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17.3 • How to Accumulate Personal Wealth 425

implication. If expectations determine stock price, then shifts in expectations will determine shifts in the stock

price. Thus, what matters for predicting whether the stock price of a company will do well is not whether the

company will actually earn profits in the future. Instead, you must find a company that analysts widely believe

at present to have poor prospects, but that will actually turn out to be a shining star. Brigades of stock market

analysts and individual investors are carrying out such research 24 hours a day.

The fundamental problem with predicting future stock winners is that, by definition, no one can predict the

future news that alters expectations about profits. Because stock prices will shift in response to unpredictable

future news, these prices will tend to follow what mathematicians call a “random walk with a trend.” The
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