Every now and again I hear a quote that grabs my attention. Usually, when I really like the quote I’ll enter it into a document I keep of interesting quotes . I’ve been doing it for years and that document was the source I used for the e-book I wrote for subscribers to this site (to get the e-book, simply enter your email address and first name in the signup box on the right). I ran across one recently that I enjoyed and wanted to reflect on with you.
It was in a recent earnings call for JP Morgan Chase. The most interesting feature of an earnings call can be the Q&A section, where analysts ask the CEO/CFO questions about the recent results, the future outlook, and the overall state of the business. Most CEOs are very disciplined during these Q&A sessions, where a misstep could cause the stock to plummet (a discipline that the former CEO of Trump International appears not to have learned). While responding to an analyst’s question, Chase CEO Jamie Dimon said the following:
“I would just add as a policy matter, we make economic decisions not accounting decisions. Accounting is a fiction.”
While I may be risking objections from my many friends in the noble accounting profession, I have to say “amen”.
We are surrounded by fictional constructs that cause us to make bad decisions. Sapiens, the book by Yuval Noah Harari that entranced Bill Gates among others, asserts that most of the institutions we take for granted – money, countries, religions – are mere figments of Sapiens’ imaginations. While I don’t buy everything that Professor Harari is selling in his book, it is true that when faced with important decisions we are confronted with swirling data points that have varying relationships with what is real.
When Dimon said “we make economic decisions not accounting decisions”, he is telling investors that Chase seeks to build the value of their institution through smart decisions that grow the company over time. When he says “economic decisions”, he is saying “when presented with a decision we will decide what will maximize the real financial benefit to our bank” as opposed to deciding what will look best in the near term financial statements.
This applies to investing as well. An investing quote I enjoy (also entered into my personal quote archive) I first heard from Amazon’s Jeff Bezos, who was actually quoting Warren Buffet who himself was quoting the actual originator of the phrase, Benjamin Graham: