MW The SEC fears we're trapped in short-term thinking. Tesla and Amazon prove investors play the long game.
By Mark Hulbert
Regulators' plan to end quarterly reporting tries to 'fix' a problem that the market's success stories have already solved
Investors are often willing to give companies years to reach their potential.
Investors appear more than willing to give companies many years in which to become profitable.
Extending earnings reporting frequency to every six months, from the current three, is a cure in search of a problem.
U.S. securities regulators are proposing to end quarterly earnings reporting in favor of semiannual reports. The primary reason given for this change is that quarterly reporting encourages companies to engage in "short- termism" - managing operations to meet Wall Street's short-term goals rather than invest in long-term growth. But there's surprisingly little evidence that corporate America is suffering from short-termism.
On the contrary, investors appear more than willing to give companies many years to become profitable. Tesla $(TSLA)$, which went public in 2010, is a good example. The company finally produced an annual profit 10 years later. Yet, from IPO until the end of 2019 (the last calendar year in which it reported a loss), Tesla shares delivered a cumulative total return of 1,651%, according to LSEG.
Amazon (AMZN) is another example. It took six calendar years after its IPO to report an annual profit. From IPO through the end of the last calendar year in which it reported a loss, the stock produced a cumulative gain of 865%.
These two stocks are spectacular examples of the long leash that investors are willing to give growth companies, but they are not unique, as evidenced by the huge returns over the past two decades of growth stocks.
In a 2021 Harvard Law School forum on corporate governance, Harvard Law professor Lucian Bebchuk noted: "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 ... [This reflects] the markets' willingness to attach great value to companies on the basis of their future prospects rather than their current earnings."
Furthermore, if investors weren't willing to give growth companies this leeway, their stocks would lag those of value stocks, since, to a much greater extent, value stocks' valuation is based on current rather than future earnings. But that hasn't been the case over the past two decades, as you can see from the chart above.
Other supportive data: 40.6% of the stocks in the Russell 2000 RUT index are unprofitable, according to LSEG, but the index is at an all-time high. Where's the short-termism?
Long and short
Less-frequent reporting gives unscrupulous managers more opportunity to hide losses.
True, some companies engage in short-term earnings management to meet Wall Street's targets. But it isn't clear that six-month reporting would "move the needle significantly in terms of incentivizing managers to think more long term," according to Srini Krishnamurthy, an associate professor of finance at N.C. State University.
At the same time, he said in a posting on the N.C. State website, less-frequent reporting gives unscrupulous managers more opportunity to hide losses, which could have serious long-term consequences. That could lead investors to have less trust in market prices, which in turn "could make the market less efficient and exacerbate volatility in prices."
Should this happen, Krishnamurthy added, it would have "a significant knock-on impact on individuals' long-term wealth creation and financial security in retirement."
The bottom line? The net effect of extending earnings reporting frequency will likely be small. But why try to fix a system that isn't broken?
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
More: You can't build financial security with a 90-day mindset. Why quarterly earnings reports hurt investors.
Also read: SEC chair Atkins wants to 'make IPOs great again.' What it means for stock offerings.
-Mark Hulbert
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April 27, 2026 07:27 ET (11:27 GMT)
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