Fair Value?

One of the great market blogs is The Big Picture by Barry Ritholtz. He questions today the merits of an article published in Morningstar predicting the DJI will reach 18500 over the next three years. Now, I hope the author from Morningstar, Jeffrey Patk, is right. Unless you can only make money being short, and there are a few, all of us in the trading business benefit from a climbing DJI. More trade and opportunities to trade a particular price make-up presented on a daily basis is a positive. The problem is in Ptak's manner of establishing a 'fair value'. Without going into the construct he uses, the concept of fair value is just another crutch for an industry based on a directional bias that never includes the short side. But let us say there is a way to determine fair value for a stock, or a business, or a sector. So what. The price on a given day is made up many elements as the price discovery process unfolds. To simply apply some linear extraplolation pointing to a point in time is weak, but hardly new. Too much credit has been given to the skills of investors who have made money simply being long stock. They made money because they were long stock on a wonderful trend that really began around 1934. It had nothing to do with knowing the fair value of a stock. It had everything to do with expanding economies and a growing crowd of various market participants particularly from pension and other pooled resources. The energies delivered to preserve rising markets is a strong one as we have seen lately with Congressional action, Fed action, and other stimuli. How does fair value play into this supposed 'free market' manipulation is hard to explain. Does fair value explain or predict every action that will affect price? Fair value is just another way to work the confidence game played every day as a part of the opinion formed in the bid and offer.