For years, financial analysts have struggled with the fact that practically all the financial measures used to analyze corporate performance lack predictive power when it comes to forecasting the market performance of the company's stock. Numerous academic studies have documented and reported this lack of predictability. Correlation coefficients close to zero have been reported for the relationship between stock market performance and such critical financial measures as earnings growth, sales growth, price/earnings ratio, return on equity, intrinsic value (models based on discounted cash flow or dividends), and many more. It is this disconnect between traditional financial measures and the performance of stocks in the marketplace that has led to the now-famous efficient market hypothesis, the cornerstone of modern portfolio theory. To accept the idea that the future performance of stocks is unpredictable is to say that nothing a company does will affect the future performance of its stock in the market, and that is absurd. It would be more accurate to say that everything a company does will affect the future performance of its stock in the market. The problem with this statement is that it makes the forecasting of future stock performance so complex that it removes it from the realm of human solution.Historically, we have relied upon investment bankers and their analysts to channel funds to new emerging companies. If we move the investment process away from individual stocks toward index-based products, we build a delay into theanbsp;...
|Title||:||Stock Analysis in the Twenty-First Century and Beyond|
|Author||:||Thomas E. Berghage|
|Publisher||:||Xlibris Corporation - 2014-07-29|