But diehards may cite the peculiar modern spectacle of investors savaging the stocks of companies that miss their earnings estimates for just one quarter, and sometimes not by much. More important, those so-called overreactions to earnings surprises aren't always overreactions. Consider the most spectacular earnings surprise of 1997, Oxford Health Plans' October announcement that it would report a quarterly loss instead of a profit. But what's most astonishing is that this plunge wasn't enough. Far from overreacting, Wall Street didn't immediately grasp the extent of Oxford's trouble.
Academic evidence suggests it underreacts about as often as it overreacts.
All of which makes it hard to sympathize with managers who cry that they're grievously constrained by nearsighted investors. If Wall Street doesn't like your long-term plan, it isn't because Wall Street generally despises projects with distant payoffs. It just despises your project. The equity markets have been democratized. If you're frustrated because they don't rush to embrace the bright promise of your coffee bars, your hotels, your casinos as enthusiastically as you'd like, remember that nowadays you're asking people to bet their retirement and their kids' college education on your vision.