The Penalty Box: Expectations Are A Fool’s Paradise
December 7, 2022 at 2:46 a.m.
The Penalty Box: Expectations Are A Fool’s Paradise
By Roger Grossman-
I first really noticed my new awareness of such things when I was driving by gas stations in my travels in the winter of 2016-17. 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 had 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.
It 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 were 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 moving forward.
It happens in sports, too.
It happens during the weeks leading up to every sports draft. Players are drafted on not only the expectation of how their skills and talent will work against professional players and coaching schemes, but also whether the biggest need they have can be filled by a player who is one of the next few players to be drafted.
If they can’t find anyone who fits that bill, they usually trade that pick to a team who does have someone who fits or draft the player anyway and then try to trade them after the fact.
Fans like you and I do this, too.
Fans of teams whose are winning big will block out time in their busy schedules to watch their team play. They will plan family gatherings, meals, household duties—almost everything—around making sure that the time when their team is playing isn’t interrupted by anything.
However, teams that are average or bad (see almost all Chicago teams as examples) force their fans to make a decision: “Do I want to invest my time in watching this team, or do I have something I need to do more or that I’d rather do more?”
Time is valuable. Sometimes we squander it, and sometimes we use it wisely.
Just like our money.
Now, there are traders and there are investors.
Traders are attempting to buy stocks are ride them on the way up, then sell them before they go back down.
Investors are in it for the long haul. They buy shares of a company stock and hold them for decades.
Fans can be like that too.
I am a Cubs fan. I will watch them no matter what the score, no matter how many games out, no matter how hard they are trying to win. The Cubs, in this analogy, are a heritage stock that I inherited from my parents. I will hold them until I take my last breath and then pass them along to my son.
Same thing with Notre Dame.
And the Irish, the Yankees, the Cowboys and Lakers…they are all franchises whose “shareholders” never expect for the share price to drop. They demand they win the championship or else.
But expectations that are faulty lead to unnecessary pressure, and that leads trouble. Failure to meet expectations are what leads to blame, and blame doesn’t help anyone.
Just like in business.
But there is one big difference between sports and the stock market—the markets affect your real-life bottom line, and being a sports fan shouldn’t.
A good investment really feels good, and a bad one couldn’t feel more the opposite.
Be careful of your expectations, and what you invest in.
I first really noticed my new awareness of such things when I was driving by gas stations in my travels in the winter of 2016-17. 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 had 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.
It 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 were 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 moving forward.
It happens in sports, too.
It happens during the weeks leading up to every sports draft. Players are drafted on not only the expectation of how their skills and talent will work against professional players and coaching schemes, but also whether the biggest need they have can be filled by a player who is one of the next few players to be drafted.
If they can’t find anyone who fits that bill, they usually trade that pick to a team who does have someone who fits or draft the player anyway and then try to trade them after the fact.
Fans like you and I do this, too.
Fans of teams whose are winning big will block out time in their busy schedules to watch their team play. They will plan family gatherings, meals, household duties—almost everything—around making sure that the time when their team is playing isn’t interrupted by anything.
However, teams that are average or bad (see almost all Chicago teams as examples) force their fans to make a decision: “Do I want to invest my time in watching this team, or do I have something I need to do more or that I’d rather do more?”
Time is valuable. Sometimes we squander it, and sometimes we use it wisely.
Just like our money.
Now, there are traders and there are investors.
Traders are attempting to buy stocks are ride them on the way up, then sell them before they go back down.
Investors are in it for the long haul. They buy shares of a company stock and hold them for decades.
Fans can be like that too.
I am a Cubs fan. I will watch them no matter what the score, no matter how many games out, no matter how hard they are trying to win. The Cubs, in this analogy, are a heritage stock that I inherited from my parents. I will hold them until I take my last breath and then pass them along to my son.
Same thing with Notre Dame.
And the Irish, the Yankees, the Cowboys and Lakers…they are all franchises whose “shareholders” never expect for the share price to drop. They demand they win the championship or else.
But expectations that are faulty lead to unnecessary pressure, and that leads trouble. Failure to meet expectations are what leads to blame, and blame doesn’t help anyone.
Just like in business.
But there is one big difference between sports and the stock market—the markets affect your real-life bottom line, and being a sports fan shouldn’t.
A good investment really feels good, and a bad one couldn’t feel more the opposite.
Be careful of your expectations, and what you invest in.
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