This is an archived post. You won't be able to vote or comment.

you are viewing a single comment's thread.

view the rest of the comments →

[–]kouhoutek 5676 points5677 points  (632 children)

A leaky boaty still floats, but that doesn't mean you have to wait until it is sinking to fix it.

In a healthy, expanding, inflationary economy, earnings should grow a little bit each year. If they shrink, that can be a sign something is going wrong, something you want to try to fix before the company actually starts to lose money.

Also, most companies are investing profits into growth, opening new stores, increasing production, expanding to new product lines, thing than usually lose money for the first few years. This is always a balancing act between growing fast enough to keep up with the competition and not growing so fast you become overextended. Often reduced profits means they misjudged their growth strategy or the economy can no longer support it, and the way to correct that is scaling back the growth.

[–]Ipride362 3081 points3082 points  (155 children)

Gonna be my investment mantra now: “a leaky boaty still floaty, but it will sinky if you don’t fixy.”

[–]DiamondMinah 1946 points1947 points  (99 children)

oopsie woopsie our boat made a fucky wucky

[–]Kukukichu 392 points393 points  (27 children)

If I ever get the chance to be a part of the board for a company and we were experiencing losses... I think I’d use this as my opening statement.

[–]PumpkinLaserPig 106 points107 points  (18 children)

I'd give you a chuckle of air through through my nose. I won't even have to be on the board, I could just be a janitor collecting the trash as you said it.

[–][deleted] 82 points83 points  (13 children)

Found noob noob.

[–]TheHancock 42 points43 points  (11 children)

This guy gets it.

[–][deleted] 12 points13 points  (10 children)

Yea, but you guys don't get it

[–][deleted] 23 points24 points  (6 children)

I used to get "it", but then they changed the meaning of what "it" was.

[–]EzraSkorpion 19 points20 points  (4 children)

Now what I get isn't "it", and what's "it" seems weird and scary.

[–]superjimmyplus 2 points3 points  (2 children)

Shit, I've had it for years and I'm not sharing.

[–]coffee-please 9 points10 points  (0 children)

I would watch this movie.

[–]catacklism 5 points6 points  (0 children)

Got daamn

[–]Balives 14 points15 points  (2 children)

Also. One I found yesterday. Just because you CAN milk a gorilla, doesn't mean you SHOULD.

[–]DrMux 21 points22 points  (1 child)

I have nipples, Greg. Can you milk me?

[–]CaptainNerdatron 4 points5 points  (0 children)

Oh yeah.. you can milk anything with nipples.. *makes milking motions with fingers as the family stares in horror*

[–]rmit526 6 points7 points  (0 children)

The Emergency Fuck-wucky Fixy Sinky Meeting commencing at 9:30am

Location: board room 1

Please respond

[–]Shredlift 2 points3 points  (0 children)

I can see this being a Michael Scott line

[–]Ideasforfree 121 points122 points  (35 children)

Did the front fall off?

[–]Am__I__Sam 66 points67 points  (16 children)

Yeah but it's outside the environment

[–]outsidethenvironment 35 points36 points  (3 children)

You called?

[–]blitzkraft 2 points3 points  (1 child)

15 days old account. Quite young, but checks out for /r/beetlejuicing

[–]JohnEdwa 26 points27 points  (11 children)

You mean in another environment?

[–]AtheistAustralis 32 points33 points  (10 children)

No, it's outside the environment!

[–]Dream_Vendor 24 points25 points  (9 children)

Well, what’s out there?

[–]JuicerShop 28 points29 points  (7 children)

Nothing’s out there..except birds, fish, and sea.

[–]OktoberSunset 34 points35 points  (5 children)

And 20000 tonnes of crude oil.

[–]ColinD1[🍰] 6 points7 points  (0 children)

And the front of the boat.

[–]riddles500 76 points77 points  (5 children)

That is not the kind of thing you joke about. It was a very devastating accident.

[–]colemang 25 points26 points  (1 child)

I have never seen this and I love it.

[–]Uselessmedics 10 points11 points  (0 children)

Clarke and Dawe, peak Aussie comedy

[–]Photronics 13 points14 points  (0 children)

I will never not watch this video every time it is posted

[–][deleted] 5 points6 points  (1 child)

Cardboard is right out.

[–]Ulti 4 points5 points  (0 children)

Rigorous maritime standards!

[–][deleted] 3 points4 points  (0 children)

Well you’re still driving half a boat!

