## Saturday, 10 March 2012

### For practical purposes, it is sometimes sufficient to estimate either the upper bound or the lower bound of the investment value range of a stock.

The investment value of a stock is conceptually a single point value, the mean of the distribution of investment value. Operationally, investment value is estimated as a range of values.

For practical purposes, it is sometimes sufficient to estimate either the upper bound of the investment value range to deselect a stock or the lower bound of the investment value range to select a stock.

• As an example, if the upper bound of investment value of a given stock is confidently estimated to be no higher than \$50 per share and the current quoted market price for this stock is \$75 per share, then this particular stock can be deselected.
• Similarly, if the lower bound of investment value of another stock is confidently estimated to be at least \$50 per share and the current quoted market price for this stock is \$25 per share, then this particular stock can be selected.

Concerning the range of estimated appraisal values, Williams (1954:32-33) explained:
"Scholar: Yes, economics supplies the answer to many questions of great practical importance.
Skeptic: How can it possibly do so if it lacks the mathematical precision of astronomy?
Scholar: Economics is more like chemistry than it is like astronomy. Or rather, it is like that branch of chemistry known as qualitative analysis, in contrast to quantitative analysis. In economics, just as in qualitative analysis, you don't always have to have an exact answer to have a useful one. For instance, if a chemist testifies in court that a dead man was found to have enough arsenic in his system to kill an ox, let alone a human being, then it really doesn't matter whether the amount of arsenic involved is two grams or ten, so long as the chemist is absolutely sure that what he found was really arsenic and not a related substance like tin or antimony. Precise measurement is unnecessary. The same is true in economics.