High Variance

Stock Prices Are Not Grades for Last Quarter

For the past few quarters, I’ve noticed a disturbing pattern. At some point near the end of the financial quarter, professional stock analysts predict Apple’s numbers (e.g., profit and revenue) to go up a lot. The market takes these predictions seriously and the stock price adjusts to take them into account. Then Apple does report good numbers (usually record-breaking) but not quite as good as the analysts predicted. The stock goes down as the market adjusts using the new (factual) information about how well the company is doing. This is all perfectly normal.

The disturbing part is that the Apple tech writer blogosphere then complains that it doesn’t make sense. Their logic seems to be that because Apple just did really well, they should be rewarded for it and the stock should go up. They think the expectations shouldn’t matter. They don’t seem to understand that stock prices are a function of currently held capital and expectations of future performance. Sigh. If these writers want to be mad about something, they should be mad that the analysts are doing a lousy job at predicting Apple’s performance. They shouldn’t be surprised by basic market behavior.