Tonight marks the first part of my new eight part series of minute trivia I encounter in my readings. We’ll start it off with an unrelated two-fer. 1.) Define the Molosovsky Effect and the general category of equity it applies to. 2.) Define the Samuelson Effect.
The correct answers are: 1.) A 2.) FALSE
- Molodovsky Effect - misleading high P/E. Cyclical stock with depressed earnings at a low point in the economic cycle (i.e. depressed “E”) - makes it appear as a growth stock 2) Samuelson Effect - increasing volatility in the prices of futures contracts as the contracts near maturity The first one’s actually interesting and could result in significant errors in style classifications. Second one’s a little more complex and I won’t waste any further brain cells on it, as there’s too much material and too few brain cells to hold it all as it is.