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Introduction

Is there a conceptual interaction among the factors that explains common stock price fluctuations?

Do the combinations in Table 1.1 have different durations?

Which of the combinations in Table 1.1 occurs most frequently?

Do all the Table 1.1 combinations occur in every economic/ stock price cycle?

Do these combinations occur in any order or sequence over the economic/stock price cycle?

Are these changing combinations the forces behind fluctuations in common stock prices?

Are there implications for portfolio management and asset allocation in the various Table 1.1 combinations?

What types of asset allocation tactics can be used to maximize portfolio returns under the various combinations of Table 1.1?

Are there valuation implications for individual stocks?

Is there an explanation for sector rotation in the changing combinations of Table 1.1 as the economic/stock price cycle progresses?

Is the price/earnings multiple an effective shorthand for the valuation framework?

Is a company’s stage of development associated with a particular Table 1.1 combination more than another?

Why ain’t I rich?

The answer to all these questions, except “why ain’t I rich?” is Yes. The following chapters provide more detailed answers.

By the way, the reason you “ain’t rich,” is that the answers to these questions depend on future events and changes. Foretelling the future with any accuracy is very, very hard. Investors may know what factors and relationships to look for after mastering Table 1.1 and reading this book, but forecasting them is another story. Better forecasters make better money.

SUMMARY

The relationship between expected rate of return and risk is intuitively obvious. The expected rate of return must appropriately compensate investors for the risk.



	Introduction	7

	Is there a conceptual interaction among the factors that explains common stock price fluctuations? Do the combinations in Table 1.1 have different durations? Which of the combinations in Table 1.1 occurs most frequently? Do all the Table 1.1 combinations occur in every economic/ stock price cycle? Do these combinations occur in any order or sequence over the economic/stock price cycle? Are these changing combinations the forces behind fluctuations in common stock prices? Are there implications for portfolio management and asset allocation in the various Table 1.1 combinations? What types of asset allocation tactics can be used to maximize portfolio returns under the various combinations of Table 1.1? Are there valuation implications for individual stocks? Is there an explanation for sector rotation in the changing combinations of Table 1.1 as the economic/stock price cycle progresses? Is the price/earnings multiple an effective shorthand for the valuation framework? Is a company’s stage of development associated with a particular Table 1.1 combination more than another? Why ain’t I rich? The answer to all these questions, except “why ain’t I rich?” is Yes. The following chapters provide more detailed answers. By the way, the reason you “ain’t rich,” is that the answers to these questions depend on future events and changes. Foretelling the future with any accuracy is very, very hard. Investors may know what factors and relationships to look for after mastering Table 1.1 and reading this book, but forecasting them is another story. Better forecasters make better money.

	SUMMARY The relationship between expected rate of return and risk is intuitively obvious. The expected rate of return must appropriately compensate investors for the risk.