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A Universal Theory Of Stock Market Investing

Dec. 03, 2018 5:44 AM ET47 Comments


  • Presents a comprehensive take on stock market investing that is in opposition to most conventional thinking on the subject.
  • Challenges both the CAPM and the intrinsic-value-based theories of stock investing.
  • Tackles the tough questions: pricing, speculation, risk, factors, backtesting.
  • Looking for more? I update all of my investing ideas and strategies to members of The Stock Evaluator. Start your free trial today »

This piece attempts to encapsulate my conclusions after several years of investigating stock-market conundrums. It is, in essence, a grand unified theory of stock market investing. It is in ten succinct points. After laying out each point, I will offer some further thoughts and elucidations, and link to my previous articles on the subject in question.

Tenet 1: The price of a stock is completely determined by investor expectations.

Because a stock’s price is determined entirely by the willingness of investors to buy or sell it, it is exactly equal to the aggregate of investors’ confidence that the price will rise or fall in the future plus the expectations of dividends to be received and of the price of a potential acquisition. This investor confidence can be influenced by any number of things, from a Twitter recommendation to a careful discounted-cash-flow analysis; these things are called “factors,” and they are almost infinite in number. Some of them are based on rigorous accounting principles, some are based on investor beliefs (many of them incorrect), and a few seem to have no basis whatsoever.

Because the price of a stock is completely a function of investor behavior, stocks cannot be said to be “mispriced,” and there is no such thing as “luck” or “randomness” in the stock market. Many stock-market theorists try to separate the price of a stock into two components: value and noise. Others hold to the Efficient Market Hypothesis, that the price of a stock fully reflects all available information about it. But, as George Soros puts it, “The prevailing wisdom is that markets are always right. I take the opposite position. I assume that markets are always wrong.” Or, as I wrote here, “The stock market is a badly oiled contraption, stuck together with cellophane tape and staples, and

This article was written by

Yuval Taylor profile picture
Weekly evaluation of thousands of stocks based on sound financial metrics.

I am the author of Zora and Langston: A Story of Friendship and Betrayal, as well as other books. In my spare time I invest, primarily in microcaps; investigate investment conundrums; and write about my investigations on Seeking Alpha and on my blog, http://backland.typepad.com/investigations.

I offer a subscription service, The Stock Evaluator, which sends out weekly rankings for close to 10,000 stocks and also tracks my own portfolio; you can reach it here: https://seekingalpha.com/author/yuval-taylor/research.

I'm proud of my investing track record. In 2016, I made 45% on my investments; in 2017, 58%; in 2018, 14%; in 2019, 16%; in 2020, 105%; in 2021, 73%; and in 2022, 22%. 

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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