of a real event hits and by the time you wake up and respond you’re down 50% or more and the stock isn’t coming back.
This policy change is to hunt profit from a safety mechanism used by retail traders.
It is something that should yield a lot of profit for 24 hour trading systems during a downturn.
- >while you closed out your “safe” retirement positions at -15%
User error
- I'm extremely skeptical about this.
24/7 trading will definitely burn a lot of extra energy in datacenters, make some speculators a little richer, and make a LOT of retail investors nervous…
But what actual real-world problem will it solve?
I for one am skeptical that more liquidity is always good. I think that having achieved $0.01 spreads, we're well-past the point of diminishing returns with high-frequency trading.
- Right? Why do we even need all-day trading?
I have seen a once-daily auction proposed, which seems like a sensible approach to me.
- That wouldn't be enough liquidity, and also wouldn't solve the problem if the auction happened at a specific time. Day traders would all put in their bid at the last possible moment.
What solves the day trading problem is doing chunked actions at random small intervals (like between 2-7 seconds). Then you can't put your bid in at the last moment because you won't know when it is. So your best bet is to put in your bid when you've chosen a price, knowing that it will resolve within seven seconds or less.
- >But what actual real-world problem will it solve?
Having US markets open during the rest of the world's business day.
- Okay, what problem does that solve?
- > But what actual real-world problem will it solve?
I know most Americans don't travel, but are you aware that timezones exist and there's an entire world outside the US that also invests in US companies?
Why do you think global companies want to list in US capital markets instead of their own? Being the world's most desirable capital markets is a massive boon for the US economy and 24/7 trading will only accelerate this trend.
- > I know most Americans don't travel, but are you aware that timezones exist and there's an entire world outside the US that also invests in US companies?
Not only am I dimly aware of the existence of these not-the-US places, but I actually live in not-the-US.
I believe I'm dimly aware of the concept of a timezone too, yeah. https://bugs.python.org/issue35829#msg385309
> Being the world's most desirable capital markets is a massive boon for the US economy and 24/7 trading will only accelerate this trend.
So, no downsides or diminishing returns to offering 24/7 trading?
- In the past, stupid situations on Wall Street have not resolved that way; they've resulted in disasters that cause economic harm to many people in the country and the world. Though sometimes people on Wall Street do make money from those situations.
- Of course they have... There have been multiple 'flash crashes' which corrected in seconds.
- [dead]
- > “Your retirement savings crashed 30% because there wasn’t enough liquidity to cover a 3am panic over non-news”
I don't understand what that means so I'm guessing it doesn't apply to retirement savings in general. Does "liquidity to cover" imply that one made a bet that didn't work out?
- We already have 23/6 trading with index futures. The S&P500 (ES), NASDAQ 100 (NQ), DOW (YM) will sometimes gap up or down on open just to match overnight trading.
- but you just don't sell and wait until the liquidity comes in and prices return to normal at 9am, no?
- Significantly large fluctuations, even if largely irrational themselves, can cause effects which have durable impacts on value.
- Give an example don't leave us hanging. I'm really curious how you can find an example of a temporary market liquidity move turning somehow into a long term adverse event for a company. Never heard of it
- Honestly, stocks should trade for three hours a day. 24/7 trading sounds like a win for exchange operators and a loss for anyone else.
- And even that seems kind of generous to me. I see absolutely zero value in stock trading continuously for any length of time. Businesses don't make purchasing or investment decisions in that time span, nothing of significant value can even be created or sold or shipped in those time spans.
- Maybe even just a single auction in the afternoon.
- I saw this as a serious proposal somewhere but I can't remember where.
There are exchanges out there that run continuously but with delayed information feeds.
- The best known (at least in the tech circles - in good part thanks to HN and Matt Levine) is probably IEX. The exchange guarantees that every participant is behind the exact same time delay. And they do that by having a sufficiently long spool of optic fibre between the exchange "broadcast switch" and the market maker computers.
Simple and effective. Relies only on laws of physics to create the delay.
There are also exchanges that run with "frequent batch auction" principles.[0]
0: https://econpapers.repec.org/article/oupqjecon/v_3a130_3ay_3...
- More than tech circles - it's one of the key parts of Flash Boys (by Michael Lewis [of Big Short, Liar's Poker, etc])
- Run continuously, non-delayed, but only sweep the order book at a random time every [1,2) seconds. Run for something like our current extended market hours.
Everyone gets the benefit of fast-enough execution and strong liquidity.
Crazy high-frequency gamesmanship goes away. Smart quantitative plays are still possible.
- It feels like something Matt Levine would have talked about.
- He has
- Any references you know about?
- One easy pick: https://www.bloomberg.com/opinion/articles/2024-02-28/tradin...
Note that his half-jokey proposal for a total of 30 minutes of trading time a day is at this point a running theme. If my memory serves me correctly, he started talking about this phenomenon in the pre-plague years.
- one per week should do it.
- I'd settle for once per second. There's a lot of very fast trading nonsense which I've only heard defended with the "liquidity" bogeyman.
A sealed-bid uniform-price batch auction seems like the right action.
- Even once per second seems like overkill. That interval would still largely just facilitate the weaponization of exceedingly low information latency.
30 seconds seems reasonable, 1 minute better, and 5 minutes still better. In all honesty even going as long as 30 minutes should still facilitate all legitimate purposes.
- It's your God-given right as an American to get millisecond level price discovery. Trading delays sounds like Communist bureaucracy.
- Honestly what would happen if the stock market didn't exist. It seems like these days the price of stock is so disconnected from lived reality that genuinely confused if it would be all that catastrophic
- Well we’d go back to an era where private capital owns the world. The public would not be able to participate or benefit from the ownership of companies and share in the prosperity.
- Yes, hard to imagine this crazy timeline where private capital rules the world. Totally inconceivable.
- "It's not good so let's make it worse"
- Cryptocurrencies everywhere.
- I mean the average person already barely has any participation at all, and certainly doesn't benefit from it when their money gets dumped down the toilet because of some widespread financial scams and grifts that repeatedly happen over and over again.
- 62% of adult Americans own stock.
- And how many of those people are actively making decisions about what companies they are investing in instead of blindly putting money into a black box 401k account because they are financially punished for not doing so?
- Does it matter? They could blindly buy an SP500 index and benefit greatly (as most Americans do).
- Private capital doesn't own the U.S.?
- BREAKING: Countries other than "U.S." found to be members of so-called "world"
Although I'm not sure what he's on either. Capitalists definitely own and exploit pretty much the entire world, with few exceptions.
- I should of used the term "equity" instead of "capital". I meant that the worlds largest companies would no longer be able to be owned by public equity and would only be available to those in the exclusive club of private equity.
- I hypothesize all dividends, no share value. How would that world look
- that makes no sense. companies need capital, that's why there is a stock market. dividends are paid from past earnings, never capital (earnings are only a %age of the value of the capital) and not from higher expectations of the future.
- In a perfect world… reality is different, however.
Plenty of companies take on debt to pay dividends, e.g. just before going public.
- It's not disconnected from reality. You just don't understand it.
If the stock market didn't exist you would have less opportunities to invest in well priced companies and people would be manipulated in investing in opaque, often ridden with accounting shenanigans things like private equity.
The more companies are public and subject to price discovery done by sophisticated players the better it is for uninformed players like normal investors but also less sophisticated informed players like pension funds.
