I’ve posted Entry #91 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s titled Stock Valuations at First Don’t Matter, Then They Matter a Lot, Then They Don’t Matter Again.
Juicy Excerpt: What’s going on is that the factors determining the stock price are changing over time. It is investor emotion that determines prices in the short-term. Emotions are inherently irrational and thus unpredictable. That’s why short-term timing never works. It is the economic realities that come to determine stock prices in the long term. Economic realities can be rationally assessed. That’s why long-term timing always works. In the distant long-term, you are seeing multiple waves of investor irrationality and economic rationality doing battle with each other to set stock prices. It takes a bit over 30 years for a full secular bull/secular bear cycle to play out. We saw market tops in 1901, 1929, 1966 and 2000. Go out 60 years and you are seeing a mix of bullish and bearish influences. The net result is a distant long-term return of something in the neighborhood of 6.5 percent real regardless of the valuation level that applied at the time your stock purchase was made.