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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: jbe who wrote (21243)5/5/1998 2:08:00 AM
From: Chuzzlewit  Read Replies (3) of 95453
 
jbe, your question goes to the heart of the problem. Since our horizons are limited we cannot possibly know what the cash flows will look like more than a few quarters out (if we are lucky). So, stock prices depend on investors' subjective impressions of those cash flows. My approach is to look at an industry from a top down perspective. In other words, it may be easier to forecast an industry trend than the cash flows of a particular company. Next, I would look for the companies within that industry segment that is in the strongest position to capitalize on the forecasted growth.

MPT is Modern Portfolio Theory. The basic tenet is that the stock market is characterized by a tradeoff between risk and rate of return (the so-called market line), and that it approaches the investment decision through a focus on managing risk. It is built on the Efficient Market Hypothesis, which basically says (depend on the strength of the formulation of the hypothesis) that the market discounts whatever is known about a company, the economy and the future. Therefore, it is pointless to try to achieve above-average gains without incurring above average risk.

This is the subject of entire textbooks, so I can't possibly give you anything but the broadest overview here.

Hope this helps.

TTFN,
CTC
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