CHAPTER 3WHAT FORCES CAUSE SECULAR TRENDS IN EQUITY PRICES? WHAT DO THE TURNING POINTS LOOK LIKE?

Stock prices are determined by people’s attitudes to the emerging fundamentals rather than the fundamentals themselves. That’s because investors anticipate future developments and factor them into prices several months ahead of time. This involves a certain amount of guessing and comparison of potential equity returns to competing assets such as bonds, commodities, or even real estate. Stocks “do not sell for what they are worth but for what people think they are worth,” as the legendary Wall Street analyst Garfield Drew once observed. If you have ever studied political polls, you will notice that they move in trends as whatever is being polled, ...

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