Final answer:
The stock price of a company is affected by shifts in investor expectations, not just its actual earnings. Investors should focus on finding undervalued companies with the potential to outperform. Continuous research and market analysis by investors and analysts are crucial in this process.
Step-by-step explanation:
The stock price of a company is largely influenced by investor expectations about the company's future performance. Shifts in these expectations, therefore, play a crucial role in determining the stock price movements. For investors looking to predict which stocks will perform well, it's less about the company's actual future profits and more about identifying companies that are currently undervalued by market analysts but have the potential to exceed expectations. The process of identifying these companies is rigorous and continuous, with numerous analysts and investors analyzing market conditions round-the-clock.In conclusion, successful stock market investing often entails finding the diamond in the rough: a company with poor current prospects that is likely to outperform future expectations. It highlights the importance of research and understanding market psychology over simply analyzing present earnings.