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Investment Analysis Clubs / The BMW Method


Subject:  Re: BMW Assumption #1 Date:  3/15/2018  1:53 AM
Author:  kelbon Number:  42226 of 42349

I sensed a disturbance in the force… I hadn’t visited this drifting death star in a millennium…

The first assumption we make in using the BMW method is that 'Average CAGR' is somewhat predictive of a stock's future CAGR. In other words, there is some expectation that future 'Average CAGR' will be similar to past 'Average CAGR', and that there will be some long-term fluctuation above and below the future Average CAGR line.

Past stock price growth isn’t predictive. Further, the average CAGR line on stock price charts is constantly readjusted to account for recent fluctuations in price. These charts don’t show an average CAGR that the price has swung below and above (although at first glance they may seem to) but rather a bespoke median that is tailored and altered to fit the swings in the stock price. Given this revisionist methodology how on earth can an average CAGR be predictive?

Sure there will be some fluctuations below, and above, the future average CAGR line, but you can't know where that line will be, unless you have a time machine.

F = ( ( ((1+A)^Y) / (R^2) )^(1/Y) ) -1

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