Tuesday, October 05, 2010

Are we there yet?

Forbes' regular stock-picker David Dreman writes, "When it comes to popular investing gospel, the Capital Asset Pricing Model (CAPM) ranks right up there with its elder cousing the Efficient Market Hypothesis. As a value investor I don't think much of either of these. I make my living investing in market inefficiencies." Of course. The model depends on active arbitrageurs.

And this is why we love teaser stock market performance charts. Here is one of my favorites from Visualizing Economics. Is it a random walk? Are we there yet?

Lots of modeling depends on the equilibrium idea. And this is often misunderstood as a place that we are either at or not at.

Yesterday's WSJ headlined this: "Americans Sour on Trade ... Majority Say Free-Trade Pacts Have Hurt U.S. ..." When it comes to teaching the basics, we certainly aren't there yet.