I’ve posted Entry #214 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Is It Possible That Valuations Affect Long-Term Returns But That Predictions Do No Work?
Juicy Excerpt: The book The Myth of the Rational Market does a fine job of explaining the history of explaining how we got to the strangeTwilight Zone period of understanding how the stock market works that we live in today. It explains how the idea that the market is efficient was disproven but then stops short of saying what that signifies for those seeking to invest effectively.
If the market is not efficient, we all must be sure to adjust our stock allocations in response to big price swings so that we can keep our risk profiles roughly constant. The book doesn’t reach that conclusion, It explains why the old ideas on how stock investing works have been discredited. But it then cops out on the matter of describing new ideas. It suggests that, even though all the reasons for believing that Buy-and-Hold strategies might work have been disproven, it still might be a good idea to follow such strategies.
I find zero merit in this line of thought. I am often tempted to conclude that the people pushing it do not believe themselves in what they are saying. But I must say in all fairness that all signs are that the DO believe. Many smart and good people sincerely believe that Buy-and-Hold strategies make sense even though the theory supporting these strategies was shot down three decades ago. As amazing and as scary as that reality is, that’s the reality of where things stand today.
Evidence Based Investing says
Is It Possible That Valuations Affect Long-Term Returns But That Predictions Do Not Work?
Yes it is possible.
In fact it is the case.
Wade Pfau proved it the peer reviewed paper he published analyzing the issue.
Rob says
I obviously believe that it is not possible, Evidence. I made my case in the article linked to in this blog entry.
Wade obviously never showed any such thing. The fact that you feel a need to lie about this shows how desperate you find your position to be. Before you threatened to destroy Wade’s career if he continued to do honest work, he raved and raved about Valuation-Informed Indexing. He views the transition from Buy-and-Hold to Valuation-Informed Indexing to be the biggest advance in the history of personal finance. And he will of course be saying that on every discussion board and blog on the internet on the day following the announcement of your prison sentence.
My best and warmest wishes to you and yours.
Rob