Expectations Investing

Tectonic shifts in stock market value—especially owing to the gyrations

of technology stocks—have prompted some investors to suggest that we

need new rules to understand value. We emphatically disagree. Funda-

mental economic principles endure, and they are sufficiently robust to

capture the dynamics of value creation across all types of companies and

business models.The principles of value creation—which are central to

the expectations investing process—are the ties that bind all companies.

Why, then, all the talk about new rules and new paradigms? Princi-

pally, investors find that traditional yardsticks,like price-earnings multi-

ples,no longer explain ...