- > people would be manipulated in investing in opaque, often ridden with accounting shenanigans things
This happens even with the stock market. See every financial crisis.
- Like which one? 2008 crisis was caused by reckless lending by banks as a result of silly regulation (government guaranteeing loans), implicit promise of bailouts and you could argue corruption. What does it have to do with the stock market?
It's a nice dismissing soundbite but you're just missing the broader point and real issues coming with people's money being invested in non public entities.
Besides, just because some problems also happen with solution A doesn't mean they wouldn't be worse with solution B. You are not really making a point just dismissing the idea of a public market without understanding the value of it.
- If that were true then nobody would show up to trade during the extended hours and therefore absolutely nothing will change.
- There's already a huge futures market Liquidity will just migrate.
- Why yes, I love having less information to critical financial decisions on.
I wonder who this benefits, the people with non public information, or the every day person?
- > the rule is expected to make quarterly reporting optional and not eliminate it altogether.
Would there be any incentive for companies to still report quarterly? would reporting make them appear more transparent than 6month reporter competitors in their space?
- Interesting timing given the SEC is also considering changes to 13F disclosure windows. Less frequent earnings could mean more information asymmetry for retail investors - institutions with proprietary data will have even more edge.
- So the first earnings report of an IPO wouldn't come until 6 months later? potentially already indexed everywhere?
- When you wonder how much damage one person can do in 4 years...
- "The President in particular is very much a figurehead — he wields no real power whatsoever. He is apparently chosen by the government, but the qualities he is required to display are not those of leadership but those of finely judged outrage. For this reason the President is always a controversial choice, always an infuriating but fascinating character. His job is not to wield power but to draw attention away from it. On those criteria Zaphod Beeblebrox is one of the most successful Presidents the Galaxy has ever had — he has already spent two of his ten presidential years in prison for fraud."
- If you want to discourage short-term thinking, make the vesting period longer on executive stock grants. Making companies' performance less transparent just opens up more opportunities for insider trading.
- > If you want to discourage short-term thinking, make the vesting period longer on executive stock
Give them no stock, pay them 100k a year and if they fuck up fire them rather than saying they left to "spend more time with their family" - kinda like the rest of the working joes out there.
Pay me 100mil this year and I might as well spend the rest of my time on the job gambling with shareholders money or trying to shag everyone in HR, there are no longer any consequences to my actions.
- You get paid for what it costs to keep you in the seat and valuable. They get paid $100M because they're making decisions affecting >$1B.
The exec's bosses are the board, the people who represent the stock holders, so the exec's compensation is a direct reflection of the incentive the board is giving them. Stock options ensure they look out for that ticker. If the board didn't want short term gains they can always change their mind on the structure of exec compensations.
- > Give them no stock, pay them 100k a year
That used to be the case, though more like millions a year. Clinton ended it.
- Agree and make it two years for long term capital gains.
- > If you want to discourage short-term thinking, make the vesting period longer on executive stock
It’s 3 to 4 years on average. This isn’t relevant to quarterly filing requirements.
- Could also price in negative externalities of short term trading with higher taxes for that behavior, nudging the markets to focus on value driving investments rather than speculation
- Harder to attract talent though (not saying you’re wrong)
- The problem isn't the executives, it's the boards.
But board members are largely just a proxy for the large shareholders anyway. E.g., short-term investment strategies are not going away.
Working C-levels would almost always much rather take the longer view against the wishes of their boards.
- This is an awesome move. They’re not saying the reports go away—just moving them to every six months. After hating how each company runs on an internal quarterly cycle, I have to welcome it despite how the change originated. Six months is still short from the perspective of perverse incentives, but if you free up one week of charade from execs every 13 weeks, maybe they can focus better.
And it’s not just execs, but the whole corporate machinery that takes 3–6 weeks after quarter end to churn out reports. Of course, internally executives should be tracking performance daily, but the quarter-end panic could lessen. If you have a bad quarter, you’re not penalized as much if the surrounding months are good.
And anyway, if there is a material adverse change the companies should be expected to disclose, like they are expected now.
Ps: I posted the same on Reddit a couple of hours back. Not AI but if you do find the account don't mention them online in the same sentence.
- > And it’s not just execs, but the whole corporate machinery that takes 3–6 weeks after quarter end to churn out reports.
Release early, release often.
If you want corporate machinery to run more smoothly with less effort, force it to operate more frequently not less: when TLS certs had 2-3 year lifespans there was all sorts of manual methods that people forgot how to do; then it was maximum one year. We then got free certs from LE (using ACME), but they were 90 days, so that made automation much more necessary.
Now with certs from public CAs having a max time of 47 days soon (not that I'm necessarily a fan) automation is all but a must.
So if you want less onerous effort on corporate reporting, your workflows and processes need to be much more automated: that's one of the reason why computers were invented after-all, to make computations faster.
And one way to force automation is to insist on more frequent reporting, not less; Barry Ritholtz:
> This is exactly backward: More frequent reporting makes the data less significant. In the real world, human behavior emphasizes what occurs less often—meaning doing something less frequently gives it an even greater significance than something that becomes routine or common.
> That is the difference between a New Year’s Eve celebration and a married couple’s weekly date night.
> Twice-a-year earnings reporting will make the event so momentous, with such focus on it, that any company that misses analysts’ forecasts will find their stock price shellacked. The twice-yearly focus on making the per-share number will become overwhelmingly intense.
* https://www.fa-mag.com/news/reporting-profits-daily-would-en...
Move from quarter / every-3-months to monthly reporting: companies will be forced to automate their "corporate machinery". And each report will be much less 'momentous' because the time between samples will be much less.
- I up you to continuous reporting. Audit should be inherent to the system, not a process after the fact. As a public company all owners should have access to daily closed books, and all companies should be able to close their books daily in 2026.
Every six months being the cadence we learn how our companies we own are doing is absurd. It leads to really long dark periods. Also for employees it means we can only divest in a semi annual window. Our carry risk is extensive and expanding.
This is about hiding truth longer, which is the MO of this administration top to bottom.
- That is an absurd cadence. It is extremely expensive to do this reporting; an an enormous amount of useless activity is slaved to providing it in companies that need to. This is literally a call for more bureaucracy theater.
The obvious net effect is that companies would structure themselves to no longer have the reporting requirement, as the cost of reporting exceeds the benefits. That would not benefit society at large.
- The reason quarters take so long to close is because the numbers are being fiddled with. There's no reason someone shouldn't be able to close a quarter and report the numbers with the automation we have today in technology, meaning without some magic AI/LLM, other than people are constantly trying to reclassify expenses or income in a way that saves the quarter
Why, after 30-40 years of modern computing in accounting does it still take a month to close the books? I worked at a public company that was $100m revenue yearly and it took a whole month to close the books. Absolute insanity. Even AT&T or Verizon or GM should be able to report at least weekly.
- This is a naive view of what reporting entails and the difficulty of coalescing a report that meets the requirements of the audience the report is for. It isn't a numbers dump from a database, it requires substantial interpretation of things that the database does not and cannot contain. It isn't fiddling with the numbers, it is that the numbers can't contain things relevant to their representation for external parties as a legal matter.
