TSLA Inc.

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TSLA Inc. stock analysis TSLA overview
Bullish +55

The SEC fears we're trapped in short-term thinking. Tesla and Amazon prove investors play the long game.

📉 The SEC is proposing to end quarterly earnings reports in favor of semiannual filings to address alleged "short-termism."

💼 Regulators argue quarterly reporting encourages companies to prioritize short-term Wall Street goals over long-term growth investments.

🚫 Critics note that there is surprisingly little evidence suggesting corporate America is actually suffering from significant short-termism.

📈 Tesla, which turned annual profitable ten years after its 2010 IPO, generated a 1,651% cumulative return to investors during its loss-making period.

🚀 Amazon took six calendar years to report an annual profit but delivered an 865% gain for shareholders before reaching profitability.

🎓 Harvard Law professor Lucian Bebchuk highlights that growth stocks have enjoyed substantial appreciation based on future prospects rather than current earnings over the past two decades.

🤹 Market performance shows value and growth stocks have performed similarly, contradicting the idea that investors are unwilling to give growth companies long leeways.

📊 The Russell 2000 index is at an all-time high despite 40.6% of its components being unprofitable, challenging short-termism narratives.

⚠️ Professor Srini Krishnamurthy warns less-frequent reporting could allow unscrupulous managers more opportunity to hide losses from investors.

📉 Reduced reporting frequency might decrease market efficiency and exacerbate price volatility, negatively impacting individual retirement wealth.

💡 Experts suggest the net effect of extending earnings reporting frequency will likely be small for the overall financial system.

❌ Analysts question why regulators should try to fix a system that data suggests isn't fundamentally broken.

👤 Mark Hulbert, a MarketWatch contributor and Hulbert Ratings founder, provides analysis on these investment governance issues.

📢 The article is published by MarketWatch, operated by Dow Jones & Co, with content disclaimer noted for third-party materials.

Bullish Signals
  • Tesla delivered a cumulative total return of 1,651% from its IPO until the end of 2019, despite reporting losses through that year.
  • Amazon generated a cumulative gain of 865% during the period it reported losses after its IPO, demonstrating investor patience with long-term growth companies.
  • Harvard Law professor Lucian Bebchuk noted that over the past two decades, growth companies have enjoyed substantial appreciation in value despite warnings regarding short-termism.
  • The Russell 2000 RUT index is currently at an all-time high, even though 40.6% of its constituent stocks are unprofitable according to LSEG.
  • Market data shows that over the past two decades, growth stocks have not lagged value stocks, contradicting fears that investors lack patience for long-term prospects.
Risk Factors
  • Regulators propose extending earnings reporting frequency from quarterly to semiannual, which could lead unscrupulous managers to hide losses for longer periods.
  • Less-frequent reporting gives managers more opportunity to hide losses, potentially leading investors to have less trust in market prices and exacerbating price volatility.
  • Such reduced market transparency could have a significant knock-on impact on individuals' long-term wealth creation and financial security in retirement.
  • Professor Srini Krishnamurthy from N.C. State University warns that extending reporting frequency may not significantly incentivize managers to think more long-term.
  • The SEC's plan is described as a 'cure in search of a problem,' implying the proposed regulatory change addresses a perceived issue with little empirical evidence of its existence.
Full Analysis
U.S. securities regulators are proposing a shift from quarterly to semiannual earnings reporting to address concerns about "short-termism," though the article suggests this fix may be unnecessary. The proposal stems from a belief that frequent reporting pressures companies to manage operations for short-term Wall Street targets rather than focus on long-term growth. However, the provided text argues there is little evidence corporate America suffers from significant short-termism, citing Tesla and Amazon as prime examples of investors playing the long game despite prolonged periods of losses. Tesla, which went public in 2010, did not produce an annual profit until a decade later yet delivered a cumulative shareholder return of 1,651% through the end of 2019. Similarly, Amazon took six calendar years after its IPO to report profitability while generating an 865% cumulative gain for investors during that loss-making period. The article supports this view with broader market data, noting that growth companies have enjoyed substantial appreciation over the past two decades as investors value future prospects over current earnings. In a 2021 Harvard Law School forum, professor Lucian Bebchuk highlighted how markets attach high value to long-term potential regardless of current earnings, evidenced by growth stocks outperforming value stocks which rely on current earnings. Furthermore, the Russell 2000 index is currently at an all-time high despite 40.6% of its stocks being unprofitable, according to LSEG data, further challenging the notion that investors punish companies for not being profitable every quarter. Experts caution that reducing reporting frequency could have negative consequences by allowing managers more opportunity to hide losses without timely scrutiny. Srini Krishnamurthy, an associate professor of finance at N.C. State University, argues that less frequent reporting might not significantly incentivize long-term thinking but could lead to a breakdown in market efficiency and price volatility. He warns this loss of trust could ultimately impact individual wealth creation and retirement security. Ultimately, the article concludes that while extending the earnings reporting cycle may have a minimal net effect, regulators should avoid tinkering with a system that already functions effectively for long-term investors. The content is provided by MarketWatch as part of Dow Jones & Co., with additional notes regarding third-party content verification by Morningstar.