Long-Term Perspectives in Investment Analysis

This Swedish study examines short-termism in financial markets through the lens of key industry players, exploring their approach to long-term investment strategies. Highlighting discrepancies in long-term perspectives and the challenges of overcoming short-term focus, it seeks to encourage a dialogue on fostering long-termism among financial professionals. The goal is to balance immediate gains with sustainable, long-term value creation.

A general concern over undue short-termism in financial markets has prompted this study. Set in Sweden, it aims to explore the views on long- termism in investment analysis of buy-side analysts, sell-side analysts, and investor relations officers.

The study centres on five main questions:

First, what is a long-term perspective according to buy side, sell side, and investor relations? Second, to what extent are long-term questions being addressed in investment analysis: for example, how often do buy-side analysts ask the sell side about long- term issues? Third, what is important for the investment analysis, and how does this relate to long-term issues? Fourth, what are some of the factors that stand in the way for a more long-term perspective: for example, are analysts time constrained or do they lack training? Fifth, and, according to our respondents, who should promote more long-term analyses?

The results show that corporations and buy-side analysts perceive short-termism in sell-side research to be a problem. This is the case for sell side analysts as well; a total of 51 per cent of buy- side analysts, 50 per cent of IR officers and 38 per cent of sell- side analysts think that sell-side research has a detrimental short-term focus.

What we have here appears to be something of a chicken- and-egg situation: the sell-side is waiting for the buy-side to ask for more long-term analysis, while the buy-side is not necessarily confident that the sell-side will fully deliver upon that request. There is also a discrepancy between and within the different actor groups on what constitutes a long-term perspective: ranging from one-three years, to five years and beyond. The fact there is not a shared view may inflict upon how sell side interpret buy side demand for long-term analysis. Another factor is that analysts do not think that corporations include long-term issues into their story of value creation to the same extent that investor relations think.

The findings are compared with those of a global study on a similar topic, which surveyed sell-side analysts. Our results are similar, particularly with regard to sell-side analysts‘ views on the following items: whether sell-side research has a detrimental short-term focus (a total of 38 versus 42 per cent in the respective studies); whether sell-side research creates a dialogue that promotes long-term value creation (a total of 63 versus 64 per cent); and whether sell- side research produces too much noise (a total 45 versus 48 per cent). This indicates that our results are not market specific. Through this work, we have learned that long-term and short-term perspectives can – and must – co-exist. There is value in quarterly reports and short-term evaluation: for corporations, analysts, and investors. There is also some merit in short-term holdings, as it provides liquidity on the market. It is however a problem if the short-term focus takes resources from warranted long- term analysis.

This study aims to spur a much-needed discussion about long-termism among the different actors that make up the ecosystem around financial analysis.

Authors:

Emma Sjöström, PhD, Misum, Stockholm School of Ecomomics, and Stockholm Sustainable Finance Centre
Hanna Setterberg, PhD, Misum, Stockholm School of Ecomomics, and Stockholm Sustainable Finance Centre
Gregor Vulturius, MSc, Stockholm Sustainable Finance Centre