When the market receives news flows from a company, and it does not take a liking to what it hears, then the reaction is immediate. We saw that in a recent announcement by a leading automotive conglomerate to invest in a private bank. The market almost instantaneously took a dislike to the idea, and the stock price was punished. Clearly, the markets are pricing companies almost to perfection.
Investors are not leaving an adequate margin for error. They seem to get easily rattled by any news that gives them a sense of insecurity. This is because we have been generous in how we value companies at the higher end of the valuation band. Investor tolerance snaps very quickly to slip-ups in performance. This trend would continue even in the most loved companies of the market. In a way, this is a difficult phase for boards as the markets have a very rigid position towards what they can do, how far they can expand, and what kind of risk-taking is acceptable.
Bull markets seem to be giving us a lot to think about, enough to adapt to and much to learn.
