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Growth expectations are a seemingly inevitable side effect of the stock exchange: imagine there was a perfectly highly profitable and perfectly stable (in both
by usrusr 5y ago
Growth expectations are a seemingly inevitable side effect of the stock exchange: imagine there was a perfectly highly profitable and perfectly stable (in both directions) company. To people sure of that stability, a "correct" share price would be defined as a function of central bank interest rate. Buy when below, sell when higher. But if that perfect stability existed in reality, people would not know. Even if the average expectation was spot on perfect stability, it would be a bell curve distribution with some being more optimistic and others less. Share transactions only go one direction, pessimists selling to optimists. You end up with an all-optimist ownership after pessimists and realists are bought out.
- zozbot234 5y agoThere is a corrective mechanism to this dynamic and it's called the takeover bid. As soon as the "optimists" fail in their growth goals (and they will fail at some point, pretty much by definition), their valuation drops and the pessimists who had better foresight can take back control.
- usrusr 5y agoBut before that happens, any amount of "grow or die trying" can take place: as long as inertia keeps the lights on, team "reinvent ourselves!" enthusiastically digs an ever deeper hole. Occasionally those do strike gold I think, but I can't really think of an example right now. Some might say Nadella Microsoft, or the iPod company, but I'd say that the former wasn't quite down enough to qualify, and iPod-age Apple wasn't a growth bet at all: everything they did at the time would have been considered a success if it only stabilized on the level reached by the CRT iMacs.