Imperfections In The Formula

The flaw in the oversimplified equation is that it suggests that the letters (C and r) are known with certainty.

  • Take a look at the differences in earnings estimates (the C’s) for a specific company, compared to actual results. Again, picking individual companies (like Jae’s Rib Shack, or TSLA) is not easy, the individual investor has only a fraction of the story. However, the huge markets cannot be easily manipulated, and can be observed.

  • Estimates of the denominator are also subject to error, it is simply that the extent of the error (and disagreement) regarding the denominator has declined.

So far.