I’ve posted Entry #137 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Investors Know More Than They Know They Know.
Juicy Excerpt: A more precise way of saying it is that the size of the unjustified gains grew larger and larger and larger. And our collective discomfort over the mispricing of course also grew. So we “knew” during the bull market that the bull market gains were not real.
At the same time that we also “knew” that they WERE real (we wouldn’t have staked our retirements in them if we did not know this).
We “knew” two opposite things at the same time.
If it sounds strange, that’s because you are expecting to see logic in a place where it is not fair to demand it. We are capable of being logical in our assessments of whether one company is likely to outperform another in coming years. We are not capable of being logical on questions of broad market overvaluation.
Why? Because broad market overvaluation is a social matter. It is all of us together that cause the entire market to be overpriced. To reject the phony prices would be to reject the society in which we must live in harmony with many others.