I’ve posted Entry #177 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Will Fall All At Once Rather Than Gradually.
Juicy Excerpt: There are a number of things that should have happened following the publication of Shiller’s research. The Buy-and-Holders should have expressed great concern that their model might have been built on a shaky foundation and that they might be giving bad investing advice as a result. There should have been a call for lots of follow-up research aimed at determining whether the market is efficient or whether valuations affect long-term returns (it can’t be that both things are so!). There should have been lots of books written and lots of magazine articles published exploring the strategic implications of Shiller’s finding (which are breathtakingly far-reaching). There should have been a national debate on the question of how the Buy-and-Holders got it all so wrong and about what we need to do to insure that we are protected from mistakes with such frightening public policy implications in the future.
We played it precisely the opposite way.
We covered up The Mistake. Buy-and-Hold remained the dominant model for 32 years after it was discredited by the peer-reviewed academic research even though the findings of the peer-reviewed academic research are supposed to count for something in this field.