Of course, you are correct that a long-term plan might result in greater earnings. However, we are accustomed to zero-rate, high-yield bonds. The typical investor finds it very challenging to switch strategies so soon.
It is also true that holding cash on the balance sheet for long reduces CAGR. Management must be confident that highly rewarding opportunities will offset the 0% returns of cash held
Yep, it's similar to running a portfolio of stocks. I think the issue with SVB is they passed up 0% to only earn 2% (and that 2% carried a huge risk in terms of liquidity). But if incentives are to produce higher returns on equity this year, it's easy decision that 2% is better than 0%.
Short term greedy decisions are painful in the long term!
Thanks for sharing this great article John.
It is great to have you back! Always enjoy your articles and have learned a lot from your writings
Great article John, really happy to see you’re getting back into writing. Can’t tell you how much I have learned through your blogs over the years.
Appreciate the feedback Michael. Thanks for reading!
Thank you, great post and enjoyed hearing the incentives perspective on SVB
Great post, enjoyed reading it
Of course, you are correct that a long-term plan might result in greater earnings. However, we are accustomed to zero-rate, high-yield bonds. The typical investor finds it very challenging to switch strategies so soon.
Very good point on the nature of compensation committee adjustments.
I had not considered that.
Great comparison of SVB vs JPM money allocation.
It is also true that holding cash on the balance sheet for long reduces CAGR. Management must be confident that highly rewarding opportunities will offset the 0% returns of cash held
Yep, it's similar to running a portfolio of stocks. I think the issue with SVB is they passed up 0% to only earn 2% (and that 2% carried a huge risk in terms of liquidity). But if incentives are to produce higher returns on equity this year, it's easy decision that 2% is better than 0%.