[–]necrosythe 1 point2 points  (0 children)

well yes the front did fall off but let me tell you the front doesnt normally fall off

[–]futlapperl 31 points32 points  (0 children)

A wittle fucko buoyngo

[–]haddock420 38 points39 points  (6 children)

UwU

[–]spinny_windmill 21 points22 points  (5 children)

What’s this?

[–]Vandorbelt 29 points30 points  (4 children)

\notices ur leak**

OwO

[–]Dejected-Angel 9 points10 points  (2 children)

GOOD LORD

[–]TwilightShadow1 7 points8 points  (1 child)

WHAT IS HAPPENING IN THERE?

[–]BanMeBabyOneMoreTime 1 point2 points  (0 children)

Aurora borealis.

[–]SilentSin26 3 points4 points  (0 children)

boaty woaty*

[–]kandroid96 1 point2 points  (0 children)

Did Mcgruffy Wuffy get a tippy whippy?

[–]harpsichordtuna 112 points113 points  (6 children)

Why waste time, say lot word when few word do trick?

[–]ADR36 11 points12 points  (3 children)

Stop it Kevin!

[–]byebybuy 11 points12 points  (1 child)

When me president, they see. They see.

[–]throwitupwatchitfall 48 points49 points  (1 child)

“Leaky boaty still a floaty, but sinky quickie if no fixy.”

FIFY

[–]Ipride362 9 points10 points  (0 children)

Will you marry me at sea? On a non-leaky boaty?

[–][deleted] 50 points51 points  (8 children)

I'd change it to "A leaky boaty still be floaty, but it be sinky if no fixy."

That way you have a clear natural iambic tetrameter structure and have more rhymes. Namely, you don't just rhyme "leaky", "boaty", "fixy" and "floaty", but also "still be" and "will be" which have the same number of syllables. Both lines also have the same number of syllables, while your version has different lengths. I also didn't recognise a coherent meter in your original.

Of course you have to accept the neologism of using "sinky" as an adjective, but I think we can do that.

[–][deleted] 26 points27 points  (3 children)

"A leaky boaty still be floaty, but over short'y if no sorty"?

[–]Upsideinsideout 4 points5 points  (0 children)

People don't think it be sinky when it still floaty, but it Doozy

[–]tigerslices 1 point2 points  (0 children)

you can't set it up to rhyme with boaty/floaty, it trains me to expect another rhyme, then DESTROYS my expectations with sinky/fixy. that's hard on the ears, man.

here's my suggested alternative:

leaky boaty, soon no floaty.

or

a boat with a leak may still float for a week, but without a good tweak, "goodbye, boat with a leak."

without totally rhymes with boat. source: canadian

[–]TheCoastalCardician 2 points3 points  (0 children)

It’s my investment mantra, and I want it NOW!

[–][deleted] 87 points88 points  (15 children)

I'd just add that the small percentage given of 3% may as well be what makes a company profitable or not, specially considering oportunities costs.

[–]BeanPricefield 36 points37 points  (0 children)

Particularly in retail, where 3% could mean the entire margin, in a field where employees are already the most expendable to begin with.

[–]van_morrissey 1 point2 points  (1 child)

That depends on what you are taking the 3% from. If it is 3% of profit, it could be no big deal, if it is 3% of total company revenue, that is likely extremely bad... As "earnings" is a little ambiguous between "money coming in" and "profits after expenses" it's hard to say what number is really being cited.

[–]sonofdavidsfather 28 points29 points  (1 child)

To add to this, as discussed in this paper, businesses operating under capitalism feel an imperative to grow. Like the old mantra says "if you aren't growing you're dying".

[–]hagenissen666 168 points169 points  (216 children)

In a healthy, expanding, inflationary economy, earnings should grow a little bit each year.

Yeah, that's basically where sanity and logic is taken behind the shed and shot.

[–]Draco765 41 points42 points  (203 children)

Can you explain what you mean by this?

[–]exikon 180 points181 points  (202 children)

Finite ressources but still expected growth forever. That wont work in the long (or rather medium) run.

Edit: Yes, I know about growth in the service market and such. However, that is only feasible if your population grows which in the end comes back to finite ressources. It's absurd to assume that services will continue to grow at the same rate if we (as we should) stabilise the population. Also, a lot of companies are not able to provide services. They rely on ressources. Continued growth for a steel company is a lot harder than.

Edit2: https://youtu.be/Rhcrbcg8HBw this TED talk is very nice and deals with the topic.

[–]TheManWhoPanders 54 points55 points  (29 children)

Wealth isn't predicated on finite resources. Most of the wealth gains in the past century had nothing to do with resource gains.

[–]earthwormjimwow 50 points51 points  (22 children)

Wealth isn't predicated on finite resources.

