Tuesday, March 13, 2007

A Ouija Board Running on Empty

On March 13, 2007, Jim Jubak recommended ten stocks for the upcoming (or not) financial Armageddon. His recommendations are based on the behavior of those stocks during the sell-off between Feb. 27 and March 5. Unfortunately, as far as I can see, the whole article is based on a hidden assumption for which I can find no justification, if there is one. Mr. Jubak is assuming that the behavior of his stocks during that five percent drop, which lasted a week, is a sufficient basis for projecting how those stocks are likely to behave in a possible 30% drop (his number) stretching over months - or even years, according to the pessimists. I don't know how he knows this: the larger and longer drop could easily bring emotional factors into play very different from those associated with a much small drop extending over a few days, as well as both value and emotional factors at which we can't even guess at this point.

Talking about AAPL and EXPD, he also expounds "a theory" as to why those stocks fell less than most growth stocks. If he has any facts to back up this theory, a statistical theory based on N=2, he doesn't even hint at what they are.

He also "did find evidence that a huge and unexpected increase in dividends would not just prop up a stock but actually send it higher, even as the market dropped." Once again, his "evidence" is the behavior of two stocks over the period of a week, under circumstances in which he admits that the behavior of some similar stocks was counterintuitive.

This isn't up to his usual level.


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