I”ve posted Entry #200 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Moving Stock Returns From One Time-Period to Another Reduces Economic Productivity.
Juicy Excerpt: People complain all the time about our low savings rate. Bull markets contribute to that. Buy-and-Hold contributes to that.
People save when they are motivated to save. During a bull market, people look at the 30 percent gains they are seeing on their stock portfolios and determine that they don’t really need to buckle down just yet. It’s not irrational behavior. Stocks were priced at three times fair value in 2000. So an investor who had $200,000 of real value in his stock portfolio was led to believe that he had $600,000 of real value in his stock portfolio. It should shock no one that someone who thinks he is $400,000 farther along in his effort to finance his retirement would ease up on saving efforts for a time.