CHAPTER 8

THE EARNINGS ESTIMATE REVISION SYSTEM

There’s a delay between when the analysts changed their estimates or their recommendations and when the stock prices respond, and you can use that delay to create and trade portfolios.

—Dr. Len Zacks

You met the founding father of the Earnings Estimate Revision trading system, Dr. Len Zacks, back in Chapter 3. I described there how his paper on stock price prediction, along with that of Professor Piotroski’s, helped pull my trading motivation out from the mire of the “random walk” malaise and into the light of real-world statistics. Stock price movement going forward can be reliably forecasted, so these two men claim—with hard evidence backing them up—as long as certain key data is known. For Piotroski, ...

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