MW Are investors really suffering because companies report earnings every 3 months?
By Mark Hulbert
Rather than short-term pressure, companies typically get a long leash from hopeful shareholders
Company executives complain about short-term pressure to please Wall Street.
Is the U.S. stifling innovation and creativity by requiring companies to report earnings on a quarterly basis? That's a perennial complaint that company executives make about the intense pressure they're under to meet Wall Street's quarterly earnings expectations.
This seems plausible, since research-and-development expenditures can take many years to produce a return on investment. By being forced to cater to Wall Street's short-term obsessions, companies allegedly are forfeiting long-term potential.
Though this complaint is not new, it is receiving attention these days because of President Donald Trump's recent proposal that U.S. companies should report results semiannually.
Yet investors in fact appear to be more than willing to give money-losing companies a long leash in hopes that they eventually will become profitable.
A classic example is investors' tolerance for losses at Tesla Inc. $(TSLA)$ The company lost money for 10 consecutive calendar years after its IPO. Yet over this period, the stock produced a cumulative return of 1,651% - equivalent to 35.1% annualized.
Tesla may be an extreme example, but it is not unique. Take the smaller companies in the Russell 2000 index RUT: Relative to the larger stocks in the S&P 500 SPX, these small stocks are earlier in their life cycles and their profit potential lies further into the future. According to FactSet, about 42% of these small companies lost money in their most recent fiscal year - and yet the Russell 2000 just hit an all-time high.
Another telling comparison is between the growth and value slices of the Russell 2000. The Russell 2000's value stocks are those for which current earnings are larger, relative to future earnings, than for their growth-stock counterparts.
If investors were obsessively focused on short-term earnings only, value stocks would be valued more highly than growth stocks - but just the opposite is the case. For example, the iShares Russell 2000 Growth ETF IWO recently traded at a price-to-earnings ratio of 28.4, double the P/E of the iShares Russell 2000 Value ETF IWN.
This contrast is not the exception but the rule, according to a 2021 article by Lucian Bebchuk, professor of law, economics and finance at Harvard Law School and director of its Program on Corporate Governance. He wrote: "Over the past two decades, as dire warnings regarding short-termism have proliferated, growth companies - whose value largely reflects expectations about their payoff in the long term - have enjoyed substantial appreciation in value. ... [They are] trading at high price/earnings ratios, reflecting the willingness of the markets to attach great value to companies on the basis of their future prospects rather than their current earnings."
U.S. versus European equities
Another revealing comparison is between the performance of the U.S. and European stock markets since 2016, the year when European companies were allowed to start reporting earnings semiannually rather than quarterly. Since then, the U.S. stock market has far outpaced Europe's.
To be sure, this comparison is more suggestive than conclusive, since other factors also played a role. The strength of the U.S. dollar DXY relative to the euro (EURUSD) until recently is one such factor; another is the outsized role that a few successful megacap stocks played in propelling the U.S. stock market higher.
Nevertheless, those who insist that quarterly reporting imposes a huge burden need to acknowledge that, at least over the past decade, this burden has been dwarfed by other factors. Accordingly, most investors can safely ignore the debate about earnings-reporting frequency.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.
Also read: Ditch quarterly earnings like Trump says? What's needed is better reporting - not less.
More: Do investors care about quarterly vs half-year reporting? Here's what the numbers say.
-Mark Hulbert
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September 25, 2025 08:05 ET (12:05 GMT)
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