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by cpkpad
3091 days ago
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> That implies they must find a lot of suckers to sell to. Stock prices are usually driven by analysts who spend their days analyzing companies to predict future performance. Good luck fooling them all. It actually indicates something a bit different. CEO's optimize for their own compensation with bonuses and similar set by quarterly goals. They optimize for meeting goals over company performance. Externally, companies work on perception. Analysts have no way of knowing if good R&D is still going on or if sales figures are getting inflated. They operate only on externally-visible information. Hence, CEOs (who expect an average tenure of three years) optimize for externally-visible information on metrics over long-term performance. They also optimize for graft to the board members (so they can keep their jobs), but that's a whole different story. The exception seem to be founder-run companies. Founders have an emotional stake, a more significant long-term financial stake, and have not gone through the corrupting process of becoming a CEO. Which of those is dominant? Your guess is as good as mine. |
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Analysts are paid a lot to get this right. There are a number of ways to figure this out. I read, for example, of analysts counting cars in store parking lots. Peter Lynch of Magellan Fund fame talks a lot about getting this information via proxies in his book "Beating The Street".
If you follow corporate earnings reports, you'll often see the stock drop on seeing a report of good earnings that exceeded expectations. This is because the analysts got a whiff of a stink coming from the company that their long term prospects weren't so good.
If the corporation is larger, there is a LOT of money (billions of dollars) riding on correctly predicting future performance, and analysts who can figure it out get paid accordingly.
It's just not plausible that CEOs can routinely and easily fool these guys.