What equity analysis is for: the business is real, the multiple is a mood

The commodities track could afford low scepticism - real tanks, real freezes. The FX track demanded high scepticism - crowd-reading all the way down. Equities sits precisely between, and the split runs through every share price on the board: price is earnings times multiple, and the two factors live on opposite ends of that spectrum.

The business half is causal work

Revenue, margins, cash generation: a company is an auditable machine, obliged by module 1's listing bargain to publish its workings. Analysis of the business is commodities-grade causal work - the machine can be understood, its results estimated, the estimates audited four times a year against reality. When this half of analysis is wrong, the quarterly report says so, in numbers.

The multiple half is crowd-reading

What the market pays per unit of those earnings - fifteen times, thirty times, eight - is not a property of the machine. It is the crowd's current opinion about the future, the sector's fashion, the rate environment's gravity: FX-grade sentiment with an equity costume. Multiples double and halve with no change in the underlying business, and no quarterly report ever adjudicates them - which is exactly the FX track's warning about analysing objects whose mechanism is other people.

Why the split is the module

• Most large equity moves are multiple moves: entire bull and bear markets happen in the second factor while aggregate earnings plod - the trader who cannot say which factor moved cannot say what happened.
• The disciplines do not transfer: earnings work rewards accounting depth; multiple work rewards the crowd-reading habits of the FX track - applying either toolset to the other factor is the base confusion.
• Every read this module builds names its factor: a view on the business, a view on the mood, or explicitly both - because they can disagree, and being right about one while the other moves against you is the commonest way a correct analysis loses money.