I’ve posted Entry #138 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Will It Be Okay to Say “I Told You So!” After the Next Crash?
Juicy Excerpt: Predictions are a way of testing the merit of competing theories. Shiller’s theory permitted him to predict events that actually did play out. The Buy-and-Holders did not predict the crisis. To the contrary, they were shocked and amazed and stunned by the crisis. That should tell us something about the merit of their model for understanding the markets. It does not by itself tell us they are wrong in all that they say. But the fact that they failed so spectacularly re this one issue suggests that we should evidence greater skepticism toward other ideas being put forward by people from that school of thought.
Even more importantly, a full discussion of the research findings behind Shiller’s prediction would go a long way toward helping us overcome the crisis. The first thing that a doctor does when trying to cure an ailment is to form a diagnosis. Get the diagnosis wrong and you are likely to get the treatment wrong. Have we gotten the diagnosis for our economic troubles wrong? It sure seems so to me.