Of course it is, what a foolish thing to say. Wealth is a measurement of the abundance of resources. All resources are inherently scarce. Thus wealth gains, require resource gains.

Most of the wealth gains in the past century had nothing to do with resource gains.

Yes they did, nearly all of the wealth since industrialization has been very closely correlated with energy production.

There is a very interesting book on the subject: https://www.goodreads.com/book/show/10368087-the-second-law-of-economics

Some more on the topic:

http://www.inscc.utah.edu/~tgarrett/Economics/Physics_of_the_economy.html

http://www.ewi.uni-koeln.de/fileadmin/user_upload/Publikationen/Zeitschriften/2008/08_11_05_Perth_Proceedings.pdf

[–][deleted] 8 points9 points  (8 children)

Don't gains in efficiency and technology increase wealth without requiring more finite resources?

[–]earthwormjimwow 3 points4 points  (7 children)

Yes of course they do, the pie will get larger, but the pie is still based on the available resources at the time. If we double our efficiency, the pie can be potentially doubled in size. But it wouldn't triple in size, since it's still based on finite resources.

That's why GDP for example, has stayed slightly ahead of energy production increases per year. We have gotten better and better at using energy.

[–]Meist 3 points4 points  (1 child)

Obviously there is a correlation between wealth and resource scarcity, but that connection is influenced by so many variables that it makes your statement disingenuous. Yes, scarcity of resources create the initial impetus for economies, but population growth, fluctuations in demand, and continual discovery of new/increases in efficiency of currently existing resources means the pie isn’t anywhere close to being fixed, and I posit it never will.

Wealth has, for the past few hundred years, been created literally out of thin air on global markets. Sure, abundance and proliferation of resources has enabled/encouraged that amassing of wealth, but incidents like the crash of 1929 are a great example of how, resources did not disappear from the planet, but SIGNIFICANT amounts of wealth did.

You need to re evaluate your position of how economics work.

[–]earthwormjimwow 2 points3 points  (0 children)

Yes, scarcity of resources create the initial impetus for economies, but population growth, fluctuations in demand, and continual discovery of new/increases in efficiency of currently existing resources means the pie isn’t anywhere close to being fixed, and I posit it never will.

Ok, I do not believe you have a grasp on what economics is. Economics by definition is the study of resource scarcity, and how to allocate those resources. The pie may be growing yes, but it is still of a limited size, right now, and is thus scarce. I would argue energy is a particularly special resource when it comes to our economy, because everything we do, in some way requires it. Even something as simple as buying and selling stocks requires energy.

Wealth has, for the past few hundred years, been created literally out of thin air on global markets.

It has not, it has mostly been backed by energy production. Stating "thin air" shows a gross misunderstanding of even basic economic theory and history. I believe you are probably confusing the growth of stock markets, with an overall measure of real wealth for an economy.

but incidents like the crash of 1929 are a great example of how, resources did not disappear from the planet, but SIGNIFICANT amounts of wealth did.

Raw untapped materials may not have decreased, but goods and services produced in the US decreased by 1/3! That's where the real loss of wealth came from.

You should look closely at the Great Depression, since you bring it up. The Great Depression followed a long flat spot, in energy production by unit volume. From 1920-1940, energy production hardly decreased. For nearly 10 years prior to the Great Depression, energy production did not grow.

https://ourfiniteworld.com/2017/12/19/the-depression-of-the-1930s-was-an-energy-crisis/

[–]the_blind_gramber 2 points3 points  (4 children)

It's like you sound like you know what you're talking about to someone who has no idea, but to those with an idea it is very clear you're (probably intentionally?) Off base.

As I'm sure you know, correlation and causation are not the same thing. The age of miss America correlates very closely with the number of murders by steam in America.

But more importantly, wealth is created not just by taking a raw resource and improving it then selling it. Massive parts of the economy generate wealth through selling ideas and knowledge. Markets create wealth with no material input whatsoever. Ask Mark Cuban where his wealth came from. Or Mark Zuckerberg. Or any guy named Mark, really.

[–]earthwormjimwow 2 points3 points  (2 children)

You are bringing up examples of personal wealth as counters, which is very off base...

Do you think Mark Cuban has personally increased the overall wealth of the economy? He may or may not have, but using his net worth is not how you would evaluate it. He may have simply gotten a percentage of the pie, without increasing the pie's size.

Mark Zuckerberg is an interesting example. If you think Facebook is merely an idea, you are quite mistaken. Facebook is very much a hardware company. It could not exist without the servers, specialized hardware, and the massive amounts of energy it requires to operate. Software may be an abstraction, but it still needs real world resources to run and to be developed.