When I have been in positions where reporting was a necessary part of my job, reporting related activity probably consumed 1/3 of my time. Even in highly optimized contexts, it consumes a stupid amount of time and the impact on the consumers of those reports is often quite low. It is almost a total waste of time.
There should be some reporting but the current cadence and requirements is way too high for many large companies. Reporting doesn't have infinite ROI.
- > it requires substantial interpretation of things that the database does not and cannot contain.
Do you have examples? This seems like something that is a solvable problem, and from the outside it can seem like it is only about not being willing to switch to a new paradigm. That unwilling ness can come from avoiding real consequences like loosing a competitive edge due to allocation of resources to the switchover.
- When people think of automation I'm assuming their thinking of the financial statements (balance sheet, income, cash flows, equity).
Reporting also contains narrative explanations by management of: the company's financial health, updates on any new or existing market risks and the company's strategy to deal with them, any changes to controls or accounting procedures, updates on any new or existing litigation, and more.
These reports need to be certified for truth by the CEO, CFO, and relevant officers under penalty of 10+ years in jail and millions of dollars in fines personally.
It's also common to do a press release, earnings call, and investor presentation but those aren't required.
- Why can't that interpretation be done earlier in the process and then put into the database?
Isn't it the same amount of transactions to be interpreted no matter what the reporting period is?
- Do you understand that as a legal matter these must be good faith representations of the current state to the best of your knowledge? You can’t serve up intentionally stale information without inviting legal repercussions. The preparation process takes weeks. This is a very serious legal matter.
These are being revised and updated right up until the point they are released to provide the most accurate reporting possible.
You gravely underestimate the legal seriousness of these reports.
- The category changes over time?
So let's try to think of solutions instead of giving up. A law that requires daily disclosure can change how the reporting works so you don't need to update those category decisions 200 times.
- > You can’t serve up intentionally stale information without inviting legal repercussions.
> These are being revised and updated right up until the point they are released to provide the most accurate reporting possible.
> You gravely underestimate the legal seriousness of these reports.
All of these seem look like an argument for additional automation.
- It is not a technology problem.
- Does the technology already exist? Things are almost never only a tech issue alone. That does not mean tech can not help, even if the tech that would help is currently impractical. What is impractical now though may not be in 10, 20, 50 years.
Going over what I quoted:
> You can’t serve up intentionally stale information without inviting legal repercussions.
Keeping information fresh and up to date is something technology has helped with in many areas. If there is a reasons why it can not help here then I an interested in why or that the current tech already does a good enough job in this area.
> These are being revised and updated right up until the point they are released to provide the most accurate reporting possible.
Technology can help verify last minute changes, running a test suite for example or similar. How hard that is to make or maintain though may make impractical.
> You gravely underestimate the legal seriousness of these reports.
Having an audit trail and known processes may be helpful here too if the current tooling is not adequate.
I quoted parts of the comment that looked like areas where tech has already helped in other areas. What I want to find out are details about what exists, why people think it can not be better, or why pervious attempts have failed, or why things are currently optimal.
- My fiancee is the accounting manager at a university. Why? Because people don't submit expenses on time, invoices are delayed or some still done manually, and all manner of things. Even for them it can take a couple of weeks.
While there may be some "hijinks" (in their case, institutional advancement likes to steadily rearrange endowments or donations to take advantage of offers to match donations, etc., but that's not really a delay, as accounting basically says things like "No, that gift has already been spent"). Even with things like Concur or Expensify, expenses aren't classified on time, submitted for reimbursement, etc.
- [dead]
- That was the point - it's absurd as a manual process, and forces automation.
- > an an enormous amount of useless activity is slaved to providing it in companies that need to
Curious why the word "slaved" was used here instead of the much more nominal "employed".
- You don't have all the relevant invoices etc at on time. Some of that takes quite awhile. Especially inter country purchases and sale transaction information.
- This sounds great on paper till you realize the amount of time and effort that goes into coordinating so many humans is significant. Also quarterly reporting and TLS certs are worlds apart. There are things like SOX compliance in public companies. It is a mandatory requirement that necessitates so much ceremony surrounding how information is captured and decisions signed off. Then for the execs themselves, it is at least a week of effort easy leading up to the quarterly result call. Prepping for the investor deck, QnAs, being open to more frequent regulator scrutiny. Doing this every month would have diminishing returns for everyone involved.
Source: worked at public companies, helped executives prepare for said calls.
- I think it shifts the skillset of executives a little bit. At publicly traded companies the quarterly shareholder meetings and the preparation that goes into it becomes such an outsized portion of the job that being good at that one thing is highly valued. I don’t think moving quarterly to bi-annually changes that much besides making the CEO and CFOs and some other folks jobs a bit easier.
- The problem with reporting often is that the reports must each be audited (which is time-intensive and expensive), and any errors subject the companies to class-action lawsuits (which only ever benefit the lawyers, but that is a separate matter).
I would also prefer more frequent reports, but only if they were less burdensome and risky.
- The reports don't have to each be audited... reduce the auditing to twice a year, increase reporting to monthly... if your report requires remediation, you her bumped to quarterly audits
- The company would probably be sued if there were any issues in one of the monthly reports; the money for the plaintiff lawyers is just too appealing. I think monthly 'informal' reports with some legal protections to allow for inaccuracies and inconsistencies, with biennial 'formal' reports would be wonderful. That said, I think allowing companies to select an appropriate reporting interval might be best.
- Feels like a first world problem. If your company cannot afford to output accurate reports every month, maybe it shouldn’t be a company at all.
- Shouldn't be a public company, at least. You can squander your own money as you like.
- Do you have any sources to back up your feelings? I’m basing my comments on what I’ve read about the matter from a variety of former public company CEOs, CFOs, and COOs.
- I am coming to this from a perspective of a worker who used to get quarterly options of the public company I worked for, and I just cannot for the life of me sympathize with a company complaining that it can only afford to gather the information to calculate the worth of the stocks they are paying me in two times a year. I don‘t care how much it costs them. If you are gonna be paying and trading in stocks, I expect you to do the work required.
- I understand your view, and agree that transparency is good, but "the work required" is largely preventing and defending against lawsuits by plaintiff lawyers, and those lawsuits cannot possibly benefit the shareholders (because whether the suit is won, lost, or settled, the money all goes from one pocket to another, with a cut going to the lawyers).
- This may sound rough, but I don’t care about shareholders. In fact I consider them my enemy, or at least my class-enemy. Whenever they make money off of the shares of the company I work for, I consider that exploitation, and I want them to stop doing that. I also want them to stop paying me in stocks, and I want my—and my fellow worker’s—pension funds to stop trading in stocks. My shareholders are my exploiters and my enemy and my pension fund should not be my exploiter nor my enemy.
But while we live in this system which forces stocks onto me, and I have no say in the matter, I want it as transparent as possible, and I don‘t care how much it costs my enemies.
- Longer periods between audited (aka "accurate") results will lead to compounding errors. Fewer people at the company will have a clear idea of how the company is doing. Audits are like CI for finances.
- I agree that would be preferable if reporting were less expensive and (legally) risky, and what you're describing is definitely closer to the original intent of the rule (that of giving investors the information available to management), but it would make being a public company even more burdensome than it already is, and the number of public corporations is already in decline.
