Apple’s Cash-Flow Problem

CAMBRIDGE – I recently examined the problem of corporate short-termism from two nonstandard angles. One was that some short-termism is sensible. Large firms face an increasingly fluid economic, technological, and political environment – owing to more global and competitive markets, to the greater potential of technological change to alter firms’ business environment, and to governments’ growing influence over what makes business sense. In this fluid environment, large companies must be cautious before making large, long-term commitments.

Second, I described how emerging data could suggest measurement problems with the conventional wisdom that more rapid trading in financial markets is making them more oriented to the short term than ever before. Proponents of this view point to furious trading in New York and London, with average holding periods for major stocks diminishing in recent decades. In fact, the change may be driven by a rapidly trading minority, and not by major stockholders shortening their holding periods. Indeed, the average holding period for America’s core shareholders, like Fidelity and Vanguard, has increased in recent decades. (I examine these issues in greater depth in a longer forthcoming article.)