I’ve posted Podcast #176 to the “RobCasts” section of the site. It’s called Volatility Is Optional.
A rational market prices in the effect of an eventual economic recovery. Thus, economic bad times need not cause a drop in stock price. Price drops are caused solely by our negative emotional reaction to bad economic news. As knowledge of Valuation-Informed Indexing spreads, more and more investors will be setting their stock allocations according to the long-term value proposition of stocks. The result is that price volatility — and with it, risk! — will diminish or disappear.