In baseball, the all-time leader in batting average is Ty Cobb, who notched a .366 career tally. In other words, the greatest hitter of all time failed to get a hit almost two-thirds of the time he stepped up to the plate. For the record, we’re not suggesting that Ty Cobb was a lousy hitter — we’re saying that getting a hit off a major league pitcher is a difficult task. So is predicting what will happen in the stock market. Actually, predicting the future is pretty simple. It’s accurately predicting the future that’s difficult.
Case(s) in point… Right before Fannie Mae and Freddie Mac imploded in 2008, 40% of analysts rated these two companies as either ‘Buy’ or ‘Strong Buy.’ A 2008 study of ten different analysts’ predictions found that the most accurate of these was right 60% of the time, while the worst saw only 14% of his predictions come true, with an average score of just 39%. Remember Jim Cramer touting the health of Bear Stearns just days before the firm disappeared off the face of the earth? Yeah, that was pretty funny — unless you were one of the poor sods who took his advice.
This brings us to Paul Leyland, an analyst at Investec. Leyland believes that purely online gaming companies are overrated in relation to their competitors who also have strong networks of betting shops, so he’s suggesting that you cut the online companies out of your portfolio. (Do it now — Leyland will wait.) Because he’s an analyst, major wire services like Reuters will freely distribute Leyland’s musings around the world. And because many investors share certain similarities with various herding animals, a good chunk of them will heed Leyland’s advice and dump the stock. And just like that, despite nothing about your business having fundamentally altered from one day to the other, your publicly traded online gaming company is worth less today than it was yesterday.
But hey, remember that heady day when you launched your IPO, and all those millions of dollars rained down, and you danced around like giddy children running through a sprinkler? Yeah, good times. Just don’t look up, cuz that ain’t water anymore…