- There is no change in the probabilities in my scenario analysis.
- Reflecting the continued and surprisingly low-interest-rate environment, I have modestly increased the P/E ratios applied to each of the four outcomes.
- Profit forecasts for 2013 are being revised slightly lower in light of actual third-quarter results, weakness in sales and generally punk guidance.
"Investing is an art form that requires probabalistic decision-making using imperfect information about an inherently unknowable future." -- Barry Ritholtz, The Big PictureSince I began this exercise I have tried to be consistent with methodology, reasonable in my profit forecasts, and I have applied sensible valuations. Again, I want to emphasize that my methodology, though appearing precise, recognizes the difficulty of attaining investment precision given the numerous moving parts (economic, interest rates, sentiment/psychology, political outcomes and other exogenous factors) in its calculation. It is intended more as a thoughtful guideline (of reasonable expectations/outcomes) than an exercise that should be taken literally. (I strongly recommend that subscribers input their own probabilities and outcomes in order to produce their own market expectations.)