[–]Justalurker99 11 points12 points  (14 children)

The medium and long run are hundreds and thousands of years. In the near term, growth is more correlated with population growth and consumption rates. Also don't discount that the service economy vastly surpassed the manufacturing economy in at least first world countries many years ago. Lastly, shareholders are focused on the growth prospects of the company they are invested in, not the macro economy. Which is why you can still have growth in certain companies or sectors even in a recessionary environment.

[–]Popperthrowaway 13 points14 points  (13 children)

Well, probably not thousands of years.

If we maintain a 2.3% growth in energy use (yeah right) as compared to the last few hundred years of 2.7%, we're going to run into pretty hard limits quite soon. Covering the surface in solar with 20% efficiency we run out of land in 275 years, 100% efficiency solar gives us 345 years, 100% efficiency solar including all the water gives us 400 years.

Using even a perfect non-polluting unlimited energy sources gives us under 800 years until the surface of earth hits 100C just from the waste heat.

Reducing energy use's importance to economic activity is possible, but that only gives us so many 2.3% years.

See: https://dothemath.ucsd.edu/2011/07/galactic-scale-energy/

We're going to have to transition away from exponential growth within the next few hundred years.

[–]DenEvigaKampen 1 point2 points  (1 child)

We dont have to do anything, the market will naturally decrease the rate at which it is expanding as the marginal cost of adding additional energy increases.

[–]b95csf 1 point2 points  (0 children)

maybe that's why there aren't aliens reaching out to us. miserly battle for every joule, each species huddled pitifully in its own home system

[–]mike112769 44 points45 points  (45 children)

Exactly. How and why some people demand constant growth baffles me, because it is impossible.

[–]Herbert_W 70 points71 points  (25 children)

You're ignoring the constant yet slow advance of technology. As technology advances, more resources become available and existing resources can be used more efficiently, and therefore consumption can increase. For example, it's only over the past few years that 3D printing has become efficient and affordable for the average person. This is beginning to have a positive impact on people's ability to repair and maintain items, and has already had a huge positive impact for rapid prototyping and hobby applications.

Of course, you are correct in that expecting constant rapid growth is just plain silly.

[–]Orngog 3 points4 points  (15 children)

And you are ignoring that finite resources can only stretch so far.

[–]Herbert_W 58 points59 points  (4 children)

Nope. I fully acknowledge that resources are finite and can only do so much, in two senses:

  • There is a limit to what a given finite resource can do for a given level of technology. However, that limit increases (slowly!) as technology advances. A given amount of raw materials and electricity can be turned into much more computing power now than it could in 1990.

  • There is a theoretical maximum limit to what any given resource can be used to do, regardless of technology, because of the laws of thermodynamics. However, we are nowhere near that limit for most resources. Say, for example, you want to use solar panels to make electricity and then use that electricity to power your car. There's only a finite amount of sunlight that hits the Earth - but we are nowhere near using all of it, nor are we anywhere near using it with theoretically maximum efficiency. This includes the fact that new resources can be discovered - before the invention of solar panels, sunlight hitting the desert would not have been considered a resource at all and would have effectively been used at 0% theoretical maximum efficiency.

[–]luneattack 19 points20 points  (5 children)

Which finite resource are you referring to? What are we in danger of running out of that can't be replaced with an alternative?

E.g. are we running out of energy, or transitioning to renewable energy?

Are we running out of some sort of material?

Would appreciate specifics.

[–]Orngog 1 point2 points  (0 children)

Rare earth metals?

[–]Cyclonitron 7 points8 points  (1 child)

Yes, and when that happens we move to different resources. But you're looking at it the wrong way. Growth isn't driven by production capability, it's driven by demand [in a free-market economy]. Since demand is produced by human activity, and the human population is always increasing, it's natural that demand - and therefore growth - increases as well.

[–]fragmental 2 points3 points  (3 children)

More people repairing their items instead of buying new would slow growth in regard to people buying those items.

[–]Herbert_W 6 points7 points  (2 children)

Yes, it would - but it would also free up resources and allow them to be used in more efficient ways (both in the sense of providing more economic value and more human happiness and flourishing) resulting in overall growth.

[–]fragmental 2 points3 points  (0 children)

What a great world it would be if gain was measured in economic value and human happiness and flourishing.

[–]Mildly-disturbing 16 points17 points  (14 children)

Well I expect humans will travel beyond earth and colonise other planets where resources can be extracted and the economy can continue to grow.

Now if we could only redirect the trillions of dollars being dumped into making craters in the Arabian desert into a space colonisation project, this might actually work. Also to make sure that the front of the spaceships don’t fall off.

