Yes Thomas, this is what I was getting at.
You write: Thus, one resorts to various ways of estimating how well a company is likely to do in the future, both absolutely and with respect to its competition, believing that this will be a major determinant of price *over the long run*. Gorilla, King, Chimp, Prince, none of the above are ways we have at getting at that estimate.
And I am questioning the foundation of this belief.
Let's take Qualcomm as an example.
QCOM's command over CDMA has not changed in the past 5 years. And the eventual *future* importance of CDMA ten or fifteen years from now has not changed either. At least not according to the information presented on this thread. Yet with these endpoints fixed the price of QCOM has varied by an order of magnitude, and then threefold, and then some!
That's a signal to noise ratio of -1.5 dB!!!
Engineers would not tolerate such a signal to noise ratio in an electrical circuit in a control system they construct at work, why would they tolerate it in their financial control system they use at home?
What does Qualcomm's command over CDMA (which we now know is absolute) suggest about increase in PRICE of QCOM shares?
The answer depends on a few factors. First, it depends on the quantitative degree to which CDMA garners market share. Second, it depends on the quantitative degree to which Qualcomm can actually derive profits from CDMA. Third, it depends on the degree to which management can husband these profits and ultimately release them to shareholders. Finally, it depends on the degree to which all of this is already quantitatively factored into the current PRICE of QCOM by the person on the sell side of the purchase transaction.
I have no disagreement with you that a qualitative investigation of G&Kness has bearing on how well Qualcomm the business will do relative to its competitors in its field, and to some degree on this first factor.
However, I find it difficult to support the leap of logic over multiple factors necessary to suggest that this implies QCOM the stock is a better investment than, say, the stock of one of Qualcomm's competitors.
Such a leap requires some a-priori determination of the factors imbedded in the prices of these other stocks too.
This then begs the question of the value of qualitative factors without some sort of measuring system that helps us quantify the elements.
John |
