That Was Then, This Is Now
by
, 01-09-2009 at 06:30 AM (1854 Views)
“We know this quarter is going to be bad, but looking into the future…”
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The technique is to qualify projections of the future by making a statement of fact, and quickly following it up with a statement of opinion so as to suggest the two are equal.
If pressed, the basis for the argument will usually end up being something along the lines of “every time this has happened, it was the wrong time to sell.” This is the logical fallacy of appealing to probability: Since there is a chance that X will happen, then X will eventually happen. The point is that all the backward looking analysis doesn’t take into account the particulars of the current situation. You must come to your own conclusions using the current information.
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</o>Almost everything that gives you an incremental measure on the economy is deteriorating. Yet some will tell you the time is now – right now, and you are a fool if you don’t get involved, and stay involved in perpetuity. Exactly the same thing they said at Dow 13,000; Dow 12,000; Dow 11,000; Dow 10,000; Dow 9,000.
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</o>If CEOs who have worked in their industries for years shy away from giving forward earnings guidance, who are we to disagree with them? Why should we assign them high PEs, based on forward guidance they won’t give? Would you buy a stake in a business that just had a year that was worse than expected, and the managing partner says he has no idea what next years profits will be, but the economic conditions will continue deteriorate?
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</o>Do not become a victim of the line of thinking that ‘since things are bad, now is the time to invest – just look at what would have happened if I would have invested at this point in the past.’ That set of circumstances was then. This is now.