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Investment Terminology

Miscellaneous

Miscellaneous
near team

Near term

Share:

Near term and short term are used similarly wherein a day's trade one can use the strategy of a near or short term trader. Short term is extensively used in financial markets but as the consequences of the financial crisis of 2008, the risks of short term investing and the proliferation of short term practices and underperformance in the financial sector has led to an increase in the critiques of such strategies like the OECD and the World Economic Forum.

Trading practices can be short or long term. There can be trading based on price movements rather than value where high-frequency trading and short term holding of stocks can be seen.

Certain activist investors push firms towards such moves to pay off investors but it may come at the expense of long term wealth creation like share buybacks or cutting research and development to meet quarterly earnings targets.

  • Short Selling or betting against a firm's value using leverage is a strategy used by many hedge funds. There can be leveraged buyouts which can pull capital out of firms and pile it up with debts.
  • There can be incentive structures which promote strategies based on share price and investor sentiments rather than long term health of firms.
  • The money manager incentive is based on short term performance and it is paid quar-terly or annually. The short term investing activities offer immediate rewards and it may have a consequence for the long term.
  • Businesses and economists also use the near term to refer to things or data points that will occur or be revealed over the next several months.
  • There are many such strategies where short-termism with its disproportionate focus on quarterly returns and it weakens firms and the economy. It leaves companies with less to invest in research and development.
  • Instead of productive investment, it promotes bubbles, general economic underper-formance by incentivizing activities and financial instability which can benefit only a few while providing little value to the society.
  • Such strategies may also have the effect of taking capital out of the productive econ-omy which increases the holdings of high net worth individuals, ultimately, adding to growth in income inequality.
Date Published: Aug 29, 2020

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