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An investment phenomenon of the past several years has
been the appearance of the "profit or revenue warning". During
this period, investment analyst consensus estimates on corporate earnings and
revenues have been compiled by organizations such as IBES International and
publicized in the marketplace. Market participants have closely focussed
on these forecasts and if the actual performance was a penny or two off the
estimates the stock market would react substantially.
With profit and revenue warnings adding a new dimension to
the already extreme stock market volatility, several points are worthy of
reflection:
- These prognostications are only estimates of estimates
and should not be taken too seriously. They do, however, increase
overall stock market price volatility and raise investor stress levels.
AND
- This increased price volatility may provide periodic
investment opportunities as the stock market may overreact to an unexpected
corporate release.
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