Calculation of a multiplier could be particularly subjective.(41) As one critic was quoted as saying in 1977, "[S]uch a valuation is usually 'a guess compounded by an estimate."(42) Nonetheless, the Graham and Dodd valuation technique provided intellectual support for the proposition that shrewd investment analysts could outtrade most of the market by careful study of a corporation's financial statements and other relevant records.
It is by now a thrice-told tale that investment management has been transformed by modem financial economics.(90) In the simplest sense, the combination of the efficient market hypothesis,(91) warts and all,(92) and portfolio theory(93) have generally triumphed in defeating the earlier, quite popular belief that shrewd investors could "outtrade the market" by careful study of fundamental economic data.
Because, at least in theory, it is no longer possible to outtrade the market, there have evolved a wide variety of techniques for risk management.
(91.) A market in which prices generally reflect available information is called "efficient." To the extent that securities prices "instantly" or rapidly adjust to new information, the opportunities for investors to outtrade the market is eliminated or reduced.