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A general observation/question related to this style of headline we see here: “[...] beats [analysts] target” Why do we write like that? Wouldn’t it make more

by Y-bar 7y ago

A general observation/question related to this style of headline we see here: “[...] beats [analysts] target” Why do we write like that? Wouldn’t it make more sense to write “[analysts] misses [...] target”? It feels to me like writing “Weather rains more and beats meteorologists’ expectations” when “Meteorologists underestimates rainfall” would be more true.

rawrmaan 7y ago
I'm trying hard to find a flaw in this argument but I can't. Good point.
- swsieber 7y ago
  I think (I'm winging it here), it's because the market acts on the analysts predictions. The market turns the analysts predictions into expectations and acts on them.
  - rawrmaan 7y ago
    That’s the first argument I thought of, but people make plans based on the weather forecast too.
40acres 7y ago
"X beats Y's target" makes sense to me due to the nature of the stock market, and how expectations are "baked into" the share price. Quarterly earnings are all about performance relative to expectation, while it is accurate to say that the analysts are wrong in this instance, the market gives so much "trust" to analysts that we expect their targets to be expressed in good faith (I sense an SEC violation otherwise), so when a company beats expectations we view that as a decent proxy for performance.
scribu 7y ago
Because you want the most salient piece of information at the start. Otherwise, the front page of a financial site would look like this: * Analysts miss target regarding Tesla * Analysts are optimistic about Q2 returns for Boeing * Analysts etc.
- staticautomatic 7y ago
  Maybe it should look like that.
- losteric 7y ago
  Nothing wrong with that, but it won't happen when analysts are the ones writing most of the material for those financial sites... of course they're going to claim Tesla "beat expectations" rather than "analysts underestimate Tesla"
thereisnospork 7y ago
Here Tesla is the active agent, whereas the weatherman is the active agent in that scenario because rain is 'dumb' compared to a company. One wouldn't write 'the target avoided being hit by the archer' in a more hyperbolic example. Not that the other way around is wrong per say, just that the emphasis changes.
- peaktechisnow 7y ago
  This is the correct answer.
- jodrellblank 7y ago
  Tesla is "dumb weather" in this scenario, it's not building cars to chase analyst targets and then being pleased when it hits them, it's building and shipping cars - as many as it can - regardless of what analysts say. Analysts are trying to predict how many cars Tesla can build, and if they understand the company really well, their prediction will be accurate. With this result, you haven't learned much about Tesla, but you have learned that the analysts did not predict Tesla very well - so they don't understand it very well, and their reports might be wrong in the same way for other companies.
  - thereisnospork 7y ago
    When the Patriots[1] win a game where they are the underdogs[2], does the Boston Herald[2] headline read 'NFL analysts fail to predict outcome of football game'? [1]A team of people, trying to create as many points as possible, who don't give a damn what the analysts are saying. When they win, are we learning about the Patriots or the talking heads (who probably haven't changed much in the past week)? [2]A guy can dream. [3]Sportsbook digest, if that is a publication, might have that headline.
    - jodrellblank 7y ago
      Would the headline read "Patriots deliver more touchdowns than analyst targets, bets up 7%"? Do people talk about "targets" rather than "predictions" or "odds" in American Football analysis? "We set a target of X game wins for the Patriots this season". "Patriots beat analyst targets". No, it would say "Patriots beat Otherteam!", "Patriots win championship!". Analysts wouldn't get a mention. Phrasing it like Tesla is a team playing against Wall Street analysts is a bit weird, now that commentor mentions it.
whack 7y ago
If you see companies as a force-of-nature that can only be marginally influenced by humans, then you're right that the only variable is the analyst's prediction accuracy. But if you see companies as organizations made up of humans, that are capable of both overperforming and underperforming, then you have multiple variables. An analyst could provide an estimate for future-sales, and this estimate could be the best possible estimate given the information known at the time. And the estimate could still be wrong because the company's leadership/workers succeeded in turning things around. TLDR: If you believe in free-will, then it's possible for someone to beat highly-accurate 3rd party estimates. If you don't believe in free-will, then any mis-estimates are purely due to analyst error
- jodrellblank 7y ago
  TLDR: If you believe in free-will, then it's possible for someone to beat highly-accurate 3rd party estimates. How can you call them "highly-accurate" if they aren't accurate? Yes they can be "best available, given the information known", but we're talking about predicting the future - it's impossible to have all the information; if your prediction is wrong, you don't get to call it "accurate". If you don't believe in free-will, then any mis-estimates are purely due to analyst error That doesn't make it analyst /error/. It tells you the analysts' understanding of Tesla as is not as good as they thought. If they had predicted the result spot-on, they would be excellent analysts working with excellent information. They didn't, so now you know one or both of those is not excellent, or both, or they made errors. If you see companies as a force-of-nature that can only be marginally influenced by humans To go down this route, you have to imagine Tesla didn't really want to produce many cars at all - all the incentives and motivation they have about making lots of cars, earning millions, paying debt back, the incentives employees have for bonuses, doing what the boss says, staying employed, all amount to virtually nothing, but the commentary from Jones of SomeBank is enormously influential and can turn the entire company round. That's so disproportionate, I can't just take it as given.
  - whack 7y ago
    You're squabbling over semantics and ignoring the larger point. Someone can put together the best-possible estimate today based on all the information available. And this estimate could still be wrong, through no fault of the analyst, because of human free will. This makes stock-analyst estimates fundamentally different from weather predictions.
4rd 7y ago
reminds me of this classic https://www.fool.com/investing/general/2013/11/14/stupid-things-finance-people-say.aspx https://www.fool.com/investing/general/2013/11/14/stupid-thi...
belltaco 7y ago
Because way more people care much more about companies and their stock prices than play celebrity analyst. Analysts predict value of a company based on a lot of public data, and usually the stock price reflects those expectations. Who cares a hoot if analysts are wrong? Whereas Tesla beating expectations and their sales numbers are more important.

by Y-bar 7y ago

rawrmaan 7y ago

I'm trying hard to find a flaw in this argument but I can't. Good point.

swsieber 7y ago
I think (I'm winging it here), it's because the market acts on the analysts predictions. The market turns the analysts predictions into expectations and acts on them.
- rawrmaan 7y ago
  That’s the first argument I thought of, but people make plans based on the weather forecast too.

