The spring time will always bring back baseball’s “boys of summer.”
After a long winter layoff, last year’s errors, strikeouts, and failures are quickly forgotten as hope springs anew and everyone, at least in spring training, is a World Series contender.
Likewise, spring also signals the beginning of another financial earnings season as Wall Street analysts give their opinions regarding the well-being of corporate America, commonly referred to as the quarterly corporate earnings projection.
One might think that both baseball players and analysts would have the same objective, namely accuracy.
In baseball, fielders strive to commit fewer errors, pitchers want more strikeouts, and batters would like to achieve a higher batting average.
Likewise, analysts want a spot-on prediction of a company’s strengths, weaknesses, and consequently earnings per share. However, if that is your opinion, you would be wrong. Not regarding the ballplayers, as their statistics are published on a daily basis for all to see. I’m referring to the stock analysts who play a much different game.
Their goal is to collect the necessary data made available to all and to project the exact performance of the corporation under discussion.
At that point is where a turn is made. The analysts are then compelled to discount their numbers and provide statistics that they know are less than the truth.
Unlike baseball, the analyst game on Wall Street is to make more errors, walk more batters, and get fewer hits. In other words, lose every time out.
This seems contradictory to the way most games are played. However, on Wall Street the end result is always that corporations outperform analysts’ expectations, therefore moving stocks higher.
Consequently, what seems like a losing performance quarter after quarter is actually a winner. Think about it.
CNBC, Bloomberg, and others must fill hours and hours of television programming. Imagine how both incredible and unbelievable the analyst interview would be if Maria Bartiromo said the following: “Our next guest has been a stock analyst for ten years and has never been right.”
But because of that, if you bet the stock would pop after outperforming his projection, you would have made money. (“Introducing Mr.-discount-his-words-by-20%-Smith.”) Visualize infielders intentionally committing errors, batters striking out on purpose, and pitchers deliberately walking every batter.
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