Why Mid Caps Offer a Happy Hunting Ground Taking Stock Greed, Fear and Revenge Can Force Prices to Overshoot in the Quest for Fair Value
Summary
IN PRINCIPLE, when market sentiment cools it is prudent to favour well-established companies with proven earnings power. That means companies in the FTSE Mid 250 index appear a sensible compromise - they are more dynamic than those in the FTSE100 index but less risky than small caps.
In practice, however, the City is usually well aware of changes, even at Mid 250 companies, so their share prices often discount what is known and may over-compensate in the short-term. Consequently a company may report excellent results, but see its share price fall. In the short-term at least expectations are in the price so profit- takers prevail.See the full content of this document
Extract
Why Mid Caps Offer a Happy Hunting Ground Taking Stock Greed, Fear and Revenge Can Force Prices to Overshoot in the Quest for Fair Value
This was the case on Tuesday when Icap (the world's largest interdealer broker, serving banks in a variety of financial instruments) reported a 38 per cent rise in normalised pre-tax profit to pounds 170m and a 19 per cent rise in earnings to 18.4p. The shares opened the day down 2p at 270p.
According to Company Refs, these numbers for I...See the full content of this document