How easy it is to be right, yet lose money in the market! Today the Dow achieved its goal of 14,000, crossing above and below some 14 times, and you couldn't tell until the close whether it was above or below if you wanted to short it when it went above. This is similar to all the fallacious studies that rely on price/earnings ratios relative to announcement dates. You'd think that given the announcement dates, knowing if it goes up or down before would prove valuable. but the problem is that the announcements are so variable that when you predict it and try to buy before the announcement you get hit by the announcement, like the famous IBM leak when the stock went down 10% before the announcement, and exceptions such as that erase the entire predictive effect.

Of course, the old studies of the real estate maven, who's been chronically bearish almost as long as Abelson, don't take account of the facts that earnings announcements were completely non-existent for the old earnings that make up the entire low p/e return effect, and that assuming perfect knowledge of the earnings as of year-end leads to enormous regression biases, with the stocks with good earnings going up from year end to real announcement, thereby making the p/e on these, assuming perfect information as of year end, artificially low. The effect is totally a property of random numbers.

It's amazing that with all the retrospection, and assumed perfect knowledge and revisions, of these studies that even then the real estate maven was unable to get a direct effect but rather had to use 10 year averages of the independent and dependent variables. It's risible that effects such as these drive the value studies, and I want to cry when I consider the level of such researchers and the fools they make of the public in the hands of the Market Mistress.


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