- > it would make being a public company even more burdensome than it already is
Every company doesn't have to be public. The US taxpayer underwrites US securities markets, and companies that trade on our public markets have access to some of the deepest pools of low-cost liquidity in the world. But companies are obviously free to list elsewhere.
> the number of public corporations is already in decline.
Separate problem. IIRC HBS studied this and basically the issue is we stopped enforcing our anti-competition laws a while back[1]. So we end up with a fraction of firms that each sector would financially support. Both because it creates giants that are much harder to compete against, and because it allows mergers between competing firms that AFAIK could be deemed illegal under existing laws.
1 - See, for example the Robinson-Patman Act, whose dormancy allows big box retailers to exist. This law has never been repealed.
- When companies stay private longer, private capital stays tied up for longer, decreasing public liquidity and keeping bad private investments afloat for longer. Part of the creative destruction of the dot com bust was the legion of badly performing companies that went public and were thoroughly rejected by public investors, offering an exit to later investors and employees. Right now badly performing companies can limp along tying up liquidity and locking up employee equity only to head to an eventual bankruptcy or bad IPO.
- > Part of the creative destruction of the dot com bust was the legion of badly performing companies that went public and were thoroughly rejected by public investors, offering an exit to later investors and employees.
That's not how I remember it. I remember lots of publicly traded company shares being gobbled even though their business plans[1] were essentially:
1. Collect underpants
2. ?
3. Profit
"Going for marketshare" and not making a profit was still popular as recently as Uber/DoorDash/etc. Cisco still (AIUI) hasn't reached back to is DotCom peak.
Are the current multiples of many tech stocks sensible?
- I'm having a hard time responding to someone who's using a South Park episode as a discussion point. Like how can I debate a point made by a show that makes content reacting to the popular perception of certain ideas? That's like 2 levels removed from the actual true details.
Anyway the difference now is that those companies still exist they just take round after round of private investor capital and the employees are offered shares that will never be tradable. Were those businesses would go bankrupt in a few years before now they can take 5-10 years. Time value of money being a thing, your money will be locked up for longer in a bad investment than it would on the public markets.
- > I'm having a hard time responding to someone who's using a South Park episode as a discussion point. Like how can I debate a point made by a show that makes content reacting to the popular perception of certain ideas?
The South Park episode came out in 1998, when the profitability of tech companies was… questionable, but their popularity was very high. It was social commentary on the zeitgeist and group think of the time. And it turned out the irrational exuberance was not justified for the valuations, as everyone learned post-2000.
And have we learned anything since then? What are valuations and P/E multiples now? And it goes back centuries in the past as well, so 'modern tech' is hardly the driving force:
* https://en.wikipedia.org/wiki/Technological_Revolutions_and_...
Your original post stated "the legion of badly performing companies that went public and were thoroughly rejected by public investors". The historical record shows that these companies going public were not "thoroughly rejected".
- If you're using South Park and "social commentary on the zeitgeist" as a way to think about markets, I think we're not going to have a productive conversation. A public equity market in the US has a technical definition that I'm using here. You're constructing a narrative out of these things that really makes no sense. When one said that public investors reject an investment, that means they mark the price of the equity down by selling shares for a lower level.
- > badly performing companies can limp along tying up liquidity and locking up employee equity
"Just raised a Series E/F/G/H/I" companies
- how much of that decline is due to mergers vs failing vs new private companies being formed instead?
- In the us, quarterly financials are not audited, only annual financials
- Perhaps the auditing needs to be done on the workflow process and once the automated code is in place there needs to be a traceable chain of modifications to it that need to be justified.
The "audit" certifies a certain hash of a repo that produces known-good results, and if you use a different commit in that repo you have explain in an SEC filing why you modified things.
Basically reproducible builds for financial results:
- I know a few accountants, and I do not think this is possible. There is an incredible amount of manual adjustments that have to occur to get the books in order. I suspect the official process is 100% GAAP approved and great, but the messy reality has thousands of tweaks that were massaged all over the place to correct for one thing or another.
- Yes, I know some accountants as well, as well as bookkeepers who have to do adjustments for things like 'timecards' and punching-in and -out: there's all sorts of adjusting that needs to be made.
But any "mistakes" that are made are simply corrected the next reporting period (whether that's monthly, fortnightly, weekly, or daily) in this more-frequent proposal.
The 'crunches' that occur at quarter/period-end are there because there is so much attention put on those reports because they're so infrequent. If the sampling rate is higher then errors are corrected that much sooner.
The reports are generated on the books in the state that they currently are in on a monthly/fortnightly/weekly/daily basis, and any adjustments will be "fixed" in the next reporting period. The reason why there's so much pressure to get them "correct" now is because of the (relatively) infrequent reporting. If you know that things will be 'sorted out' in a fortnight (two weeks), or whatever, there's less pressure now to get them "right".
There will be an expectation of less perfecttion and more corrections and better 'smoothing' due to the higher 'sampling rate'.
- Isn't that the kind of toil that tends to get automated away with CI/CD?
- You could report every month and audit every 6 months
- I'm generally with the report often camp. It forces automation all the way down even the auditing.
- Wouldn't the auditing be proportionally easier with less data in each report?
- The reason for strong auditing and personal attestation is because left to their own devices, some companies will produce bullshit and hoodwink investors. Blame Enron.
https://www.britannica.com/topic/Sarbanes-Oxley-Act
Like the building and electrical code, these regulations were written in blood.
- > The reason for strong auditing and personal attestation is because left to their own devices, some companies will produce bullshit and hoodwink investors. Blame Enron.
Except Enron's results were audited. By (now defunct) Arthur Anderson:
* https://en.wikipedia.org/wiki/Enron_scandal
* https://en.wikipedia.org/wiki/Arthur_Andersen#Collapse
The auditing already existed and didn't stop Enron (or WorldCom; see also the silliness of GE under Jack Welch).
Sure SOx added more rules, but it's not like folks were flying without a net before.
- Technically the auditing already existed, but functionally it didn't because Enron could bully Arthur Andersen into getting the results they wanted, or just ignore results they didn't like.
- Reporting is onerous as fuck. You end up with entire bureaucracies dedicated to the theater of reporting. The tighter the turnaround the dicier it becomes because certainty that anything you are reporting is true decreases, which increases liability.
This is one of those ideas that sounds amazing to people have never operated a real business with reporting requirements. In practice it turns into a classic case of Goodhart's Law. It drives insane incentives. Reducing reporting intervals would seriously reduce overheads and inefficiency in business.
This is 100% a good change.
- TLS certs are a single certificate. Corporate reporting is an aggregate of different types of numbers in disparate systems summed up through divisions that might as well be different companies.
Although… if there was a software engineering union, swinging a mandate for live public financial reporting is the type of non productive work that would keep everyone in a job.
- > Release early, release often
Release unrequired. This is the purpose of an 8-K. We don’t need every public firm to constantly release quarterly.
These rules arose in 1970. Granting more flexibility, now, makes sense. (Post SOX, earnings require senior management.)
- https://www.acquisition.gov/gsam/552.216-75
I get where you're coming from but this is a rough transition for some. Ideally we would hope that more frequent reporting would necessitate development of more seamless systems... but we ain't there yet. There's a lot of flexibility in some systems but they allow that flexibility so that it can be tightened as needed. Be careful.
- …huh?
What does any of this have to do with too-soon reports poorly representing positive trends that can’t be tracked in 1-3 month timelines?
