Feature

Chasing unachievable profits

These unrealistic expectations come from analysts who “tend to fall in love with the companies they’re covering” and don’t forecast for the market as a whole, said Geoff Colvin at Fortune.

Geoff Colvin
Fortune

“Brace yourself for an increase in stupid, misleading, or illegal action by U.S. companies,” said Geoff Colvin. Expectations for corporate profits are “insanely optimistic” right now, and when companies fail to deliver the miracles Wall Street is forecasting, managers may start misbehaving. Many analysts are predicting double-digit profit growth this year, even though corporate profits are already near post–World War II record levels. “It makes no sense” to think they’ll climb still higher, especially given “America’s creeping economy, slowing growth in Asia, and potential cataclysm in Europe.”

These unrealistic expectations come from analysts who “tend to fall in love with the companies they’re covering” and don’t forecast for the market as a whole. Managers then try to meet those expectations, even if it means “doing things they shouldn’t,” like slashing investments that pay off in the long term or “playing the accounting rules like a fiddle”—not to mention resorting to fraud. The wise investor will look past the irrational exuberance and see that these profit expectations are “clearly in fantasyland.”

Recommended

Is the U.S. running out of ammunition?
Cargo of ammunition, weapons and other equipment bound for Ukraine waiting on a tarmac at Dover Air Force Base in Dover, Delaware
Today's big question

Is the U.S. running out of ammunition?

France aspires to work by working less. Is it working?
Paris city center
In depth

France aspires to work by working less. Is it working?

How Ukraine's looming counteroffensive could reshape Russia's war
Ukraine counteroffensive
In depth

How Ukraine's looming counteroffensive could reshape Russia's war

A company made a meatball from lab-grown woolly mammoth, and you can't try it
Mammoth meatball
'extinct protein'

A company made a meatball from lab-grown woolly mammoth, and you can't try it

Most Popular

How to watch 5 planets align in the night sky on Tuesday
Moon, Jupiter, Venus.
skyline

How to watch 5 planets align in the night sky on Tuesday

'Rewilding' animals could help combat climate change, study finds
Two gray wolves.
where the wild things are

'Rewilding' animals could help combat climate change, study finds

Harry Potter star Daniel Radcliffe is going to be a dad
Erin Darke and Daniel Radcliffe
harry potter and the dadly hallows

Harry Potter star Daniel Radcliffe is going to be a dad