Set forth below is the text of a comment that I recently posted to another blog entry at this site:
This would be the one that will take stock values to 60% lower than they were in 2013 within three years, as per your prediction then. That’s about an 85% drop from today. We’ll see how close you were. 16 months to go!
You can do the math as well as I can, Anonymous. Shiller has the data at his web site. Just go check what P/E10 level applies before a secular bear market comes to an end. We have had four of them so far in U.S. history. If you do the check, you will see that in the first three cases the turnaround did not come until we saw a P/E10 of 8 or lower. Then you can do the math to see how large a drop that represents from where we stand today. We’re not looking at a pretty picture, that much is for sure.
It’s important that you understand what will cause the next price crash. It will NOT be a change in economic realities. That’s what it would be if Fama were right and if Buy-and-Hold worked, that’s what it would be if returns played out as a random walk not only in the short term but in the long term as well. No. It will be a change in investor EMOTION that will bring about the crash. Shiller showed that it is investor emotion that determines stock prices. Economic realities play a secondary role because economic factors influence investor emotions. But they often do not do so in a rational way. Our emotions make of economic realities what we will them to make of them.
So it won’t just be the value of your portfolio that will be crashing. Your belief that Buy-and-Hold can work will be crashing. And the belief of millions of others that Buy-and-Hold can work will be crashing. It is the belief that price doesn’t matter when buying stocks that caused the insane, out-of-control bull market. And it is the belief that price doesn’t matter when buying stocks that is behind your burning hatred of anyone who mentions what the last 33 years of peer-reviewed research tells us about how stock investing works on a discussion board or a blog.
So all the people who hold back from calling you out today will be angry with you for what you have done following the crash. That follows, does it not?
I wish you well, old friend.