I’ve posted Entry #202 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Jeremy Siegel’s Views on Where Stock Prices Are Headed Are Not Rooted in Peer-Reviewed Research.
Juicy Excerpt: If Fama is right, stocks can never be underpriced any more than they can ever be overpriced. Stocks are always properly priced in an efficient market. The price that applies when all factors bearing on price are taken into consideration is obviously the proper price.
So how can any academic argue that stocks are underpriced?
An individual investor can do that. There are obviously lots of individual investors who do that all the time. But Siegel is not being quoted at web sites because everyone wants to know his views as an individual investor. He is being quoted because he is an academic, he is presumed to possess a special understanding that makes his views more important than the views of ordinary investors.
But the view that Siegel is putting forward here is not rooted in either of the two academic models! The idea that stocks are underpriced makes no sense under the Shiller model. And the idea that stocks are underpriced makes no sense under the Fama model. The idea that stocks are underpriced makes no sense under either of the two academic models. And yet Siegel, a well-known academic, gives voice to that view and is quoted in the media for doing so as if his views possessed some special significance because he speaks with the authority of a well-informed academic.