The earnings guidance, a concept hugely popularized by Infosys in India, displayed its downside this week. When Infosys performed marginally below the quarterly guidance, investors turned viciously punitive. Investors overreacted to the earnings disappointment. The management actually stopped giving quarterly guidance for the first time. Now, there is no number to chase every quarter. That gives the management room to do what is in the company’s long term interest rather than chase quarterly targets. The transformation which the company is trying to put through will get better traction now that the quarterly chase of the guidance is off. Importantly, the valuations of the company have dropped to levels which could attract global value investors. Infosys as a value investment sounds amusing, right?
In equity investing, ordinariness comes with good reason. Investing on past performance ends up being very ordinary or even worse. To make your investing out of the ordinary, you need to rise above the past and the present. Investing is all about the future. To bet on the future isn’t really easy. You need to read economic prospects right. When economies are in a phase of turbulence, it often becomes a leap of faith. Yet, that is what investors should learn to make. When will a leap of faith work? When valuations are modest, growth is returning and investment appetite runs low. The markets seem headed into such a phase. Being in the state of mind to make that leap is what investors must focus upon now.