Comments on: Confessions of a Day Trader, Part 4: Conclusion http://monsterhash.com/beta/2009/exclusives/money/confessions-of-a-day-trader-part-4-conclusion/?utm_source=rss&utm_medium=rss&utm_campaign=confessions-of-a-day-trader-part-4-conclusion Devilish content, with a long tail Thu, 08 Mar 2012 23:15:21 +0000 hourly 1 By: Demian Perry http://monsterhash.com/beta/2009/exclusives/money/confessions-of-a-day-trader-part-4-conclusion/comment-page-1/#comment-90 Demian Perry Sun, 02 Aug 2009 12:33:40 +0000 http://monsterhash.com/wordpress/?p=682#comment-90 Sorry, I should have provided a little more background on the Shiller study. You read the graph correctly, Stephen, high PE correlates to lower returns, but the data are phase shifted ten years. So what this says is that a basket of low PE stocks will perform better than the general market over the long-term. What's most interesting about this study is that Shiller and his team found this to be the case for every decade since the 1890s. Isn't it amazing that this inefficiency never went away? There was an Economist article a few weeks back that attempted to explain this. The gist was that there is a giant paradox inherent in the Efficient Market Hypothesis: The more efficient a market becomes, the less incentive investors have to gather all the information about the assets in that market, because price captures all. But if no one is bothering to do the work, than the price will reflect less and less information, making the market less efficient. As the crowds become wise, they become lazy and lose their wisdom! Sorry, I should have provided a little more background on the Shiller study. You read the graph correctly, Stephen, high PE correlates to lower returns, but the data are phase shifted ten years. So what this says is that a basket of low PE stocks will perform better than the general market over the long-term. What’s most interesting about this study is that Shiller and his team found this to be the case for every decade since the 1890s.

Isn’t it amazing that this inefficiency never went away? There was an Economist article a few weeks back that attempted to explain this. The gist was that there is a giant paradox inherent in the Efficient Market Hypothesis: The more efficient a market becomes, the less incentive investors have to gather all the information about the assets in that market, because price captures all. But if no one is bothering to do the work, than the price will reflect less and less information, making the market less efficient. As the crowds become wise, they become lazy and lose their wisdom!

]]> By: Stephen Sweeney http://monsterhash.com/beta/2009/exclusives/money/confessions-of-a-day-trader-part-4-conclusion/comment-page-1/#comment-88 Stephen Sweeney Sun, 02 Aug 2009 02:19:35 +0000 http://monsterhash.com/wordpress/?p=682#comment-88 One year's earnings performance relative to the market perception of that performance correlates with returns over the next twenty? Returns on what? It looks from the chart that the higher the P/E correlates with lower returns. Am I reading that right? One year’s earnings performance relative to the market perception of that performance correlates with returns over the next twenty? Returns on what? It looks from the chart that the higher the P/E correlates with lower returns. Am I reading that right?

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