I’ve posted Entry #56 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Bernie Madoff Is Us.
Juicy Excerpt: There is always some fraud in the market. But so long as prices remain reasonable. it is unlikely that there would be sufficient fraud to cause serious problems for indexers. But times in which valuations soar are times when public scrutiny of what is going on in the market is spare (how else could valuations get out of hand?). A moderate P/E10 level is a signal that it is safe to invest in stocks. A high P/E10 level is a warning sign that fraud is on the rise and due to deliver a profit-destroying hit in not too long a time.