- What will actually happen is that frauds and poorly run companies will opt for the 6 month schedule while well run ones will keep the 3 month.
To your point that "executives should be tracking performance daily", there's an argument that all that data should be publicly released daily. It would make it nearly impossible to hide mismanagement and actually remove most of the human overhead since it would be impossible to spin bad data on a daily basis.
- Releasing data at regular intervals gives people time to review the data, identify mistakes and rectify them. Releasing financial data daily, you are much more likely to release incorrect info and then have to go back and correct it.
For certain types of firms, daily revenue figures are likely to reveal individual deals. Many B2B firms have a modest number of high value deals, a daily data feed might show $0 revenue one day $1.374 million the next, which is more likely a single deal of that size than two or more smaller deals-and that would reveal a lot to competitors-especially if those competitors are in other jurisdictions which haven’t mandated this form of extreme transparency
- > Releasing financial data daily, you are much more likely to release incorrect info and then have to go back and correct it.
Why do you need to "go back"? The corrected data would be available the very next day (or month (or week or fortnight) if you don't want to go to that extreme).
- If you publicly release incorrect financial results, there is a formal process you have to follow to notify the public that you made an error (“restating results”). But if you catch the error before you release the results, you get to skip all that. Make people release results daily, they’d be restating past results all the time, because they wouldn’t have time to catch errors prior to release.
- This is not how corporate fraud usually happens. You don't tamper with the quarterly report, especially since it gets audited. You tamper with the input data close to the source. For example, you record revenue that hasn't happened yet or you delay the recording of losses.
- IMO, it would be ok if it was not unconditional.
If you have been public for >N years, and have had >X "clean" quarterly reports, no trouble with the SEC, etc, then sure, back off to 6mo (or even yearly, if your shareholders are ok with that).
But if you have an audit problem, violate SEC rules, get any kind of conviction, hell, even an inditement, then back to quarterly until you clean it up.
- > If you have been public for >N years, and have had >X "clean" quarterly reports, no trouble with the SEC, etc
...staff changes happen, incentives change due to changes in business performance. Enron was apparently clean public company from 1985 until sometime after Andrew Fastow was hired in 1990.
If high-resolution transparency has any value, it doesn't make sense to do it a few times and then stop.
- I have the opposite opinion. More information is always better. Absolutely the reporting requirements are onerous and there already are perverse incentives to chase things quarterly. Reducing reporting requirements is only going to make things worse though. The only solution I can imagine is to instead drop reporting requirements to instant. Make all public companies truly public. Reporting information should to be accessible via a feed 24/7. There can be no more perverse incentives if there’s no hiding. Insane and unlikely? Sure yea. But let’s not pretend that reducing information is going to help anything.
- Or even start with monthly. The problem with quarterly reporting is the internal efforts to "game" the quarter. The more aggressive disclosures are, the less of a shell game people can play to "make the report come out right."
Moving it to bi-yearly does the opposite. CEOs can now do the same amount of gaming with half the effort. Or twice the gaming with the same effort.
Should be obvious who this change is for.
- Yes, reporting should be a non event. This move will encourage bad behavior imo
- And now I know why surgeons spend more time filling out paperwork than treating patients.
Now I know why I have to stand for 15 minutes at the hotel reception desk to check in to my already paid room, while the receptionist is typing away.
Now I know why projects which should take one week to complete instead take 5 years.
- > If you have a bad quarter, you’re not penalized as much if the surrounding months are good.
GE used to smooth their earnings to accomplish exactly what you describe here. This was not good for investors, or transparency, or ultimately GE itself[1].
There's ample reason to want more frequent, not less frequent, results from companies.
> the whole corporate machinery that takes 3–6 weeks after quarter end to churn out reports
> internally executives should be tracking performance daily
Executives would also be better served by having more timely access to the same data they will eventually disclose. Why would executives want to drive blind for more of the time?
1 - https://markets.businessinsider.com/news/stocks/warren-buffe...
- Absolutely. Quarterly reporting is enormously expensive.
The average Nasdaq firm spend 850 hours per quarter purely on earnings. It’s absurdly burdensome.
It is part of the reason companies don’t want to go public (it’s not the only reason, obviously). But the harder you make it for companies to go public, the more will stay in private markets.
Then the only companies going public are going to be the ones that aren’t hot enough to stay private. Then retail will lose out on a lot of good growth companies.
And you could say, “well let retail invest in private companies” but that makes the information asymmetry problem even worse. Because now instead of investing in companies with biannual reporting, retail is investing in companies with no reporting at all. I guess you could say “well make private companies have to report more” and now you’ve just created a public market again.
https://www.businessinsider.com/quarterly-earnings-proposal-...
- There's also just a mathematical way to look at volatility here, which is that if you look at (say) the average monthly result as a statistic for the reporting period, longer reporting periods have lower variance than shorter reporting periods.
It's something of a diversification benefit - when you're able to smooth over months, as long as they're not all perfectly correlated (your shock just keeps hitting over and over and you can't stop it) - your results will have lower variance once normalized for elapsed time.
What I can't speak to is whether this is a benefit to economic stability. Say an industry is shifting rapidly in a certain direction. Companies less able to adapt would be less quickly "punished" for that lack of adaptation.
The question is whether that adaptation curve is "a company may need extra time and upfront investment in transformation, but can get back on the curve, so giving them grace helps to stabilize jobs and markets..." vs. "a company that falls off the curve will continue to fall behind, so faster reporting incentivizes companies to innovate and not get into an irrecoverable state that destroys value."
And I think this question varies so widely between situations that it's difficult to standardize. Perhaps economists have looked at this more thoughtfully. Either way, this is an incredibly significant change - how so is a much more difficult question.
- I see how it helps you and the company. What about investors who you borrowed money from.
- Arguably better for everyone. Too much focus on short-term profits can harm long-term growth.
- > Arguably better for everyone. Too much focus on short-term profits can harm long-term growth.
If you think quarterly reporting 'season' is crazy now, wait until it becomes semi-annual and the pressure is really on to hit analyst numbers. It'll be like New Year's Countdown on Results Release Day.
- I can't help but think of friends of mine that always complained about their quarterly OKR reports.
- > After hating how each company runs on an internal quarterly cycle
In 25 years of working professionally I've never felt this or heard this even once.
> execs every 13 weeks, maybe they can focus better.
I don't care about the struggles of executives. I'm entirely unconvinced that an additional two weeks a year will afford them enough "focus" to make any appreciable difference.
> that takes 3–6 weeks after quarter end to churn out reports.
We run a sales heavy organization. No one "churns" out reports and hasn't for decades. The biggest struggle is getting engineering to finalize their existing capital project reports. Everything else is automated to such an extent that I can't even fathom this scenario still existing.
- Hard disagree. These are public markets we are talking about, which give companies access to financing from mom and pop investors. No one is forcing these companies to be public, they chose to be public because they wanted access to the liquidity provided by public markets. That liquidity is coming from folks retirement savings.
I was following a company that did an ATM offering in January. By June, less than six months later, they had entered Chapter 11. Things can move fast in the business world. A financing deal falling through at the wrong time can be the difference between business as usual and bankruptcy.
This change would largely benefit insiders and deep pocketed investors/funds that can afford bespoke data sources to fill in the gaps. And it feels like just another attempt by Wall street to force mom and pop investors into the role of dumb exit liquidity.
