I recently finished reading "The Psychology of Money" by Morgan Housel, a book I’d recommend to anyone navigating the world of capital markets. There’s one line in particular that stuck with me more than anything else: “Everything in finance is data within the context of expectations.”

That single sentence crystallized something I’ve been observing for years, working with small-cap public companies: It’s not just about the numbers you post; it’s about the numbers people expect you to post. And for smaller public companies, that distinction can be the difference between a rising stock price and a credibility crisis.

As a capital markets advisor, my job is to help companies communicate effectively with the investment community. But time and again, I see leadership teams doing a lot of the right things internally—making strategic hires, improving backlog, launching strong new products—yet still face declining share prices after earnings calls. Why? Because they slightly missed a top-line or bottom-line Wall Street estimate. Sometimes they missed those estimates by less than a rounding error. But the market doesn't care. In public markets, perception often outweighs progress. And the perception game is magnified for small-cap companies.

Unlike large-cap firms, which are often followed by dozens of analysts and benefit from diversified investor bases, small-caps live under a narrower spotlight. The expectations placed on them—often by just a handful of analysts or a vocal investor group—can become gospel. And when those expectations aren’t met, the market reaction can be swift and unforgiving.

So, how can small-cap executives build credibility in this environment?

It starts with deeply understanding that quote from Housel—that data is only meaningful when interpreted through the lens of expectations. That means small-cap leaders can’t just focus on execution; they need to manage expectations as aggressively as they manage operations.

Start With A Margin Of Safety

The most credible companies I work with all embrace one discipline above the rest: They set expectations with a margin of safety.

Why? Because:

• Nobody can predict the future. No matter how well you plan, your quarterly results will always be vulnerable to timing issues, customer delays, macroeconomic surprises or plain bad luck. Sandbagging your guidance isn't the answer, but providing a reasonable buffer in your outlook can prevent small misses from becoming big headline problems.

• The market’s reaction is often emotional, not rational. Miss a number by a penny, and the market may assume your business is unraveling. Beat by a penny, and you could see multiple expansions—even if the underlying business fundamentals haven't changed. It's not always fair, but it's how public markets often operate.

• Small-cap companies don't get the benefit of the doubt. When you’re an unknown or emerging name, investors are looking for reasons not to believe your story. That’s why misses, however small, can be disproportionately damaging. It takes months, even years, to build credibility and only one quarter to lose it.

Communicate Like You Understand The Rules

A company’s investor credibility isn’t just built by numbers; it’s built by tone, transparency and track record. Some tactical approaches I recommend to executives:

Anchor expectations early and often.

Don’t assume investors will draw the right conclusions just because your internal KPIs look strong. Spell it out. Walk through how hiring, product launches or backlog tie into your future revenue visibility. And if you see risk to the quarter, don’t wait—communicate.

Be consistent in messaging.

The best small-caps talk about their strategy, goals and priorities every quarter with the same framing. Consistency creates a narrative investors can follow. It also makes it easier for them to recognize real progress when it happens.

Own your misses.

If you fall short, acknowledge it directly. Don’t hide behind vague language or blame external factors entirely. Investors appreciate candor and will usually forgive a miss if it’s presented with accountability and a clear plan forward.

Avoid the temptation to overpromise.

Credibility isn’t built by painting the rosiest picture. It’s built by hitting the targets you set. Small-caps often face pressure to tell a "growthier" story, but overpromising to chase a higher valuation is a short-term win with long-term consequences.

Credibility Compounds Like Capital

Investor credibility isn’t a quarterly game; it’s a compounding asset. When investors believe in your leadership, your strategy and your ability to deliver (or at least to guide them honestly), you earn something far more valuable than a short-term bump in your stock price: You earn permission to be human.

That permission means investors might stick with you through a rough quarter. It means analysts give you the benefit of the doubt when visibility is murky. And most importantly, it means you can gradually shift the narrative from short-term performance to long-term value creation.

In a world where data is everywhere but trust is scarce, credibility is the ultimate small-cap currency. And it’s earned by those who understand that numbers never speak for themselves—they speak only through the lens of expectations.

‍

This article originally appeared as a Forbes Council article here.