Understanding the Past is Key to Understanding the Future Overreactions to Surprises Leads to Buying Opportunities

The Extrapolation of Short-Term Trends

In my experience, stocks begin to fall out of favor when companies miss Wall Street estimates and then really get hammered when actual earnings decline. That’s when prices can be least efficient, as the market extrapolates short-term trends too far into the future and also ignores companies that may still have a few disappointing quarters ahead.
Source: http://www.valueinvestorinsight.com/

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