Expectations Investing

real-options value. In other words, the lower stock price effectively

withdrew the financing that Amazon needed to execute its options, and

thus created doubt about the viability of its growth options.As a result,

Amazon’s real options became virtually worthless. This analysis under-

scores the vital feedback loop between stock price and business funda-

mentals.

REFLEXIVITY

Investors and corporate managers widely accept that the stock price

reflects expectations for a company’s future financial performance.

However, investors devote scant attention to the idea that the stock price

itself can affect that performance. An important feedback mechanism

materializes ...