Value Investing Congress at on My “Emotional Market Theory” Article

The Value Investing Congress Group that meets at recently discussed an article that I wrote for my Valuation-Informed Indexing column at the Value Walk site. The title of the discussion thread is Valuation-Informed Indexing/Emotional Market Theory.

Juicy Excerpt #1: Must Read As Per My Viewpoint For All Value Seekers…

Juicy Excerpt #2: The points you are making have been expressed centuries ago and probably since the first market was ever created.

Juicy Excerpt #3: I don’t believe there is any such thing as value indexing – it is a contradiction in terms.

Juicy Excerpt #4: I agree that the basic battle (whether valuations matter or not) is one that goes back to the beginning of investing history. However, I also believe that the battle needs to be fought as hard and as fairly as it can be fought. It is by fighting these battles that we learn what we need to know to invest effectively and that we come to be able to teach others what they need to know to invest effectively.  It may be that this economic crisis signals the end of the Buy-and-Hold stage of the latest cycle! That’s my belief.

Juicy Excerpt #5: Who are these people that claim that you can buy without taking valuations into account or hold without taking valuations into account? I certainly never heard that view espoused and it appears absurd on its face. As I said, I don’t think you can call it investing, or yourself an investor, without taking valuations into account.

Juicy Excerpt #6: I also note that there are many smart and good people who believe in the EMH with their entire hearts, minds and souls. How do you explain that? That reality tells me that there is something there. The EMH is off. But it is getting at something real. We need to figure out where things got off track and try to make better sense of things.

Juicy Excerpt #7: It is Buy-and-Holders who claim this, Mark. Buy-and-Holders say that it is okay (or even a good idea!) to stay at the same stock allocation at times of wildly different valuation levels. Huh?…. I have heard it espoused thousands of times. I kinda sorta agree that it is “absurd on its face.” But I also appreciate that the people espousing this idea are smart and good people. I believe that they are suffering from cognitive dissonance.

Juicy Excerpt #8: I agree with you [re safe withdrawal rates]. It is wishful thinking for people to assume a specific rate of return.

Juicy Excerpt #9: You are also probably right that your attempts to create value indexing, which by its nature must rely on crude metrics, is probably an improvement over generally indexing.  It is very difficult for the average person because most in the professional money management business are more focused on making a living themselves by getting their cut, rather than on maximizing the returns to the investors.  Therefore, at this point, I have to concede to your points.

Juicy Excerpt #10: You certainly are better at following the tenants of Dale Carnegie’s How to Win Friends and Influence People than I am (brilliant book). Although not always the best etiquette, I tend to just call them like I see them. I was not trying to be kind, just trying to be accurate.  Good luck with your “valuation-informed indexing” and continuing to fine tune it. If I am remembering you correctly, you have already had a tremendous amount of success with it already.


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