For Investors – Discovering Truth Takes Time

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Discovering Truth Takes Time

By Vitaliy Katsenelson, CFA Institutional Investor Magazine
The Roman philosopher, playwright, statesman and occasional satirist Lucius Annaeus Seneca wasn’t talking about the stock market when he wrote that “time discovers truth,” but he could have been.

In the long run a stock price will reflect a company’s (true) intrinsic value. In the short run the pricing is basically random.

Here are two real-life examples:


For Investors, Discovering Truth Takes Time



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One Response

  1. Since Circa 1928

    Since 1928, the highest source of real returns in any asset class by far has come from the stock market. This is true in spite of the Great Depression of 1929 through 1933 and in spite of the 13 recessions thereafter. Through wars, disasters and political turmoil, stocks have been the best vehicle to not only keep up with inflation but far surpass it.

    The tremendous wealth generation from stocks over this period, averaging over 9% annualized returns, makes a buy and hold strategy of the S&P 500 extremely difficult to beat. Beyond this, the Efficient Market Hypothesis maintains that it is impossible to consistently outperform the market while Random Walk theory asserts using technical indicators is futile.

    Finally, the CAPM states that the only way to achieve a higher return is to take more risk.

    Dr. David E. Marcinko MBBS DPM MBA


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