Monday, October 22, 2012

Stocks don't get "punished" for missing estimates

You see it all the time, "so and so got punished for missing estimates." It's especially common in the press relating to a specific market segment, but isn't strictly a finance publication. The other day I saw this in numerous articles about Google. Here's what one Android Web site had to say:
Stocks -- or, more accurately, investors -- always react to quarterly results. Analysts keep detailed models of their expectations, and the average of these models is known as the “consensus estimate.”  If you miss consensus, as Google did, you get punished.
This is exactly wrong. There's no punishing going on.