40acres 7y ago

"X beats Y's target" makes sense to me due to the nature of the stock market, and how expectations are "baked into" the share price. Quarterly earnings are all about performance relative to expectation, while it is accurate to say that the analysts are wrong in this instance, the market gives so much "trust" to analysts that we expect their targets to be expressed in good faith (I sense an SEC violation otherwise), so when a company beats expectations we view that as a decent proxy for performance.

scribu 7y ago

Because you want the most salient piece of information at the start. Otherwise, the front page of a financial site would look like this: * Analysts miss target regarding Tesla * Analysts are optimistic about Q2 returns for Boeing * Analysts etc.

staticautomatic 7y ago
Maybe it should look like that.
losteric 7y ago
Nothing wrong with that, but it won't happen when analysts are the ones writing most of the material for those financial sites... of course they're going to claim Tesla "beat expectations" rather than "analysts underestimate Tesla"

thereisnospork 7y ago

Here Tesla is the active agent, whereas the weatherman is the active agent in that scenario because rain is 'dumb' compared to a company. One wouldn't write 'the target avoided being hit by the archer' in a more hyperbolic example. Not that the other way around is wrong per say, just that the emphasis changes.

peaktechisnow 7y ago
This is the correct answer.
jodrellblank 7y ago
Tesla is "dumb weather" in this scenario, it's not building cars to chase analyst targets and then being pleased when it hits them, it's building and shipping cars - as many as it can - regardless of what analysts say. Analysts are trying to predict how many cars Tesla can build, and if they understand the company really well, their prediction will be accurate. With this result, you haven't learned much about Tesla, but you have learned that the analysts did not predict Tesla very well - so they don't understand it very well, and their reports might be wrong in the same way for other companies.
- thereisnospork 7y ago
  When the Patriots[1] win a game where they are the underdogs[2], does the Boston Herald[2] headline read 'NFL analysts fail to predict outcome of football game'? [1]A team of people, trying to create as many points as possible, who don't give a damn what the analysts are saying. When they win, are we learning about the Patriots or the talking heads (who probably haven't changed much in the past week)? [2]A guy can dream. [3]Sportsbook digest, if that is a publication, might have that headline.
  - jodrellblank 7y ago
    Would the headline read "Patriots deliver more touchdowns than analyst targets, bets up 7%"? Do people talk about "targets" rather than "predictions" or "odds" in American Football analysis? "We set a target of X game wins for the Patriots this season". "Patriots beat analyst targets". No, it would say "Patriots beat Otherteam!", "Patriots win championship!". Analysts wouldn't get a mention. Phrasing it like Tesla is a team playing against Wall Street analysts is a bit weird, now that commentor mentions it.

whack 7y ago

If you see companies as a force-of-nature that can only be marginally influenced by humans, then you're right that the only variable is the analyst's prediction accuracy. But if you see companies as organizations made up of humans, that are capable of both overperforming and underperforming, then you have multiple variables. An analyst could provide an estimate for future-sales, and this estimate could be the best possible estimate given the information known at the time. And the estimate could still be wrong because the company's leadership/workers succeeded in turning things around. TLDR: If you believe in free-will, then it's possible for someone to beat highly-accurate 3rd party estimates. If you don't believe in free-will, then any mis-estimates are purely due to analyst error

jodrellblank 7y ago
TLDR: If you believe in free-will, then it's possible for someone to beat highly-accurate 3rd party estimates. How can you call them "highly-accurate" if they aren't accurate? Yes they can be "best available, given the information known", but we're talking about predicting the future - it's impossible to have all the information; if your prediction is wrong, you don't get to call it "accurate". If you don't believe in free-will, then any mis-estimates are purely due to analyst error That doesn't make it analyst /error/. It tells you the analysts' understanding of Tesla as is not as good as they thought. If they had predicted the result spot-on, they would be excellent analysts working with excellent information. They didn't, so now you know one or both of those is not excellent, or both, or they made errors. If you see companies as a force-of-nature that can only be marginally influenced by humans To go down this route, you have to imagine Tesla didn't really want to produce many cars at all - all the incentives and motivation they have about making lots of cars, earning millions, paying debt back, the incentives employees have for bonuses, doing what the boss says, staying employed, all amount to virtually nothing, but the commentary from Jones of SomeBank is enormously influential and can turn the entire company round. That's so disproportionate, I can't just take it as given.
- whack 7y ago
  You're squabbling over semantics and ignoring the larger point. Someone can put together the best-possible estimate today based on all the information available. And this estimate could still be wrong, through no fault of the analyst, because of human free will. This makes stock-analyst estimates fundamentally different from weather predictions.

4rd 7y ago

reminds me of this classic https://www.fool.com/investing/general/2013/11/14/stupid-things-finance-people-say.aspx https://www.fool.com/investing/general/2013/11/14/stupid-thi...

belltaco 7y ago

Because way more people care much more about companies and their stock prices than play celebrity analyst. Analysts predict value of a company based on a lot of public data, and usually the stock price reflects those expectations. Who cares a hoot if analysts are wrong? Whereas Tesla beating expectations and their sales numbers are more important.