Quote for the Week
To put the matter in another, perhaps more puzzling, framework, we can say that today’s stock prices do not really forecast what investors think business conditions will be like some six months or so hence, but rather what investors think stock prices will be some six months or so hence! If investors as a group think business conditions and therefore stock prices will be higher six months in the future, they will buy stocks now and refrain from selling them until the level of stock prices reaches a point where they agree with what that price level is predicting, and vice versa on the downside. But the problem is really much more complicated than that, because stock prices six months ahead will not only be reflecting business conditions at that moment but will also be reflecting what investors expect one year from now, or six months beyond six months from now, which is even more difficult to predict.
Thus described, and greatly magnified and elaborated in the process of selecting individual issues rather than in making a general market forecast, any type of reliable prediction of stock prices seems like a total impossibility. It is difficult enough to know what we should think on our own about what is going to happen, but that is simple compared with the difficulty of knowing what other people are thinking and will think about a future that never holds still, even for an instant. — Peter Bernstein (source)
From the Archives
Last Call
- The Devolution of Public US Capital Markets – C. Roche
- Data Update 3 for 2025: The Times They are A’Changin’! – Musings on Markets
- Explaining International Valuations – Verdad
- What’s Predicted Funds’ Performance? The Thing That Wasn’t Supposed to Work – Basis Pointing
- Philosophical Economics: Shameless Robber Barons – Klement on Investing
- How to Feel Bad and Be Wrong – Experimental History
- Why Is Homeowners Insurance Getting So Expensive? – Construction Physics
- A Sharp Look into Ockham’s Razor – SFI
- DeepSeek FAQ – Stratechery
- How the Largest Volcanic Eruption in Human History Changed the World – Smithsonian