Uncertainty and Forecasting in the Marketplace

by David Jenyns on August 22, 2008

Even if the investor knew the earnings results several years off, he would not even then know at what price the stock would sell because: common stock valuation almost always can differ by between 12 to 15 percent; much larger differences in valuation result from changes in the competitive market valuation of a dollar of earnings.

If large and small investors were persuaded of the foregoing, much disappointment would be eliminated and less confidence would be expressed in the future price movements of stocks. One striking example must suffice: In 1956, Aluminum Company of America earned $89.6 million. Here was a splendid company in every respect. Valuation proceedings growing out of tax litigation involving stock of closed corporations tell the same story. And the competitive bidding of investment banking firms for the stock of companies like Schering Corporation, whose stock was wholly owned by the Alien Property Custodian, underlines the wide spread in opinions about stock valuation when no competitive market has heretofore existed.

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