executive options

Doug Henwood dhenwood at panix.com
Wed Apr 5 11:55:28 PDT 2000


Christian A. Gregory wrote:


>Maybe I'm missing something here. Where did the assumption that stock
>returns are proportional to profits come in? I know that they are assumed to
>have something to do with one another in the long run. But wouldn't the
>contradictory motives and assumptions of investors (i.e. that the short run
>matters most for the market--ie. the expectations about expectations over
>the long run) have something to do with the "abnormal" rate of stock return
>over the long run? Put plainly, isn't stock essentially about making "noise"
>work to your advantage?

I'm talking about total returns (price + dividend) averaged across decades. People can try all they want to trade the market - to make noise work to their advantage - but for almost all of them, it's a losing game. I haven't tested this myself, but I suspect the only timing strategy that might beat the averages is to avoid the stock market when the Fed is tightening and to get back in once it's loosening.

Doug



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