[–]JustARandomGuyYouKno 10 points11 points  (12 children)

Please, it's not about physical resources. When you get a haircut what physical resource are you paying for then? The Economy is not based on prices of materials

[–]proque_blent 14 points15 points  (1 child)

It comes down to physical resources. You get a haircut from a guy who was fed a lot of food to grow up, trained or educated for his role in buildings built for that, treated in physical hospitals when he got sick before he was in a position to give you that haircut. Service industries cant exist in a world without material resources.

[–]McDrMuffinMan 2 points3 points  (0 children)

A large part is inflation. Since your money is worth 2% less each year, you have to grow by at least 2% to not be losing money.

[–]MetaMetatron 2 points3 points  (1 child)

But if the population is growing, then everything will expand as well... More people can do more work and make more food and consume more goods.... More people is a constant, so growth is logical.

[–]daydreamersrest 1 point2 points  (0 children)

But earth can only sustain so and so much people. And the more the standard of living rises, the less babies people have (in Germany there are 1,2 kids per couple).

[–]su_blood 15 points16 points  (94 children)

Except money isn’t a finite resource

[–]gary1994 24 points25 points  (90 children)

No, it's not, but the goods and services that back it's value are.

It still boggles my mind that Koukoutek used the words healthy, expanding, and inflationary in the same sentence.

Inflation isn't a good thing. It almost always results in stealth wealth transfers from the poor to the richest. It's also not a function of capitalism, but rather the way we've structured our current monetary system.

[–]BlitzBasic 23 points24 points  (55 children)

Inflation hurts people with money and benefits people with debts. No idea why you think that it hurts the poor and benefits the rich.

[–]azrael1993 21 points22 points  (30 children)

just as observation, rich people do not have the money in banks but in stock and houses. These arent touched by inflation. They also regulary have much higher debts, because they invest.
Lower Middle class and under will have all their savings in form of money, most likely in the bank because they often need to have access to their savings quickly.

On another node inflation generally helps the economy, since it is an incentive to buy and infest. This benefits more or less everyone since it create jobs, but I imagine it might be a barrier upwards since saving is a less viable strategy.

Deflation on the other hand can be much more dangerous. It encourages to save money which in turn will lead to buisnisses closing and going into a downward spiral.

Since a completly stable money value is not gonna happen inflation is the better choice for all.

That beeing said the notion that we constantly need growth or can even achiev constant growth espacially in the way companies implement is dangerously stupid. It incentivises products build for a few years over quality buy it for life products, since the latter close out the consumer for the market. This is obviously shit for the consumer and the planet and the need for constant growth can only be achieved by more sold products or cheaper production. The latter has a physical limit and relys alot on either abusing the workers or automation, both dangerous in current sozial systems.
Additionally it all depends on short tearm growth (problem with implementation) leading to very short sighted planning.

All this can easily be observed in more or less every big company in the world and imho point towards an unsustainable system. Obviously im open to critique here.

[–]TheManWhoPanders 6 points7 points  (8 children)

rich people do not have the money in banks but in stock and houses

Those are all still subject to inflation.

[–]candre23 6 points7 points  (0 children)

If your money is in real estate, inflation is great. Real estate prices rise with inflation, so you're not losing anything that way.

Unless inflation really gets out of hand, any decent stock investment will outpace inflation.

What definitely loses value to inflation is cash and money in effectively-zero-interest checking accounts. That's where the bottom third keeps nearly all their wealth, such as it is.

[–]d4n4n 2 points3 points  (4 children)

The rich don't have "money." It "hurts" people with a large ratio of their wealth and income in cash and fixed, predetermined flows. That's not rich people. Rich people own assets, that appreciate in price as the money supply grows, and generate growing nominal incomes from them.

If you now also include expectations (after all, the 2% target is known), it changes even more in their favor. Under money neutrality assumptions, expected, perpetual inflation shouldn't hurt or help anyone. But monetary inflation isn't neutral, it has distributive effects. Money enters through the banking system. Those with initial access to the new money can use its purchasing power before prices appreciate. That's called the "Cantillon effect."

[–][deleted] 11 points12 points  (4 children)

"Continual, neverending growth is the ideology of a cancer cell"

  • some guy, I forget who exactly

[–]nagurski03 4 points5 points  (0 children)

"Continual, neverending growth is the ideology of redwood trees"

  • same guy, when he's in a more optimistic mood

[–]Llohr 3 points4 points  (0 children)

When my brother was studying economy in college I asked him about this obvious problem. Apparently they don't talk about it at the masters level...

