When What You See Is Not What You Expect

Market expectations (good and bad) can have an effect on a stock’s performance when these expectations are not met. While predicting the future is impossible, there are ways that investors can try and gauge potential outcomes based on numbers at their disposal.

- Simon Brown

One of the hardest lessons to learn in the market is that it’s about expectations rather than reality. Even a great set of results can actually see a stock trading lower if those results were below expectations. Inversely, a poor set of results could see a stock trading higher if they weren’t as bad as the market was expecting.

The important part of this equation is knowing what the market as a whole is expecting. Some online brokers offer access to analyst consensus forecasts and this certainly guides us as to what is expected from results. Often the easiest way to gauge things is to simply watch a share’s price movement in the minutes and hours after an announcement regarding the company is made – whether it be a trading update, merger, board changes etc.

But there is a better way to manage this process. And in light of a number of recent sell-offs of stocks that did not meet market expectations, I thought it important to cover the price/ earnings-to-growth (PEG) ratio again.