I’ve posted Column Entry #38 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Stock Prices Are Not a Random Walk: Here’s More Proof!
Juicy Excerpt: We need to get this right. If stock prices really do play out in the pattern of a random walk, Buy-and-Hold is the ideal investing strategy. If stock prices are random, they are unpredictable. If stock prices are unpredictable, then the only way to obtain the high returns offered by stocks is to remain highly invested in them at all times.
However, if stock prices play out pursuant to discernible, repeating patterns, stock prices are predictable. To the extent that stock prices are predictable, it is possible to limit one’s participation in the stock market to times when long-term outcomes are likely to be appealing. That is, to the extent stock prices are cyclical rather than random, stock risk is optional and can be avoided by investors wishing to obtain the high returns associated with stock investing without taking on the high levels of risk commonly thought to be part of the stock investing experience.