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Pastimes : Clown-Free Zone... sorry, no clowns allowed

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From: quote 00711/8/2005 2:59:50 PM
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Tuesday, November 08, 2005
Dividend Discount Model

Abby Joseph Cohen was just on Bloomberg TV. She believes the stock market is cheap and will go higher, she has been right a few times so why not now?

She cited the dividend discount model (DDM) as a part of her reasoning. Beware of this type of indicator! It can make stocks look very cheap, only to get much cheaper. Ditto on stocks being overvalued. This swings versus this indicator are quite wide.

DDM does tell you if stocks are cheap or overvalued but does not offer much predictive value as to when the inefficiency will correct itself.
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