PT  - JOURNAL ARTICLE
AU  - Robert D. Arnott
AU  - Feifei Li
AU  - Geoffrey J. Warren
ED  - Goyal, Gauri
TI  - Practical Applications of Clairvoyant Discount Rates
AID  - 10.3905/pa.2014.2.1.055
DP  - 2014 Jul 31
TA  - Practical Applications
PG  - 1--5
VI  - 2
IP  - 1
4099  - https://pm-research.com/content/2/1/1.6.short
4100  - https://pm-research.com/content/2/1/1.6.full
AB  - Clairvoyant Discount Rates Robert D. Arnott Feifei Li Geoffrey J. Warren Wake up and smell the coffee. Your ability to consistently choose the best price to pay for stocks of any ilk is highly unreliable.Building on research published in JPM in 2009, co-authors Rob Arnott , Chairman and CEO of Research Affiliates LLC , Feifei Li (a Director at Research Affiliates ) and Geoffrey Warren (Senior Lecturer at the Australian National University) turn their attention to a hypothetical world of buy-and-hold clairvoyant investors.The earlier research also shows a more than 50% correlation between investors willing to pay a premium or discount on a stock and the subsequent growth or value performance of that stock. “But what about the other fifty percent?” asks Arnott. What else could explain stock performance over time and whether the initial investment was justified?Here, the authors introduce a new concept: the Clairvoyant Discount Rate (CDR). What kind of discount rate would a rational investor require in order to justify his or her initial purchase price in the light of subsequent actual distributions?TOPICS: Portfolio construction, performance measurement, equity portfolio management