Section Seven

Advanced Topics for Academics

Inefficient Markets

We deeply respect those academics who now recognize that the world (investors, policy makers, and common people) need a new theory of less efficient markets. The recent economic meltdown should have taught everyone that lesson—both at the macro level of public policy and at the micro level of purchasing or selling an asset. The profession needs to relax the following four related assumptions:

1. Price always equals intrinsic valuation.
2. Past events have no effect on future events.1
3. People are perfectly rational.
4. All people have identical expectations, beliefs, and related models.2

Common sense tells us these assumptions need revision for mankind to jump to the next level to develop better empirically validated theory consistent with real world events and data, to make the world a better place to live.

Chapters in This Section for the Academic

Chapter 27: Another Tour through our LCRT Model
Chapter 28: Incorporating Risk into Our Model
Chapter 29: Producing Lower Fat-Tailed Risk with Higher Returns
Chapter 30: Comparing Our Model against Three Popular DDMs
Chapter 31: Suggestions for Additional Academic Research

Chapter 27: Another Tour through our LCRT Model

1. Regression toward the mean or fade of company cash economic returns and growth enables us to transform a multiperiod model into a single-period model.
2. Consequently, single-period models produce intrinsic valuation calculations ...

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