THE NUMBERS GAME (PART 2)
In the previous blog we talked about information gathering. Information can be in any form and shape – quantitative and qualitative, pictures, anecdotes etc. Then why was the post titled “The Numbers Game”? The reason is that in markets, it eventually boils down to numbers. The markets are a haven for number lovers, there are so many numbers that entire streets, buildings, communities and now even district(d!) are now dedicated to house them.
The first step post collecting the information is to see which pieces are material, i.e. have a bearing on the share price. Once the information is segregated, the most important ones are typically 1) the forward looking ones, i.e. which give us insights about the future and 2) the ones not yet factored into the market pricing. If you believe in the Efficient Market Hypothesis you would only rely on #2 to make investment decisions. Personally speaking, I believe that markets are 95% efficient (I don’t have data to back this claim though), allowing value hunters/stock pickers with enough scope to find value should they try hard enough.
