> Analysts have no way of knowing if good R&D is still going on or if sales figures are getting inflated.
Analysts are paid a lot to get this right. There are a number of ways to figure this out. I read, for example, of analysts counting cars in store parking lots. Peter Lynch of Magellan Fund fame talks a lot about getting this information via proxies in his book "Beating The Street".
If you follow corporate earnings reports, you'll often see the stock drop on seeing a report of good earnings that exceeded expectations. This is because the analysts got a whiff of a stink coming from the company that their long term prospects weren't so good.
If the corporation is larger, there is a LOT of money (billions of dollars) riding on correctly predicting future performance, and analysts who can figure it out get paid accordingly.
It's just not plausible that CEOs can routinely and easily fool these guys.
Analysts are paid a lot to get this right. There are a number of ways to figure this out. I read, for example, of analysts counting cars in store parking lots. Peter Lynch of Magellan Fund fame talks a lot about getting this information via proxies in his book "Beating The Street".
If you follow corporate earnings reports, you'll often see the stock drop on seeing a report of good earnings that exceeded expectations. This is because the analysts got a whiff of a stink coming from the company that their long term prospects weren't so good.
If the corporation is larger, there is a LOT of money (billions of dollars) riding on correctly predicting future performance, and analysts who can figure it out get paid accordingly.
It's just not plausible that CEOs can routinely and easily fool these guys.