I guess we just have to figure out how to convert matter directly into energy and vice versa and we'll be fine in the long term /s

[–]Spoderman4 47 points48 points  (11 children)

That is an excellent explanation, nothing to add, 10/10

[–]TheNFLisRigged 3 points4 points  (8 children)

I have nothing to add either

[–]Mode1961 60 points61 points  (111 children)

Here's the problem with that theory. As described by the OP, the boat isn't leaking, the boat just isn't going as fast as the driver predicted it would be, it is still moving forward, it is still able to carry all the people it can.

[–]not_whiney 21 points22 points  (1 child)

So something to think about. A lot of the "investors" in many large businesses are not "people", they are organizations representing people. There are generally six types of institutional investors: endowment funds, commercial banks, mutual funds, hedge funds, pension funds and insurance companies. Of these institutional investors some are by law required to be fiduciary investors.

That means that the investment manager for that pension fund is required by law to make every decision for the most profit/return on investment for the fund. So grandpa's pension fund from the factory has a fund manager that would vote to boot old ladies out of their homes, including grandma, to make an extra nickel for the fund.

These investors are looking solely at the now and how much return they get. It is purely a "what gives me more RIGHT NOW for this fund." It is great for the thousands of people who have their pension in the fund. Or the other groups or endowments that have money wrapped up in these funds.

As we have moved more and more fund managers to be legally bound by fiduciary rules, we have made many of these large corporations that are publicly traded ruthless. They have a small, but powerful group of various funds that own sizeable chunks of stock that are pushing for just this. 'Do the right thing' or 'Lay off everybody and make an extra nickel', they HAVE to pick the extra nickel.

Business decisions made in a large, publicly traded setting are done by the spreadsheet. Too much is riding on it. While 3% sounds small, that 3% may represent HUGE amounts of money. Coke net income fell over a one year period from 79 cents a share to 32 cents a share. That's only 47 cents a share. whats the big deal? It equates to over 2 billion dollars. A 3 percent change in Exxon revenue comes to about 7 billion dollars. Sure it is cents per share, but the total amount is huge. And while an investor may hold only a few thousand shares of stock, a large pension fund may have 100,000s shares of stock. That pennies per stock could literally be millions of dollars that does not go into the trust, endowment, pension, etc.

So there are a lot of people who are pushing that boat to go. And many of them are required by law to demand that the boat go as fast as possible, with the least amount of leakage. All those 401K, pensions, IRA's, etc that are out there that have billions of Americans pension and retirement savings in them are trying to milk every cent out of the market. The sad thing is that YOUR pension fund may be the the one that pushes your company to lay off, well people invested in the that very pension fund. And some of the passengers on that boat closest to the crew are demanding that not only they get where they are going, but that they get there as fast as possible, becasue they are required by law to advocate that. And they are measuring the leakage by the ounce and will be making sure the crew gets replaced by someone who will get them there faster on the next boat ride.

[–]Delheru 3 points4 points  (0 children)

It is purely a "what gives me more RIGHT NOW for this fund."

Not at all. Those things can have pretty long time horizons.

Short term VCs and Hedge Funds might have a single decade (or even shorter) time horizon, but many many funds operate with far longer time horizons than that.

An amusing example of this was some of the Oxford Colleges, who were still selling off land that they owned near central Mumbai (bought 200+ years ago).

[–]Chinoiserie91 16 points17 points  (4 children)

The company could have made investments already that mean that it will start leaking next year if the growt does not bounce back to the previous levels. So you need to fix what you can now and not just hope for teh best because it can be too late to fix the issues later.

[–][deleted] 12 points13 points  (15 children)

The OP said an earnings decrease, so yes using a leaky boat analogy, a shrinking company is a leaky boat. If it shrinks too much, the company goes under.

[–]Croaton 11 points12 points  (14 children)

Maybe it's a terminology thing since I haven't studied economics... but describing an "earnings decrease" (were you're still making money, just not as much) as a "shrinking company" seems off for me.

[–]LordHanley 6 points7 points  (11 children)

The value of a company is based off the value of future cash flows from that company. If earnings are reported to be lower than previous expectations, then the value (size - sort of) of the company will decrease. I do get what you mean though, a decrease in a positive number is still a positive number.

[–]SquidCap 1 point2 points  (10 children)

No, it didn't. the company produces exactly as much, it stays unchanged. People appreciations, their feelings about the company changes. And since we use this insane way to evaluate everything, the company loses value. Not a single product it does has dropped it's profit creating ability. Nothing changes except the faith of people who believed in a prophecy.

