Should companies adopt the Olympics approach to managing investors

14th August 2012

In the weeks leading up to the Olympics, my journey into work became increasingly grim as more and more announcements and signs told us commuters what to expect should we be so foolish as to use the trains and tubes during the Games. By the time London mayor Boris Johnson had weighed in with his own ‘personal' message, it felt as if the capital's transport infrastructure was on the point of collapse.

It did occur to me at the time – and, with London's Olympic flame now extinguished, so it has proved – that the actual picture might not turn out to be quite as bleak as had been painted. Ultimately all London Underground and the rest were looking to do was manage expectations – something we see all the time in an investment context.

Companies continually look to carefully manage expectations for their earnings ahead of results so they can then beat them. However, while the Olympic travel situation was purely about expectation, with companies and markets, it is in many cases actually to do with valuation. And what investors often miss is that, where a stock is very cheap, bad news has usually already been discounted.

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