Market Circularity

The greatest deficiency in using market metrics for valuation is the problem of circularity. To say that a share of Exxon-Mobil is worth what the stock last traded for tells you nothing about how that last trade was valued. Of course we know how it was priced by the forces of supply and demand in the stock market. We also know from Part I that those forces are far from rational are infected by emotion, psychology, and noise and may even be chaotic. But that is all we know. None of this tells...

Mr Markets Bipolar Disorder

The patient exhibits classic manic depression or bipolar disorder combining episodes of euphoria with irritation. He goes on wild spending sprees for months on end, using money he does not have to buy things he does not need. In the buoyant periods he is talkative and full of ideas, but only in distracted, zigzaggy ways. He can charm you into buying the Brooklyn Bridge. Then, suddenly and swiftly, he shifts moods, falling into a months-long spell of dark depression, often provoked by the...