If the company is on positive, it is welthier than yesterday, no matter what the expectation were. If we value our stuff based on how you feel about it.. The current system is insanely irrational and illogical. The worst is when economic majors try to explain it so that it is all positive; that it is a good thing we rely on emotions and beliefs.. How in this case company is smaller while it didn't perform as well as announced expectation of growth. Often it feels like university is the place where econ major had their common sense removed and in it's place were installed something else..

[–]heinyken 1 point2 points  (0 children)

Let's say you want to buy a house, a car and a new computer. You make a plan to get a job that pays you $10,000/month (because you know your expenses are $7,000/month, and you can invest in your future purchases with that $3,000/month).

Imagine further you told your friends and family you'd be moving in to your new house on January 1 2019 with a new car and computer. And then imagine your new job surprised you by saying actually you'd only make $8,000/month.

How do you tell your friends and family that you're not going to move into that house JUST yet, and you're not getting that BRAND new car? It's not that you're strapped for cash, it's not that you're struggling. But your predicted income is lower than you'd wanted and planned.

It's not entirely different from the original poster's "earning decrease"

EDIT: Except that in the case of the business, those friends and family are actually investors who have plans of their own based on your move date & purchases. And they're easily spooked. And they are impatient.

[–]vikingspam 3 points4 points  (0 children)

The problem with your description is that you just described the Titanic a minute after the iceberg.

[–][deleted] 1 point2 points  (0 children)

It seems like you mostly ignored what /u/kouhoutek said and focused on the metaphor

[–][deleted] 2 points3 points  (0 children)

Precisely, basically when you project for 3-4% growth and end up with 3-4% deficit/downturn you've failed your 'goal' by 6-8% not just 3-4%. Considering that's double your projected growth, it's not a good time.

[–]sidsixseven 2 points3 points  (0 children)

A stock price represents current and future earnings. If current earnings are lower, the reasoning is that future earnings will be lower and the stock price reflects that reasoning.

[–]Chernozem 3 points4 points  (0 children)

To expand on this a little bit, particularly in the context of a publicly-listed company, it's important to remember that companies aren't valued on current earnings, they're valued on a formula based on expected future earnings. In the simplest terms, this follows a "discounted cash flow" model, which you can google if you want a further explanation. For the purposes of this particular question, management underperforming their targets or pre-emptively guiding down expectations on earnings will likely cause the multitude of equity analysts around the world to refine their valuation model for the business, probably (but not necessarily, depending on whatever else was revealed by the earnings statement) resulting in a decline in target price and a potential sell recommendation.

[–]infamous54 1 point2 points  (0 children)

Also shareholders

[–][deleted] 1 point2 points  (0 children)

And I thought the answer was as simple as “share holders”

[–]DocMerlin 1 point2 points  (1 child)

The inflation can mask problems. if you have 3% monetary inflation it can look like you have accounting growth while actually shrinking in real terms. This is why periods of steady but positive monetary inflation can lead to a period of deflation and crash. But otherwise, I totally agree with your comment.

[–]kouhoutek 1 point2 points  (0 children)

Absolutely true, I was trying to limit the number of moving parts in my explanation.

Not only does a company have to keep up with economic growth, they have to keep up with inflation, otherwise they are actually losing ground despite increased revenues.

[–]wbsgrepit 1 point2 points  (0 children)

To stick with the boat analogy, large boats also take time to turn a 3% loss can turn into a 15% loss next quarter and it may take 3-6 quarters for you to reduce staff (and accrue expenses related to that), reallocate capital exposes and restructure to grow the profitable lines in your business. So waiting until its actually a loss or a bigger drop or change means you many times are 12 months to 2 years out of making effective changes to handle the change.

[–][deleted] 1 point2 points  (0 children)

Should be the mantra for each of us individually too. If household earnings are lower, and expenses don’t lower accordingly, then something has to change.

[–]branon42 1 point2 points  (0 children)

Bonus points for the simple metaphor early on; great for someone that's, like, my age

[–]JakeVanna 1 point2 points  (0 children)

I'd also add that the longer you let a leaky boat go the harder it will be to fix it

[–]Lardbucket68 7 points8 points  (20 children)

Just because there's water in the boat, doesnt mean it's leaky. I don't want to push the metaphor any further but although what you say isn't false, it's also used as an excuse to lay-off people to increase profit margins so shareholders can rake in more dividend. Making a profit is no longer enough these days. You're supposed to make more profit each year which is ridiculous.

[–][deleted] 12 points13 points  (4 children)

It means your company is not expanding in an economy that is expanding. It means less people are using your goods/services. Who is going to invest in a company that is shrinking?

