{"id":31739,"date":"2018-03-01T06:44:12","date_gmt":"2018-03-01T11:44:12","guid":{"rendered":"http:\/\/olduvai.ca\/?p=31739"},"modified":"2018-03-01T06:44:12","modified_gmt":"2018-03-01T11:44:12","slug":"how-central-banks-stoke-stock-prices","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=31739","title":{"rendered":"How Central Banks Stoke Stock Prices"},"content":{"rendered":"<header class=\"wrapper entry-header page-header\">\n<div class=\"title-with-sep single-title\">\n<h3 class=\"entry-title\"><a href=\"http:\/\/www.cobdencentre.org\/2018\/03\/how-central-banks-stoke-stock-prices\/\">HOW CENTRAL BANKS STOKE STOCK PRICES<\/a><\/h3>\n<\/div>\n<\/header>\n<div class=\"wrapper\">\n<div class=\"grids\">\n<div class=\"grid-8 column-1\">\n<div class=\"single-box clearfix entry-content\">\n<p>Reading through\u00a0<a href=\"https:\/\/www.amazon.com\/Security-Analysis-Foreword-Buffett-Editions\/dp\/0071592539\/?tag=misesinsti-20\" target=\"_blank\" rel=\"noopener\"><em>Security Analysis<\/em><\/a>, the roadmap for investing first published in 1934 by Benjamin Graham\u00a0and David L. Dodd, I learned something quite interesting: The basis of stock valuation had changed quite drastically in the period between 1927 and 1929. The stock buying public \u201cdeparted more and more from the factual approach and technique of security analysis and concerned itself increasingly with the elements of potentiality and prophecy\u201d, write Graham and Dodd.<a id=\"footnoteref1_4bqdw7s\" class=\"see-footnote\" title=\"Graham, B., Dodd, D. L. (1940), Security Analysis, p. 349.\" href=\"https:\/\/mises.org\/wire\/how-central-banks-stoke-stock-prices#footnote1_4bqdw7s\">1<\/a><\/p>\n<p>What they mean is that in the pre WWI world, stocks were typically valued on the basis of a three-part concept: (i) a decent track record of firms\u2019 dividend returns, (ii) a stable and satisfactory earnings record, and (iii) a strong balance sheet, with sufficient backing by tangible assets. The \u201cNew-Era\u201d theory of stock valuation reads, summarized in one sentence, as follows: \u201cThe value of a common stock depends entirely upon what it will earn in the future.\u201d<\/p>\n<p>Current dividends should only have a slight impact upon a stock\u2019s valuation, and as firms\u2019 asset values did not have an apparent relationship with their earning power, asset values were said to be devoid of importance when it comes to calculating a stock\u2019s \u201cfair price.\u201d\u00a0A firm\u2019s earnings record was only relevant to the extent that it might indicate what changes in a firm\u2019s future earnings were likely to be expected. In other words, the New-Era theory of stock valuation was quite a break compared to the valuation technique employed in the past.<\/p>\n<h4>A Sea Change in Pricing Stocks<\/h4>\n<p>According to Graham and Dodd, there were two significant causes why such a change in the approach to stock valuation occurred. First, accounting data of a firm\u2019s past proved to be increasingly unreliable as a guide for making wise investment decisions.<\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>HOW CENTRAL BANKS STOKE STOCK PRICES Reading through\u00a0Security Analysis, the roadmap for investing first published in 1934 by Benjamin Graham\u00a0and David L. Dodd, I learned something quite interesting: The basis of stock valuation had changed quite drastically in the period between 1927 and 1929. The stock buying public \u201cdeparted more and more from the factual [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[124,7380,1138,5221,13348],"class_list":["post-31739","post","type-post","status-publish","format-standard","hentry","category-economics","tag-central-banks","tag-cobden-centre","tag-stock-market","tag-stock-prices","tag-thorsten-polleit"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/31739","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=31739"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/31739\/revisions"}],"predecessor-version":[{"id":31740,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/31739\/revisions\/31740"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=31739"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=31739"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=31739"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}