I’ve posted a Guest Blog Entry at the Consumerism Commentary site titled Are Stock Gains and Losses Real?
Juicy Excerpt: Losses suffered starting from super-high prices are never recovered. When you pay more than a fair price for stocks, a portion of your money is going to the purchase of stocks and a portion is going to the purchase of cotton-candy nothingness. Prices always return to fair value. So these price drops are not so much losses as they are the market coming to recognize phony gains experienced at an earlier time for what they really are.
Juicy Comment #1: In some cases I find this article confusing, in others cases I find it dangerous.
Juicy Comment #2: Gains are only real gains when you sell.
Juicy Comment #3: Once you get to retirement, the income statement rules!!
Juicy Comment #4: This entire article leans on the parenthetical definition of fair value “(that’s a P/E10 value of 15)”. Since it’s in a parenthetical I guess that means you don’t have to prove it?
Juicy Comment #5: “(That’s a P/E10 value of 15)” assumes: (1) That stocks have a fair value; (2) That that fair value can be determined; (3) That the metric to determine it is P/E10; and (4) That the correct number for that metric is between 14 and 16.
Juicy Comment #6: The concept and strategy is so sound, that in my mind, it is irrefutable. Investors need to grasp the concept of how important valuation is in determining future returns. Everyone can make there own variations of how they implement the concept.