Set forth below is the text of a comment that I recently posted to another blog entry at this site:
if you make a wild causal claim like this, you must back it up with evidence. Can you point to any academic studies showing, or even trying to show this is true?
There is no direct evidence one way or the other. We cannot ask the market to sit down on the coach and respond to our questions.
The Buy-and-Holders BELIEVE that bad economic news caused low stock prices. They do not KNOW this. There is no study that SHOWS this. They arrive at this conclusion by following the logic of their theory, which is exactly what I do. Different theories lead to different beliefs about all sorts of questions.
If the Buy-and-Hold theory were correct, price changes would be random. They are not. So I throw the ideas that follow from Buy-and-Hold out and go looking for ideas that make sense given what the last 33 years of research tells us.
The research shows that the primary cause of price changes is changes in investor emotion. If that’s so, the best time to buy stocks is when investor emotion can only move in an upward direction. That’s when prices are low. When prices are low, there is zero risk because there is only one direction in which emotion (and prices) can move.
Do you not agree that, when prices fall hard, trillions of dollars of spending power leave the economy? Is there some doubt about this point?
If trillions of dollars of spending power leave the economy, would you not expect the economy to collapse? What else could it possibly do?
The point that I am making here is self-evident, Anonymous.
It is not self-evident to someone who believes in Buy-and-Hold. Buy-and-Hold posits that it is economic developments that cause price changes. But to someone who has given up on that idea because the last 33 years of research discredits it, what I am saying here is self-evident.
It’s as clear as clear can be. We once thought that things worked one way. Now we know that we were wrong. We are in the process of determining how things REALLY work. All of the work that I do at this site is part of an effort to explore the IMPLICATIONS of Shiller’s revolutionary finding of 1981.
The amazing thing is that no one had done this work before I came on the scene. Is that my fault? I am trying to get more people involved. I think it would be fair to say that, if you Goons stopped the attack stuff, I would be more successful doing that. It is very, very important work. And once Buy-and-Hold falls, it is going to be very, very financially rewarding work. My personal thought is that anyone who possesses the qualifications to do the job and who holds off on taking advantage of the opportunity is a fool.
Anyway — I certainly have as much proof to offer in support of what I say as the Buy-and-Holders have to offer in support of what they say. Please show me the study showing that it is economic developments that cause stock prices to drop. You believe it. I can give you that one. But you cannot provide a URL for a study because no such study exists.
I face this problem in lots of different areas. Buy-and-Holders act as if they are 100 percent sure of everything they say. But rarely do they have any evidence to point to in support of what they say. They just argue that “Everyone agrees about this” or some such thing. If what everyone thought was right, you wouldn’t see “revolutionary” findings like what we saw in 1981 from Shiller and in 2012 from Bennett/Pfau.
Mark Twain said that it is not the things you don’t know that hurt you the most but the things that you know for certain that just ain’t so!