Investing in a 140-character world

How short-term thinking is killing capital markets.

May 10, 2011

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656177_take_shorter_showersWe live in a world of shrinking attention spans, where people are expected to convey complex ideas and concepts in 140 characters or less. So argue two authors of a recent speech posted on the Bank of England’s Web site, Andrew G Haldane and Richard Davies. As more and more people focus on the short-term, what does this mean for the investment world? Will it be driven by choices based on short-term gain rather than long-term sustainable growth as in years past? It’s an interesting question especially in the pension universe. Here’s what Haldane and Davies have to say:

If these forces are real, they might be expected to be particularly important in capital markets. These are a key conduit for choice over time. An efficient capital market transfers savings today into investment tomorrow and growth the day after. In that way, it boosts welfare. Short-termism in capital markets could interrupt this transfer. If promised returns the day after tomorrow fail to induce saving today, there will be no investment tomorrow. If so, long-term growth and welfare would be the casualty.

The full paper is worth a read especially given that they point to a dearth in research on the effects of short-term thinking in capital markets. Click here for the rest.

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