Charlie and Dave,
This sound very nice academically speaking. Good for cocktail parties and good for getting clients if you are portfolio manager.
Half of each days volume is program trading which has nothing to do with "figuring out what the whole company is worth, either in liquidation or as a discounted stream of future cash flow."
The compression or expansion (bear and bull) of the market will overwhelm your "figuring out what the whole company is worth, either in liquidation or as a discounted stream of future cash flow."
Just look at the period from September 2000 to October 2002. All that "figuring out what the whole company is worth, either in liquidation or as a discounted stream of future cash flow." didn't really matter that much, did it? If your portfolio was long, you lost money. And why?
Your portfolio was only worth what the market was willing to pay for it. It was not willing to pay "what the whole company was worth in liquidation" and it was not willing to pay "what the whole company was worth as a discounted stream of future cash flow."
Buy the right stock at the wrong time and you can get hammered. However in a bull market, say October 1998 to March 2000, you could use the WSJ and throw darts at the listed stocks and your portfolio would have made money.
And then, of course, you would have proclaimed it was because for every company in your portfolio, you "figured out what the whole company was worth, either in liquidation or as a discounted stream of future cash flow."
Delusion is a wonderful thing.
Regards,
Steve |
