I’ve posted an article to the “Valuation-Informed Indexing” section of the site entitled Buy-and-Hold Investing Doesn’t Work — These Links Prove It!
Juicy Excerpt #1: Fortunately, the 2008 stock crash and the economic crisis that it brought on has caused a weakening in the taboo on reporting of the realities as revealed by the academic research. Since the crash there has been a flood of articles pointing out that the Efficient Market Theory — the intellectual framework of the conventional investing wisdom of the past three decades — has been entirely discredited.
Juicy Excerpt #2: The conventional wisdom of modern investing is largely myth and urban legend…. Stock do not follow a random walk — this finding is confirmed by 30 years of research…. If empirical observation is incompatible with the model, the model must be trashed… Never underestimate the power of a dominant academic idea to choke off competing ideas, and never underestimate the unwillingness of academics to change their views in the face of evidence…. It’s hard to see how huge asset bubbles could fail to form! There are no built-in brakes to the process…. There’s so much that’s false and nutty in modern investing practice…. The academic economics of the past 20 years is comparable to pre-Copernican astronomy, with its mysterious heavenly cogs, epicycles and wheels within wheels or maybe even astrology, with its faith in star signs…. Following conventional wisdom has led a generation of investors down the road to ruin…. A moment’s reflection tells us this is nonsense…. Perhaps most scandalously, the theory remained received wisdom long after empirical and theoretical arguments had demolished it…. The belief in efficient financial markets blinded many if not most economists to the emergence of the biggest financial bubble in history. And efficient-market theory also played a significant role in inflating that bubble in the first place…. Everything has fallen apart…. We have taught economic nonsense to two generations of students…. The logical leap from observing that markets were unpredictable to concluding that prices were right was “one of the most remarkable errors in the history of economics.”
Rob’s Comment: Yowsa!