Averaging the past in a growing economy will: (1) force you to be more sanguine than a guy who takes more recent data, becomes over-optimistic and projects it into the future stupidly assuming that all trends are destiny, thereby making many errors of commission; and (2) make you ultra-conservative because many things will now start looking too expensive, which will inevitably lead you to make errors of omission.
So its a tradeoff between errors of commission and errors of omission. You know which error I’d rather make…
On 06-Dec-07, at 11:21 PM, pratik gandhi wrote:
Question that has troubled me for some time – should one always take the average of the past few years? Or should any leeway be given for a smaller fast growing company as opposed to a large company not growing by as much?