STOCK BUBBLES

So this comes back to the question of how Wall Street does value stocks. The first thing Wall Street does is toss out the idea of the totality of the cash flows in future years and focus on the much less volatile accounting earnings measure of an arbitrary year (usually one year ahead, but this [...]

For a particular stock, the analyst usually looks at companies with similar growth rates or similar companies in different industries to find “comparables” which are then either tweaked higher or lower based on factors such as quality of management, size or stability of earnings. The problem is that this becomes the tail wagging the dog [...]