From: Rafal Smigrodzki (rafal@smigrodzki.org)
Date: Fri Jun 13 2003 - 12:57:14 MDT
gts wrote:
> The same principle applies to the shares of individual companies. If
> you want to make a best guess about the business performance of Acme
> Widgets in the future then take a look at Acme Widget's stock
> performance in the present. Your guess might be wrong but there is no
> better way to make the guess.
### There is a better way of guessing - know your stuff. Understand the
widgets, the strengths and weaknesses of the company, the relationships
between the widgets and other forces in the society. Warren Buffett knows
retail better than others, which is why he outguessing the collective of
those who don't (like technical stock analysts).
To claim that the current stock price is the best predictor of the future
would imply that averaged means-weighed judgment is always superior to
individual judgment (no matter how well informed). I think is incorrect. The
individual may include the stock price as a part of the prior (since it is
the outcome of a partially rational reasoning of others who possess possibly
complementary information) but its weight in the decision-making process
will be inversely related to the amount of widget-specific knowledge
(usually engineering/scientific or political/interpersonal) that the
individual has access to.
Rafal
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