“It is often said by experienced investors that the equity market discounts future events. Investors who support that contention believe that if you wait for an event to occur before investing, then you would probably be too late because the investment implications would already have been priced into the particular investment.
The notion that the equity market discounts future events necessarily leads us to the conclusion that the equity market prices stocks based on perception rather than on reality. Future events that are supposedly being discounted have not yet occurred. Therefore, stock price movements reflect investors’ changing perceptions of what will occur, but not what will certainly occur. If the market were able to discount an event with complete certainty, then we would not worry about volatility or risk.”