As I detailed in “How To Make Money Picking Stocks“, quantifying the future cash flow expectations embedded in stock prices is critical to making an informed investment decision.
My mentor, Michael Mauboussin, in his latest piece: ” The Importance of Expectations – The Question that Bears Repeating: What’s Priced In?” explains that the key to successful investing is to systematically distinguish between price and value – two very distinct concepts. He also walks through a case study to highlight the distinction between fundamentals and expectations as represented by the asset price.
When Mauboussin first introduced me to these concepts in the fall of 1996, I found them to be self-evident. He has a real gift for explaining these concepts with unusual clarity and precision.
Michael Mauboussin is renowned for his lively and original insights into investing, capital markets, complex systems and human behavior.