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Politics : Ask Michael Burke
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To: Knighty Tin who wrote (68384)9/29/1999 6:41:00 PM
From: Freedom Fighter  Read Replies (2) of 132070
 
Mike,

>>When my professors used to preach Modern Portfolio Theory and The
Efficient Market Hypothesis like they were handed down from God and
printed on golden stones, I was the only one who poked holes in these
silly concepts.<<

I've always felt that the problem with many economists and finance professors is that they fall into the trap of trying to fit everything that's going on in the system into the neat little model they know more than anybody else about. So despite their brilliance, they often fail to see some of the reality. What's the saying, "To a man with a hammer every problem looks like a nail".

It's sort of like the Glassman model. If you lower the risk premium to almost zero, the models will tell you that stocks are worth 100 times earnings. What the models don't tell you is that long before then your business is selling at so far above its replacement cost that everybody and his mother is going to direct capital there, come public, lower the returns on capital and drive down stock prices.

Wayne
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