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.
Evidence Based Investing says
Volatility Is Optional ?
The entire history of investing disagrees.
The Four Pillars of Investing: Chapter 1. No Guts, No Glory: Risk and return in the capital markets from the ancient world to Yahoo!
Rob says
The entire history of investing disagrees.
Then the entire history of investing is wrong. I said it — it must be so!
I’m joking around, Evidence. But your point is an important one. This is a big change.
The right way of saying it (in my view!) is that the entire history of investing analysis disagrees. The historical data supports what I am saying. It’s not the market that says there must be volatility. It is the beliefs of the humans about how markets work that cause volatility. Change those beliefs (by educating people about the realities) and you change those realities.
We are in total agreement that this is a big change, Evidence. There’s no dispute re that one whatsoever. In my mind the big question is — Is it so?
If it is so (and I am personally convinced that it is so), this is the biggest advance in our understanding of how stock investing works in my lifetime. Or possibly ever.
Yowsa!
We live in exciting (and scary) times.
Rob