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19-Oct-2006
A Comedy of Errors, by Victor Niederhoffer

The academic studies showing superior performance of low P/E stocks are completely misleading. Usually they assume perfect knowledge of earnings and perfect knowledge of the earnings announcement dates. Even the latter are unknowable, because when a company has something bad to report it often pushes the date up, and that changes the conclusions of the studies. Much worse are the studies that report the significance of P/E in the 1880s, when earnings weren't even announced, or those that assume in the first part of the 20th century, when earnings were announced in the first quarter, or those that throw out the red earnings because they don't like to divide by negative numbers, or those that assume they knew which companies were in existence at the time or disappeared after. It's a comedy of errors.