A-Z Popular New Study Guide Search »
Investing
 
Related Guides
Investing

What is Priced For Perfection?

 , updated on
Priced for perfection is a term for investments that achieve a high valuation based on optimistic expectations for future earnings. This implies that a price predicts a number of positive future developments such as sales improvements, innovations, product launches, industry trends and economic conditions. If these predictions fail to materialize, the price may drop.

Economic Basis

The efficient market theory predicts that all known information about the probable future returns of an investment is immediately reflected in prices. An investor who purchases a stock based on future predictions should be aware that such possibilities are likely already priced into the stock.

Impact

A stock that is priced for perfection may not go up when good news such as strong earnings occur because such results were already expected. In some cases, a stock that is priced for perfection can fall dramatically on slightly negative news as the firm may have a far higher price than similar firms with a track record of mixed performance.

Example

At the start of a year, economists and investment pundits expect a particular economy to grow at 5%. Stocks rise dramatically early in the year to reflect this prediction. This particular economy hasn't grown at 5% for more than 30 years and this widespread prediction expects things to go very well. Mid-year it becomes clear that growth will come in closer to 3% and stocks decline significantly in response.
Overview: Priced For Perfection
Type
Definition
Investments that achieve a high valuation based on optimistic expectations for future earnings.
Related Concepts

Thinking

This is the complete list of articles we have written about thinking.
Abductive Reasoning
Abstract Thinking
Abstraction
Aesthetics
Analogy
Analysis Paralysis
Analytical Thinking
Anomie
Argument
Argument From Silence
Arrow Of Time
Assertions
Automaticity
Backward Induction
Base Rate Fallacy
Benefit Of Doubt
Big Picture
Brainstorming
Call To Action
Catch 22
Causality
Choice Architecture
Circular Reasoning
Cognition
Cognitive Abilities
Cognitive Biases
Cold Logic
Collective Intelligence
Complexity Bias
Concept
Consciousness
Constructive Criticism
Convergent Thinking
Counterfactual Thinking
Creative Tension
Creeping Normality
Critical Thinking
Culture
Curse Of Knowledge
Decision Fatigue
Decision Framing
Decision Making
Defensive Pessimism
Design Thinking
Divergent Thinking
Educated Guess
Emotional Intelligence
Epic Meaning
Essential Complexity
Excluded Middle
Failure Of Imagination
Fallacies
Fallacy Fallacy
False Analogy
False Balance
False Dichotomy
False Equivalence
First Principles
Formal Logic
Four Causes
Fuzzy Logic
Gambler's Fallacy
Generalization
Golden Hammer
Good Judgement
Grey Area
Groupthink
Heuristics
Hindsight Bias
Hope
Idealism
Ideas
If-By-Whiskey
Illogical Success
Imagination
Independent Thinking
Inductive Reasoning
Inference
Influencing
Informal Logic
Information
Information Cascade
Introspection
Intuition
Inventive Step
Learning
Lifestyle
Logic
Logical Argument
Logical Thinking
Ludic Fallacy
Magical Thinking
Meaning
Mental Experiences
Mental State
Mindset
Misuse of Statistics
Motivated Reasoning
Natural Language
Nirvana Fallacy
Norms
Not Even Wrong
Objective Reason
Objectivity
Opinion
Overthinking
Perception
Personal Values
Perspective
Positive Thinking
Practical Thinking
Pragmatism
Premise
Problem Solving
Proof By Example
Propositional Logic
Prosecutor's Fallacy
Radical Chic
Rational Thought
Realism
Reality
Reason
Reasoning
Red Herring
Reflective Thinking
Reification
Relativism
Salience
Scarcity Mindset
Scientism
Selective Attention
Serendipity
Situational Awareness
Sour Grapes
State Of Mind
Storytelling
Subjectivity
Systems Thinking
Thinking
Thought Experiment
Unknown Unknowns
Visual Thinking
Want To Believe
Whataboutism
Win-Win Thinking
Wishful Thinking
Worldview
If you enjoyed this page, please consider bookmarking Simplicable.
 

Alpha vs Beta

The difference between two common investment measurements.

Regression Toward The Mean

An overview of Regression Toward The Mean.

Efficient Market Hypothesis

An overview of the Efficient Market Hypothesis.

Animal Spirits

An overview of animal spirits, a theory of investing.

Financial Markets

A definition of financial market with examples.

Mr Market

A definition of Mr. Market, an investing theory.

Organic Growth

A definition of organic growth with examples.

Concept Company

The common types of concept company.

Information Costs

A definition of information costs with examples.

Channel Check

The definition of channel check with examples.

Keynesian Beauty Contest

An overview of a Keynesian beauty contest, an investing theory.

Sticky Prices

Prices that stick to an established range and resist changing economic forces such as inflation.

Random Walk

An overview of random walk, an investing theory.

Markets

A definition of markets with examples.

Market Conditions

The common types of market conditions.

Foreign Direct Investment

The definition of foreign direct investment with examples.

Wealth Definition

The definition of wealth with examples.

Capital Examples

The basic types of capital with examples of each.
The most popular articles on Simplicable in the past day.

New Articles

Recent posts or updates on Simplicable.
Site Map