In his latest column for Canada’s Globe and Mail, Validea CEO John Reese talks about the impact that expectations can have on stock investing.

“Many of history’s best investors have been well aware of the impact of expectations on stocks, and have used it to their advantage,” writes Reese. “Benjamin Graham, the father of value investing, recognized this more than half a century ago. The ‘margin of safety’ concept that guided his investment philosophy was based on the idea that stocks with high expectations (i.e., high valuations) would be hit much harder if something went wrong than would stocks with low expectations.”

To illustrate his point, Reese uses a baseball analogy, looking at two teams — the Mets and Blue Jays — that have performed quite similarly this year, but whose seasons are being perceived quite differently by fans and the media. “Las Vegas odds makers had the Mets winning just 74 games, and the Jays winning 86.5; six of Sports Illustrated’s seven baseball ‘experts’ had the Jays making the playoffs; none picked the Mets,” he says. “The Blue Jays have thus been bashed by fans, the media and analysts this year, while the Mets have flown largely under the radar. Two teams, similar results — and totally different reactions and perceptions.”

Given that stocks with very low expectations can have little downside and lots of upside, Reese looks at the most shorted stocks on the S&P/TSX Composite, seeing which of these unloved plays gets high marks from his Guru Strategies (each of which is based on the approach of the different investing great). Among those he examines: Montreal-based BCE, Inc., which gets high marks from his Peter Lynch-based model.