- this is an incompetent, corrupt change that will be reversed when Trump leaves office in 2029. Companies should likely not change their quarterly reporting since it will only be temporary.
- This means that employees would only be able to sell their stock 2 windows a year where they currently can sell 4 windows a year, correct?
- There is no law regarding how and when (non-exec) employees can sell company stock. The SEC only restricts insider trading, and some companies voluntarily enforce blackout periods to reduce the chance of insider trading. Plenty of public companies (e.g. Microsoft) let employees trade whenever they want.
- I think the effect is actually backwards: there may only be 2 windows instead of 4 but the total amount of time window per year should theoretically go up significantly. The 2 removed reports should make both of those quarters less subject to insider trading and therefore more tradeable.
- In companies I've been in, insider trading windows close because there's been a certain amount of time since the last report. So less frequent reports = more time for insider to know things that aren't public yet = more time unable to trade, not less.
- That depends on your company, not the SEC. I work for a publicly traded company and have very few blackouts, mostly around earnings, for selling.
- in the UK this is kinda the policy.
however the bigger issue here - is this is a ruse - there is a reason quarterly reporting brought transparency to companies - now they can easily hide nasty things.
you as an employee with stock options - yeah those are close to worthless since the price hit you can take can vary a lot.
- > now they can easily hide nasty things.
For 6 months instead of 3. One could argue the need to show quarterly growth forces companies to do nastier things. Long term thinking is definitely needed these days when all companies are only focusing on short term gains.
Before 1970, the reporting was twice a year and in the first half of the twentieth century it was once a year.
- Much larger windows though no? Blackout periods are prior to reporting dates.
- 10b5-1 plans would presumably still be a thing if you wanted to sell more often.
- Would that necessarily be a bad thing? I remember how that would drive short-termism on the part of regular employees. Since stock comp was a major part of many companies' salaries, people would hope for a bump in the earnings report. We complain about short-termism in the markets, but you can't say one thing and then do something else.
- It would be bad in that it makes employees' stock less liquid. Stock-based compensation is a huge part of many employees' comp packages.
I think a small subset of people might adopt a short-term approach to equity ownership. I think a much larger subset would simply be selling to access the money they rightfully earned or to diversify their holdings instead of having the bulk of their stock portfolio in a single company.
What if someone froze half of your paycheck and said you can't touch it except for the two months out of the year that they say you can?
- Well, this is going to make insider information a lot more powerful...
You've got 364 days in between the truth, and if you think a company is fudging it's numbers you've got to wait another 365 before anything else comes out.
- The SEC is not the only one who gets a say. Their are rules that SEC does not require that have been required for certain exchanges or indices. For example, no dual class shareholders or certain board compositione have been required for listing.
Let's have an exchange or heck , even an ETF require quarterly reporting. I would invest in that and I am sure many wouldn't. It will trade at a premium or it won't.
- The article is sparse on details. I think large companies should continue to report quarterly. I think semi-annual reporting for small caps could be a good thing since it would reduce the costs associated with preparing the reports. Some states allow for this type of lower frequency reporting for taxes based on the size of the obligation.
- Most countries in the world only report every 6 months.
- Why do we want to make the stock market mimic the crypto market? What need is the 24/7 trading solving? Just for hft companies to make more money? Seems like a genuine reason to diversify to Europe and Asian markets
- As a practical matter as a "normal person" who just wants to rebalance/do a deposit/withdraw every so often, the market only being open 6:30 AM-1 PM on the west coast is very annoying.
6:30 AM to say 10 PM would solve a lot of those issues though without needing to go 24/7 (unless you work night shift...)
- > What need is the 24/7 trading solving?
There's a reason the Black-Scholes model assumes market prices are continuous. The discontinuity of the market makes hedging options a lot more complex and expensive.
24/7 trading doesn't completely fix that, but it does help.
- Isn't the quarterly report one of the specific things that AI was sold as making much easier to compile and distribute? I have a strong concern about this happening under the current admin.
- What company doesn’t produce monthly financial statements, let alone quarterly. I could understand this for small caps.
I also don’t see how less granularity in financials is a good thing, yes if you have bad quarter that bad (but at least you can make it up the next quarter vs a bad six months likely introduces more volatility (I think?). Also I think one of the biggest complaint is “short termism” in markets, but I hardly think that will make much of a difference.
- > don’t see how less granularity in financials is a good thing
Transaction costs. Preparing this transparency costs money and attention.
- As i mentioned those cost are real for small public companies, and while potentially tens of millions a year for large ones its a rounding error for them (e.g. MSFT spent ~$80m/yr on Deloitte the past couple of years for audit work, let's assume it also cost MSFT another $80m/yr on internal support for an annual cost of $160m) that would 0.15% of their net income and meaningless number in relation to the liquidity provided to the ~$3t worth of equity holders by being public. Also I'm not sure going to half year would meaning fully change that number a lot, $130m? the audit is annual with limited review of quarterly financials so there is not a ton of savings
- Having to do it more and more frequently means more and more of it gets automated.
- It is not a technology problem.
The data generation is mostly automated.
- The chances of this actually changing anything is quite low. All our quarterly reporting is legally locked in. It’s getting done regardless of what the SEC says
- This idea goes back several years, and Barry Ritholtz had thoughts on it back in 2015:
> Back to quarterly earnings. Why do we even require them in the first place? The answer is that thanks to the transparency provided by regularly reported earnings and profits, investors can make informed decisions about which stocks to own or avoid. Owners of public companies have hired managers to run the businesses for them, and they want to see with some consistency how healthy the companies that they own actually are. If there are issues with how the business is being managed by the hired corporate executives, the owners want to know sooner rather than later -- and to have a chance to make course corrections. Quarterly numbers allow that to happen.
* https://web.archive.org/web/20151008083649/http://www.bloomb...
* Via: https://ritholtz.com/2015/08/worst-idea-ever/
And in 2018 he suggested going in the opposite direction—more frequent—to even daily reporting:
> This is exactly backward: More frequent reporting makes the data less significant. In the real world, human behavior emphasizes what occurs less often—meaning doing something less frequently gives it an even greater significance than something that becomes routine or common.
> That is the difference between a New Year’s Eve celebration and a married couple’s weekly date night.
> Twice-a-year earnings reporting will make the event so momentous, with such focus on it, that any company that misses analysts’ forecasts will find their stock price shellacked. The twice-yearly focus on making the per-share number will become overwhelmingly intense.
> This is counterproductive.
> My proposal: Report earnings monthly, with the goal of eventually moving to a near real-time, daily, fundamental update. Technology is improving to the point where business intelligence software and big data analyses will make this automated. Indeed, some companies already do much of this internally.
> Once financial reporting becomes daily, the short-term earnings obsession will all but disappear. In its place will be a focus on broader profit trends and deeper analytics.
[…]
> The bottom line is so obvious: To make quarterly earnings less important, we should be exploring ways to report results more often, not less.
* https://www.fa-mag.com/news/reporting-profits-daily-would-en...
- Exactly! Continuous reporting reduces the stupid gaming of quarterly results. Weekly would be best as anything longer still gives sales teams enough time to rig the game as they do currently. I'd also get rid of fixed year ends for tax purposes and replace them with continuous trailing 12-month assessments.
