Should we abandon fair value calculations? P…

Some time ago, a reader sent me a collection of essays by a strategist from a renowned asset manager. In one of these essays, the author tried to tackle a seemingly philosophical problem and observed that the price chart of stocks or a market index like the S&P 500 is not time invariant, i.e. one cannot reverse the chart in time and expect to see something like a real chart. The classic example is a market crash like the one in October 1987. The S&P500 that day dropped more than 20% in one day and then slowly recovered. If one would look at the chart in reverse, it would be a situation where the S&P500 slowly declines and then suddenly jumps more than 20% in one day. That doesn’t happen in real life.

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