Expectations Are Faulty Standards
March 27, 2019 at 3:04 a.m.
By Roger Grossman-
I first really noticed my new awareness of such things when I was driving by gas stations in my travels this winter. I was noticing as I was driving home from work on a Wednesday afternoon that the price of gas had gone up 15 cents since I went to the station that morning.
That was not good, because I was counting on getting gas on my way home. Waiting cost me $2.40.
It occurred to me, in that moment, that people who have invested money in the stock market go through the same decision. Do I sell a stock that’s been declining, or do I wait? It might go down more, or it might come back up. Or what about a stock that has been on a meteoric rise? Has it hit its peak, will it stabilize and hold or will there be a profit-taking selloff?
The price of that stock is affected by a lot of different factors. A lot of publicly-traded companies give an update on how they’ve been doing every three months. In advance of those announcements, experts who follow and comment on the stock market will project what those reports will say.
Then a funny thing happens: the actual report comes out and people compare it to the expectations.
If the numbers are better than the forecasters thought, the stock often goes up. If they are lower, the stock often goes down.
So that always makes me ask the question, “What if those expectations are faulty?” The forecasters are certainly people who know a lot more about the markets than me, or most people. But what if they are wrong? It does happen, and it could have a major impact on the company and its investors.
It happens in sports, too.
As the Cubs prepare to take the field for the first time Thursday, Cubs fans are seeing a team that has the potential to make run to another World Series. A lot of Cubs fans see this team as a 100-win team. But outside of Cub Nation, forecasters see the Cubs struggling to produce more than 85 wins and finishing no-better than third in a loaded National League Central division.
Each of the last four years, the Cubs have been a playoff team. Like a stock at quarterly earnings report time, the feeling about the Cubs depends on who you ask. Some people are ready to sell their stock in the Cubs because they feel their window of winning is closing. Some think now is the time buy, because their core group of relatively-young players with winning experience puts them in a prime position to have a big season.
The problem is that expectations have been so high since Joe Maddon sat at a microphone and told us all he didn’t see why the Cubs couldn’t win the whole thing right away.
Last year they won 95 games but lost the one-game playoff with the Brewers for the division title, and then lost the following day to the Rockies in the Wild Card game. A disappointing ending to be sure, but Cubs fans don’t have to travel too far back in the time machine to find lean years where we started the mantra “Wait ‘til next year” in late April.
So, ask me today if I will take 95 wins in 2019 and be in the playoff hunt come September and October, and I will say yes in a heartbeat.
That applies to a lot of teams in sports. The Golden State Warriors won a record 73 games a couple of years ago. You’d be foolish to think they could do that every year, but expectations for them are really high.
Fans of the Dallas Cowboys and Notre Dame football expect their teams to be in the championship hunt every year, and anything less just is not acceptable. There are others, like the New York Yankees, Penn High School football and Indiana Hoosiers basketball.
But expectations that are faulty lead to unnecessary pressure, and that leads to trouble. Failure to meet expectations is what leads to blame, and blame (like we talked about last week) doesn’t help anyone.
You’d be wise to sell your stock in that.
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I first really noticed my new awareness of such things when I was driving by gas stations in my travels this winter. I was noticing as I was driving home from work on a Wednesday afternoon that the price of gas had gone up 15 cents since I went to the station that morning.
That was not good, because I was counting on getting gas on my way home. Waiting cost me $2.40.
It occurred to me, in that moment, that people who have invested money in the stock market go through the same decision. Do I sell a stock that’s been declining, or do I wait? It might go down more, or it might come back up. Or what about a stock that has been on a meteoric rise? Has it hit its peak, will it stabilize and hold or will there be a profit-taking selloff?
The price of that stock is affected by a lot of different factors. A lot of publicly-traded companies give an update on how they’ve been doing every three months. In advance of those announcements, experts who follow and comment on the stock market will project what those reports will say.
Then a funny thing happens: the actual report comes out and people compare it to the expectations.
If the numbers are better than the forecasters thought, the stock often goes up. If they are lower, the stock often goes down.
So that always makes me ask the question, “What if those expectations are faulty?” The forecasters are certainly people who know a lot more about the markets than me, or most people. But what if they are wrong? It does happen, and it could have a major impact on the company and its investors.
It happens in sports, too.
As the Cubs prepare to take the field for the first time Thursday, Cubs fans are seeing a team that has the potential to make run to another World Series. A lot of Cubs fans see this team as a 100-win team. But outside of Cub Nation, forecasters see the Cubs struggling to produce more than 85 wins and finishing no-better than third in a loaded National League Central division.
Each of the last four years, the Cubs have been a playoff team. Like a stock at quarterly earnings report time, the feeling about the Cubs depends on who you ask. Some people are ready to sell their stock in the Cubs because they feel their window of winning is closing. Some think now is the time buy, because their core group of relatively-young players with winning experience puts them in a prime position to have a big season.
The problem is that expectations have been so high since Joe Maddon sat at a microphone and told us all he didn’t see why the Cubs couldn’t win the whole thing right away.
Last year they won 95 games but lost the one-game playoff with the Brewers for the division title, and then lost the following day to the Rockies in the Wild Card game. A disappointing ending to be sure, but Cubs fans don’t have to travel too far back in the time machine to find lean years where we started the mantra “Wait ‘til next year” in late April.
So, ask me today if I will take 95 wins in 2019 and be in the playoff hunt come September and October, and I will say yes in a heartbeat.
That applies to a lot of teams in sports. The Golden State Warriors won a record 73 games a couple of years ago. You’d be foolish to think they could do that every year, but expectations for them are really high.
Fans of the Dallas Cowboys and Notre Dame football expect their teams to be in the championship hunt every year, and anything less just is not acceptable. There are others, like the New York Yankees, Penn High School football and Indiana Hoosiers basketball.
But expectations that are faulty lead to unnecessary pressure, and that leads to trouble. Failure to meet expectations is what leads to blame, and blame (like we talked about last week) doesn’t help anyone.
You’d be wise to sell your stock in that.
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