- Imo, this makes much more sense...
- But this is Trump's SEC.. so expect backwards progress like with everything else.
- Would this benefit the big companies lobbying? No? Well, then it makes negative sense.
- I have worked in an industry (QSR) where it is commonplace that damn near the entire company is copied on a DAILY email of system-wide sales reports, and let me tell you you, it was NOT A GOOD THING.
- I assume you mean that employees had daily goals? This is both not unusual and unrelated to investor reporting requirements.
- No, I mean I as a relatively junior employee literally got a daily email with nationwide same store sales (dollar amounts , aggregated region, and corporate, franchise, etc) vs prior day, week, month, year and if it was ever down on even day 1 or 2 of a promo like “LTO spicy chicken funbox” or whatever you can guarantee the CEO would be calling and trying to upend and reverse the 3+ months of work you put into that product, campaign, etc because a single day of sales was down. No matter if it might have been down because of a cold front or literal noise in the data rather than a bad product. Everyone’s head was on a swivel and I can’t think of many more stressful environments
I personally witnessed this, at more than one of the top 5 qsr chains
- That sounds more like a CEO issue than a reporting frequency issue.
- That's a textbook example of Goodhart's Law isn't it?
- And yet, some very, very good public company CEOs like Buffet have carved out worlds where they report thinly and publicly claim they do not manage to quarterly earnings.
- Isn't the solution to a rare task being painful to make the task frequent? What if we required daily/weekly fiscal reporting? Would that even be feasible? I guess it would force complete automation, which might make it much more difficult to change things and reduce company agility. Would be fun to hear the opinion of someone actually involved with the process.
- Tricky part is it’s not actually a technology problem. Generating the numbers is already automated.
It’s “pay [external] auditors and legal to review to make sure all of this won’t get us thrown in jail”
If those processes are automated because the law, accounting, and audit professions innovate, then I would suspect you’d
- curious what happens to 13F filings if quarterly earnings reports go away. the 45-day window post quarter-end is baked into the same reporting cycle. seems like SEC would have to rethink that too, or we lose a big chunk of the institutional transparency picture
- I think this is OK. It allows for more long-term planning. 6 months will fly by.
- The fact that this is optional means it will still happen, simply because of the signaling doing it quarterly will provide.
- It would be interesting to see if reducing reporting requirements allows more startups to go public earlier in their journey, hence opening up more opportunities for public to participate in the upside!
- Just look at the track record of SPACs for a preview of how that will turn out.
- I think it’s still fine. I’ve invested a lot into some SPAC’s. I’m good on 1, break even on the other. And I’ll keep holding it, since these companies are still pre-revenue and I hope they 100X.
The overall idea of SPAC’s is not bad, even if Chamath only created them to exit his sh*t investments. There are very few other ways for retail investors to invest in potential 100-1000X companies (which are generally pre-revenue). Of course the flip side, is that most SPAC’s might close down and cause you to lose money. That is the decision for the investor to make, risky opportunities are fine! Sadly chamaths shitty tactics to close out his investments have tainted a completely fine idea.
- > overall idea of SPAC’s is not bad
It is. It’s a workaround.
More directly, SPACs are financially engineered to extract wealth from retail. Every weird interest-rate, guaranteed-floor and private-placement provision is geared for it. We have a crap IPO process, in part due to reporting requirements, so sometimes the gamble works out.
- > even if Chamath only created them to exit his sh*t investments. There are very few other ways for retail investors to invest in potential 100-1000X companies
"I have this exciting bag-holding opportunity for you."
- Have you tried reaching out privately to those companies you want to invest in? Stock trading doesn't only happen on stock markets, and the rationale for publicly traded companies being so regulated is because they're so easy to invest in.
- That’s much harder. If it’s a big private company like OpenAI, you need a minimum 50k investment. For smaller companies, the number is much higher I assume.
- Yes.
Can you really invest only 50k into OpenAI? That seems low to me.
However, some small companies are okay with small investments. You have to negotiate privately, that's just how it is. If it was a simple, uniform process, they'd be on the stock market.
- Dude. SPACs are structurally a _terrible_ idea for any non-privileged investor. The sponsors 20-25% comp, the early warrants, etc. All of those costs are taken out of the bag-holder, sorry “investors”, expected value. The entire thing is setup to maximise info asymmetry and perverse incentives for the sponsors at the cost of bag holders. The “shitty tactics” _are why SPACs exist_.
- Even so, VRT has gone up 2000% since it SPACC’ed. RKLB was also a SPAC. A SPAC is a just a way to satisfy regulations as a pre-revenue early stage company. Most early stage companies fail, and that’s fine.
If such a company succeeds and still retail investors, don’t get paid back, I would consider that fraudulent, but that’s not the case with SPAC’s. I would like to see SPAC deals be better to investors as opposed to banning them entirely.
- Can you connect the dots for me, why would reduced reporting requirements allow more startups to go public earlier?
- Some people argue that the requirements placed on public companies (like mandatory quarterly reporting) add operational overhead that might cause a company to postpone an IPO until they're larger or more established.
In practice, companies like Stripe, OpenAI, etc have stayed private because they've been able to access the cash they need at valuations they're happy with and because no one wants to open their books unless they have to. They aren't staying private because being a public company is hard.
- Combining this with a SPAC a startup would be able to have a six month runway as a public company before having to disclose finances. I imagine that would be attractive to some firms.
- Weird, why wouldnt this fantastic startup want to report on their performance in a standardized and accountable manner for six months after collecting public money to pay out insiders and “sponsors”?
Surely they wouldnt mind bragging about their fantastic GAAP P&L in their filing docs. Maybe its the pesky quiet period theyre trying to avoid, so they can be even more transparent about finances and equity holders.
- But mostly downside
- I hear there's no legislation called "Protecting Unified Monetary Products & Distributing Usury Monetary Profits."
In this new legislation, some stocks will not be associated with any corporations. There will be no reporting requirements. The stock will move as the market dictates.
And people who have more money than you can buy access to trade it seconds faster than you can.
Good luck everyone! I hope the PUMP & DUMP bill works out!
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- The norm in other countries is 6 months. That's enough time to get the mid-year numbers to be reviewed by an auditor.
I don't think malice of the decision.
- At least what I saw, which might be inaccurate, is that in countries with 6 month mandatory reporting, most companies still choose to report quarterly or investors start to get nervous.
- Hard to disentangle that from quarterly being the US standard, what with it being the most robust capital markets and nexus of major financial transactions.
- Please read the article.
> The WSJ report added that the rule is expected to make quarterly reporting optional and not eliminate it altogether.
So companies can still do their quarterly reporting if they and their investors want that.
- I don't understand arguments like this.
Universal healthcare? Democratic rule of law? Affordable living wage?
Nah, I'll bang the drum of international equality for corporate malfeasance.
- And allow more insider trading.
- The timing with all the AI IPOs that _really really need_ to happen this year or else is very sus
- Does anyone have any guesses about how most companies would react to this? Will most keep publishing quarterly reports, will most switch to semiannual reports, or will it be a 50/50 split? Or are the major stock exchanges likely to continue mandating quarterly reports?
- I think they'll keep the status quo of quarterly, bc if any announce switching I'd expect their stock value to fall (bc in my mind the decision would transmit more bad potential than positive potential for future earnings). ie- I don't buy that quarterly reporting drives too short-term decision-making (or that it's generally too short).
