In races of all kinds – sports and politics are the easier to see, prior to the race both sides will be trying to manage expectations. As a fan you want whoever you are cheering for to win, but the team still has to perform. If your team is favoured, then the job of the leader and/or coach is to both manage expectations and to ensure whoever performs, performs well, for if you underestimate your competition, the competition can surprise you resulting in an upset. Similarly on the stock market, companies have expectations that can be profited from. Companies on the stock market have a track record of performance and expected performance. Sometimes the company is clicking on all cylinders and performs very well; sometimes companies are doing well but not quite meeting the expectations but still doing well. And sometimes companies are not doing well and the stock price deserves to go down. In the second case is where money can be made. We all follow certain sectors more than others because that is where our normal interest is. When the company is doing well but not beating expectations the stock price tends to drop, because those that bought it to double and triple their money need to sell and buy something else. There is likely nothing wrong with the company, but expectations have changed and people value it differently. As an investor, you can then ask yourself when do you believe the company will be clicking on all cylinders – 3 months?6 months? or a year?

Linking to dividend paying stocks, while the above process applies to all companies, it is easier to narrow your field for example which dividend paying companies are underperforming but still profitable to pay their dividend? When the prices go down based on changed expectations, it can be a buying opportunity and you will can make money both on the price increase and the continuing dividend. The market will tell you there is a reason for a drop in stock price, what the reason is always the big question that can be best answered in hindsight. If the company remains profitable and pays a dividend, then in the longer run the share price will tend to go upwards as it meets and beats expectations.

There are more questions than answers, till the next time – to raising questions