Tuesday, December 11, 2007
Equity Research vs Wisdom of the Crowds
This is an arbit post. Not much thought has gone into it. So please feel free to correct me.
What is the true 'value' of a good/asset? Whatever the buyer is willing to pay for it in my opinion.
Equity analysts disagree. They claim that certain people (read analysts) are better equipped to estimate an asset's 'true' value than the riff-raff crowd.
Isn't that very similar to the argument put forth by socialist command-and-control freaks about half a century ago? The Nehruvian conviction that a handful of wise men at New Delhi are better placed to allocate resources and dictate the destiny of the economy is not very different from the condescending attitude of equity researchers, especially the ones who rely on so-called 'fundamental analysis'.
In both cases, there is a blind faith in the discretionary wisdom of a handful of technocrats as opposed to the wisdom of the crowd (read market).
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This is an arbit post. Not much thought has gone into it. So please feel free to correct me.
What is the true 'value' of a good/asset? Whatever the buyer is willing to pay for it in my opinion.
Equity analysts disagree. They claim that certain people (read analysts) are better equipped to estimate an asset's 'true' value than the riff-raff crowd.
Isn't that very similar to the argument put forth by socialist command-and-control freaks about half a century ago? The Nehruvian conviction that a handful of wise men at New Delhi are better placed to allocate resources and dictate the destiny of the economy is not very different from the condescending attitude of equity researchers, especially the ones who rely on so-called 'fundamental analysis'.
In both cases, there is a blind faith in the discretionary wisdom of a handful of technocrats as opposed to the wisdom of the crowd (read market).
Labels: economics
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