Description: Muhlenkamp defines "risk" as the probability of losing purchasing power. Statistics are used because they are available, not necessarily because they are informative. Outside of short term or specifically, time diversification allows fundamental trends to override short term volatility. Investment diversity depends on spreading investments over several enterprises, not over security classes.

Description: The models that seek to determine fair value for stocks use corporate earnings and a capitalization rate such as a price/earning ratio to arrive at fair value. Nearly all such models use interest rates to set the capitalization rate. Current interest rates are assumed to be fair, as if there were no emotions in the bond market. Interest rates themselves are never viewed as too high or too low. For the past 10 years [1984-1993] stocks have been viewed as too high, in relation to interest rates. In reality, interest rates have been too high.

Description: Risk adjusted returns.

Description: Muhlenkamp defines "risk" as the probability of losing purchasing power. This essay questions whether one year periods are appropriate to measure volatility. It proposes fundamental reason why equity returns exceed bond (or any other) investment class which is unrelated to statistical variances.