I’ve posted a Guest Blog Entry to the Barbara Friedberg Personal Finance blog titled Six Dangerous Investing Myths.
Juicy Excerpt: Stocks are more risky than bonds.This has been the conventional wisdom for a long, long time. But risk is uncertainty. If Shiller is right that long-term returns are highly predictable, stocks are not nearly as risky as we have long believed them to be. If Shiller is right, stocks are a high-risk asset class only for those who don’t take valuations into consideration when setting their stock allocations — that is, Buy-and-Holders.
Juicy Comment #1: Modern Portfolio research defines risk as VOLATILITY. In other words, how much your asset value moves up and down. In general, stocks are more volatile than bonds, although over the long term they have offered much higher returns than bonds.
Juicy Comment #2: You are accurately describing what Modern Portfolio Theory says. I am describing an entirely different model for understanding how stock investing works…. t might help for people to consider the sub-title of Shiller’s book Irrational Exuberance,The subtitle is: “The National Bestseller That Revolutionized the Way We Think About the Stock Market.” Shiller’s research cannot be reconciled with Modern Portfolio Theory. He is pointing to a new way of thinking about how stock investing works.
Juicy Comment #3: Shiller is obviously a superstar of the Economics/Finance world. Your additional comments certainly add to the discussion. You have offered a new view into an old and well established theory. Certainly, worth investigating!
Juicy Comment #4: I’ll have to put Shiller’s book on my reading list. You are doing a good job at converting me to the VII model.