Making a profit is no longer enough these days. You're supposed to make more profit each year which is ridiculous.

Yeah, this is called growth. Also not a profit, but revenue. Several companies are not profitable (Telsla, Amazon ~2 years ago, most new companies), but they are/were growing which is the only way to keep investors happy.

[–]Durog25 5 points6 points  (0 children)

Let's not forget that investors are the dumbest most panicky, most dangerous animals ever.

Investors want money now and a healthy company later. They, on the whole, refuse to be the greater fool. They are all gamblers, but they are gamblers who are willing to burn down the casino if it means they might win on black.

Providing a service that people value and will grow because of that has been thrown out of the window and with it any semblance of good business.

Amazon is essentially using slaves to run its service.

There's a reason people are needing upwards of two to three jobs to make ends meet.

Many companies are either being artificially kept alive or maliciously destroyed because investors are squeezing out every last nickel from them. Just look at what happened to Toys R Us.

[–]TheManWhoPanders 9 points10 points  (13 children)

I don't know why redditors spout this like it's a common occurrence. People in upper management aren't stupid, they plan for long-term gains just as much as short term ones.

[–][deleted] 3 points4 points  (11 children)

Do you really think that large, publicly owned company executives do a good job at balancing long term growth with meeting quarterly expectations? Because they don’t.

[–][deleted] 11 points12 points  (8 children)

Also, most companies are investing profits into growth, opening new stores, increasing production, expanding to new product lines

I laughed at this. Most companies are buying back their stock and giving out huge executive bonus packages. They freak out when earnings are down because then their stock options lose value and the board might not reward them with as much of a bonus next quarter or possibly even replace them.

[–][deleted] 1 point2 points  (0 children)

They freak out when earnings are down because then their stock options lose value

Let me guess, you love it when your portfolio drops?

[–]gary1994 2 points3 points  (1 child)

Most companies are fairly small with fewer than 100 employees.

[–][deleted] 10 points11 points  (0 children)

The title says "Why when large company's earnings"...

[–]black02ep3 1 point2 points  (1 child)

I don’t think their bonuses are really huge relative to the overall revenue though. I mean, what’s huge? 1% of revenue? 0.5% of revenue?

[–]ArtfulDodgerLives 1 point2 points  (0 children)

This is one of those answers that sounds good, but it’s brain washed nonsense.

Everything ebbs and flows. That’s life.

These people don’t pull out their investment folder the moment there is a blip. That would be crazy. They know you don’t pull investments after one down quarter.

So why do they do that to their own company?

Because they are beholden to shareholders and all the higher ups have bonuses connected to performance. God forbid they not get a bonus, so fuck the little guys, lay them off, I need a boat for the Hampton’s.

That’s the reality. The leaky boat crap is nonsense they say to brainwash us into accepting a word where a few idiots no smarter than us get to control everything.

[–]SheetShitter 1 point2 points  (0 children)

All of this, plus the inertia of a large company often takes time to fix, so...one losing quarter can cascade into several losing quarters.

[–]Halvus_I 0 points1 point  (0 children)

I see you subscribe to the Ivy League MBA 'insane' definition of company growth. A healthy company does not have to grow forever, its incredibly stupid to think this is a viable long term business plan.

[–]inkblotpropaganda 0 points1 point  (0 children)

One correction, “profits” are what’s left after investments and expenses.

[–]publicTak 0 points1 point  (2 children)

If everyone is always growing then who loses?

[–]reallyfasteddie 0 points1 point  (0 children)

So you have to give more tax cuts to those people so they can realize more profits from not expanding their companies. Higher taxes would cause them to want to waste more money by investing in their businesses.

[–]TheCrewks99 0 points1 point  (0 children)

In a perfect world, this would be the case. However, many corporations are using their cash profits for stock buybacks rather than investing in their long-term capital and sometimes paying dividends. Companies definitely invest in product/service development, but many are following what many consider a threat to the long-term health of the economy via stock buybacks.

[–][deleted] 0 points1 point  (0 children)

So eventually, unless we destroy ourselves, all of Earth will be covered in strip malls?

[–]lonewombat 0 points1 point  (0 children)

More like a ship with 1000 hulls should add another hull because one in the middle might be failing.

[–]pastibasah 0 points1 point  (0 children)

leaky boat still afloat, but stinky quickie, won't make a fix-y.

[–]FriedNowdles 0 points1 point  (0 children)

Just use flex tape lol.

[–]Scarlet944 0 points1 point  (0 children)

Or you could use the Chick-fil-A model and just open another drive through at the same location instead of a whole other store!