The burden of expectations

Jayant Pai | jayant@ppfas.com

Often, the more things change, the more they remain the same. The results season is here again and everyone’s attention was focussed on the result declared by a professed IT bellwether. The results were slightly below expectations and the stock was hammered 10% in a day. Of course the poor result was not the only reason for this. The unexpected resignation of a key member of the top management also played its part. On the other hand, another IT stock which was deemed a “wannabe” until a few quarters ago, surprised everyone by posting a stellar performance and consequently rose 20% in three days.

Such stories are repeated every few months. As in other aspects of life, the degree of expectations can have a marked effect on the joy, sorrow or indifference that we experience. In the case of the former, the shortfall between reality and expectation was a mere 1.72%, not an earth-shaking event, to say the least. Also, given the size of the company and the management bandwidth, the resignation of an old-timer should not be a matter of such grave concern. It is just that the run-up in the stock price prior to the results, factored in a perfect performance and left no room for any unexpected/unpleasant surprises. In the case of the latter, the company had a history of tepid performance and so was not the victim of great expectations (despite it being considered a large-cap IT stock). Hence the robust performance led to an outsized increase in the attention it got. There have been myriad other instances where perfection is expected of industry leaders while the followers are given more leeway by the markets.

However, many a time, the exhilaration of migrating to the big league is accompanied by onerous responsibilities, not necessarily of the operating kind, as managements have to contend with rising expectations and reconcile to an increasing proportion of their time being taken up by investor and media management activities.

Staying at the top is as difficult (if not more) than reaching there. Not everyone is capable of handling the burden of rising expectations. By the way, M.S. Dhoni and his team could relate to this statement over the next four years…..

You may also like to read one of our related blogposts: Read between the (head) lines while investing.

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