- Most large companies will continue quarterly reporting because institutional investors will not accept anything else. For a company with market cap of $500m spending $1-2m yearly on quarterly audits is non-trivial. For a company that’s $5b and up that’s not much at all.
This is also not a done deal and large pension funds will oppose this hard during the public comment portion of this process.
- If some random company known to be the biggest money furnace that ever existed decides to do an initial Public offering, and continues to be the biggest money furnace that ever existed with no hopes of revenue...would that hypothetical company prefer to report the damages earlier than later?
Nobody knows about most companies, but either a big big public company will benefit from this, or a soon to be public company will benefit from this.
- > The U.S. Securities and Exchange Commission is preparing a proposal to scrap the requirement for companies to report their earnings every quarter and giving them the option to share results twice a year
So, at least twice a year would still be mandatory until this change.
- so all EDGAR APIs need to be updated to support either 10-Q or 10-H per firm?
- Lol. This is the correct take.
- The rug pull on our 401ks has begun
- ultimately supply and demand should result in less demand for the stock of companies that do not provide adequate transparency about results.
Supporters of the idea would likely say: "But considering that stock price crashes result in government bailouts, why bother reporting bad news since it just panics everyone and necessitates a bailout that shouldn't have been necessary."
- Rational market theory is dead. Markets are not rational and do not respond to situations in rational fashions like you suggest. People operate on hype, fear, and insider trading.
- Twice a year is the current requirement in the UK and still provides a regular cadence.
- Finally, free market. /$
- Oh things must be about to get bad
- The optimist in me wants to believe the lack of a quarterly report requirement will increase decision-making timeframes and will give industry leaders more time to plan long-term.
But I also like to believe that Santa is, in fact, real.
- ... has argued the change in requirements would discourage shortsightedness from public companies while cutting costs. Skeptics, however, caution delaying disclosures could reduce transparency and heighten market volatility.
It's a conundrum, for sure. But as much as it pains me to agree with Donald Trump on anything, I think this may be the right thing to do. Something that could help reduce the short-term thinking that is so prevalent in American business today sounds like a win to me. But I won't deny that there are tradeoffs.
- There is a great book called “The Number: How the Drive for Quarterly Earnings Corrupted Wall Street and Corporate America” by Alex Berenson. In it he outlines various frauds and market calamities: WorldCom, Enron, 2008. He makes the point that earnings per share often times comes down to cents and a single cent of earnings can make a stock rocket or plummet. Thus there is often complicated and opaque financial gymnastics to adjust EPS to meet expectations. It’s a great read.
- That's disrespectful to investors.
Persons affected by the market deserve quarterly earnings reports; which should be trivial given sufficient accounting systems.
- Less accounting accountability -> Greater liability
Other international markets under consideration for investment are expected to retain their sub-annual reporting requirements.
Does this policy provide for allowing firms to optionally continue to disclose their financial status to all investors quarterly using the existing guidelines for scheduled disclosure?
Firms could instead instruct their CAO Chief Accounting Officer to continue to prepare quarterly reports and work on being able to prepare automated monthly reports.
Markets with a no-fee CBDC have the advantage on transactional accountability. If all transactions were in CBDCs, the treasury report for quarterly or monthly statements of accounting accountability would be easy.
Investors have for quite awhile operated with legally mandatory quarterly accounting reports and explanations of the nature of the costs and returns.
You do the now-annual earnings report webcast
Sort of like when you put off working on a paper until the last minute
- Congratulations to the CEOs of fraudulent companies.
> Trump, who first floated the idea in his first term as president, has argued the change in requirements would discourage shortsightedness from public companies while cutting costs.
Having less information does not change one's time horizon. It just means large investors paying for proprietary data will have more edge.
- European companies report every 6 months and it doesn't seem to do any harm
- The UK went back and forth on it:
> Beginning in 2007, UK public companies were required to issue quarterly, rather than semiannual, financial reports. But the UK removed this quarterly reporting requirement in 2014. We studied the effects of these regulatory changes on UK public companies and found that the frequency of financial reports had no material impact on levels of corporate investment. However, mandatory quarterly reporting was associated with an increase in analyst coverage and an improvement in the accuracy of analyst earnings forecasts.
* https://rpc.cfainstitute.org/research/foundation/2017/impact...
So it seems that if you want more accurate analysis for investors (and current stock holders), more frequent is better.
- This is a really key point - it’s already working fine elsewhere.
- Last year, I heard about this maybe coming, and here it is.
On the positive side, it removes a lot of burden from the companies as making those earnings reports 4 times per year is no joke. A lot of effort goes into it.
On the other hand, earnings reports are the only times, 4 times per year to be specific, where we can clearly see real numbers and how the company is doing vs what the company is "selling" to the public. So this inherently damages transparency, no doubt about that.
Also, rememebr all those insider trades the politicians love to do? Well, now it will be even harder to monitor.
- This certainly has nothing to do with money furnace AI companies incoming IPO and iminent private credit crash.
- That was easy.
- I could give the benefit of the doubt to any other administration doing it.
This one? I really have a hard time thinking it's nothing else then another grifting scheme.
- Sadly same.
- If you have earnings too frequently, it encourages companies to become hyper focused on earnings and make less long term investments. But if there is too much gap in between earnings, there is potential for grifting. What to do?
- Encourage more smaller privately owned companies rather than massive megacorps.
- So either big companies would lobby against their interest, or SEC would do something independently. Honestly I cannot decide which one is more absurd.
- Report very frequently, then use a moving-window average for any sharp questions of tax and legislation?
- I highly doubt semi-annual reporting will shift the focus from the short term profits at all costs thinking that prevails today.
- Quarterly reporting didn't seem to hurt Amazon.
- While this will hopefully stop incentivizing companies to focus on super short term results its also going to increase the amount of financial reporting fraud because the remaining reports will become even more important.
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- It seems like people in power in the US are competing to make as much damage as possible to systems that brought them so much wealth.
- They are the winners. They want to stay the winners. So they are incentivized make sure that nobody else can climb up to challenge them.
- Something is coming so it's all smash and grab.
- What something?
- Look at the factors in play:
-8 billion human beings
-the continuing health impacts of COVID
-increased frequency and magnitude of destructive weather events
-global weather pattern shifts
-increasingly dysfunctional governments in previously stable nations
-markets dominated by players decoupled from reality
-a stock market bubble of immense proportions
-the end of the post-WWII order
-an interlinked global economy with very little resilience
-an increasing amount of war
I have no idea what shape the world that emerges from all the above is going to be, but I strongly doubt it will be better than it was. The obvious analogs seem to be the Great Depression and the World Wars.
I don't know exactly what will start the dominoes falling, but the current war in Persian Gulf has a lot of potential to do so.
- My main concern isn't how or if we survive, but who we survive as- the rewriting of what the context of being human is the biggest threat to me- imagine social media but spreading increasingly depressive and depraved social attitudes. We need social buffer- and contentment and contextualising media to see us through this, alongside everything else.
(A luxury i know as it shows i have a comfortable and stable existence)
- It's almost as if they aren't considering the best interests of the public or the government/economy that they are dismantling.
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712 points by djoldman 19 hours ago | 428 comments