There is a popular conception that the stock market never forgives a quarter which is not way ahead of the same one last year! There is plenty of substance to these kinds of stock market expectations, but does it drive managements around the bend?
The pressure for ever improving quarters produces extreme focus on niches. This in turn, leads to earth-shaking risks related to the futures of the niches. Changes in fashion trends, customer boredom with old brands, and technological obsolescence, are the most recurrent examples of eventual stock market failure arising out of narrow focus.
It is safer, in terms of durable stock market value, to build functional competencies, barriers to entry, and sustainable competitive advantage, because such skill sets can never become irrelevant in the worlds of industry and enterprise. This kind of direction may lead to periods of stagnation and even decline for stock market investors, but long term prospects hold good.
It is rather obvious but entirely true that expertise in the Finance function has high stock market value. No company can do without effective control systems, funding at optimal costs, airtight treasury, and project appraisal. Taxation, flexibility, and risk management are some of the key parameters on which companies with the best Finance teams stand apart from the crowd.
Human Resources Management is another field with universal and timeless value for stock market interests. Industrial Relations have become less relevant than they used be in the socialist days of the last century, but they continue to play roles in industries dominated by active Unions. Leadership, motivation, productivity, diversity, and retention of key talent remain intractable issues. Competence in this field can differentiate winners.
Most stock market quarters are skeptical of seemingly exaggerated claims which Marketing professionals love to make about their profession! Nevertheless, understanding of and bonding with customers is an intangible matter which stock market investors easily under rate. This may have much to do with discontinuities in quarterly performance trends, as the best companies invest in building on customer relations even in the toughest times.
There is a strong case to use quarterly reporting as a means of review, and to examine how a company navigates towards its long term goals. It can be counter-productive to pile undue pressure on executives for short-term results, particularly if it means abandoning the deliberated strategy.