I recently posted Entry #240 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called What I’ve Learned From Listening to the Harshest Critics of My Investing Ideas.
Juicy Excerpt: Lesson #5: The Stock Market Is Different From All Other Markets in Several Important Ways. One of the lines of questioning that comes up again and again in my interactions with Buy-and-Holders relates to how markets really work. It shouldn’t be possible for stock market prices to get so out of hand. Investors should want to exploit inefficiencies in pricing and thereby bring them to an end. One of the most interesting questions that all in this field should be exploring today (in my assessment) is why this doesn’t happen. I have come to believe as a result of my interactions with my Buy-and-Hold friends/critics that a big part of the problem is that stock investors think of themselves as owners of stocks even at times when they are purchasing more shares than they are selling. In the car market, the dealer is pushing for a high price and the potential customer is pushing for a low price. It is the conflict between the two sets of interests that produces the magic that permits the market to get the price roughly right. In the stock market, we all root for high prices. That’s why the market often becomes dysfunctional and does an exceedingly poor job of getting the price right.