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Technology Stocks : Intel Corporation (INTC)
INTC 36.20+0.1%Dec 26 9:30 AM EST
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To: Mary Cluney who wrote (38424)10/30/1997 3:52:00 PM
From: Craig M. Newmark  Read Replies (2) of 186894
 
Ms. Cluney,

If I may butt in here, you needn't apologize for your "naivete" because you are precisely correct. Mr. Middleton's techniques are probably very useful tools for corporate managers, in much the same way that study of marketing and accounting are. But they will *not* let an investor do systematically better than the market. As you say, if they did, people would use them and the stocks identified as "undervalued" would be bid up until there was no further superior performance to be expected.

Mr. Middleton replies that the "average" investor does not know about his techniques and may use silly techniques to pick stocks. Very true but quite irrelevant. The stock price is not determined by what the "average" investor knows or doesn't know. As long as there are some very well-informed investors--and believe me there are--prices will be driven to levels that reflect what they know and believe.

The only method to consistently superior investment performance, assuming you don't possess inside information, is to have a different and more accurate forecast than the market's of the *future*. Mr. Middleton's numbers reflect what has happened in the past; unless he can forecast more accurately his method will yield no special insight or special result as far as investing goes.

Good luck.

Craig M. Newmark
Associate Professor of Economics
North Carolina State University

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