I’ve posted Entry #256 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called There Are Rare Circumstances in Which Short-Term Predictions of Price Changes Can and Should Be Made.
Juicy Excerpt: There are two reasons why I predict that we will see a crash by the end of 2016 rather than by the end of 2018 (the far safer prediction).
One reason is that a lot of my critics insist that I offer claims that can be verified as proof that the Valuation-Informed Indexing concept works. I always explain that precise predictions generally cannot be made. However, I do have some sympathy for their position. To say “there will be a crash someday because prices must revert to the mean but we have no idea when that will happen” is to say just about nothing. It is not fair for critics of Valuation-Informed Indexing to demand more precision than is possible. But it is also at least a little bit unfair for Valuation-Informed Indexers to refuse to offer any precision whatsoever. I think we should always employ caveats when we make predictions. But I think we also need to try to be a bit more specific than to say “there will be another crash someday.”
Valuation levels have been headed downward for nearly 16 years. It’s been seven years since the first crash. Ten years is not the amount of time we should expect to see pass before we see a second crash; it is the longest amount of time we should expect to see pass before we see that second crash. At the end of 2016, we will have seen eight years pass. I think it is reasonable to expect to see the second crash by then. It hardly seems fair to say in 2008 that we should expect to see another crash within 10 years and then to continue to say in 2015 that we should expect to see another crash within 10 years. If the 2008 prediction was valid (it was), then it should be possible to say in 2015 that we will see a crash within three years. And, given that that is the longest it should take for the crash to take place, it does not seem too far out to me to say that there is a very strong chance that we will see the crash by the end of 2016.
I don’t offer guarantees. I certainly acknowledge that my prediction could be proven wrong. But I see strong support for that prediction in the 145 years of historical return data available to us today.