The Base Rate Book: Integrating the Past to Better Anticipate the Future
Credit Suisse’s Global Financial Strategies team has published a new report, “The Base Rate Book.”
Successful active investing requires a forecast that is different than what the market is discounting.
Executives and investors commonly rely on their own experience and information in making forecasts (the “inside view”) and don’t place sufficient weight on the rates of past occurrences (the “outside view”).
This book is the first comprehensive repository for base rates of corporate results. It examines sales growth, gross profitability, operating leverage, operating profit margin, earnings growth, and cash flow return on investment. It also examines stocks that have declined or risen sharply and their subsequent price performance.
We show how to thoughtfully combine the inside and outside view.
The analysis provides insight into the rate of regression toward the mean and the mean to which results regress.
See here for a collection of links to other Mauboussin papers.