I’ve posted Entry #259 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Return Predictions Are Implicit in All Investing Advice.
Juicy Excerpt: I compared what investing analysts do with that doctors do. A doctor cannot give precise predictions of how long it will take for a disease to kill his or her patient. Yet doctors still make such predictions. They say: “You have six months to live unless you undergo this operation.” Why? Don’t they worry that it is possible that the patient will live only five months or perhaps will not die until seven months have passed? That’s what Buy-and-Holders do. They argue that since it is not possible to make precise predictions, we should not make any at all.
Doctors appreciate that the goal is to help the patient and that you can’t do a good job of that without making the best predictions you are able to make. I see now that, when I have argued the case for making long-term return predictions, I have often often presented the case in too defensive a manner. It’s not just that it is okay to make predictions or that predictions can have value. Predictions of stock returns are every bit as required as predictions re how long a patient will live if he or she does not undergo surgery. It is irresponsible for investing analysts not to use valuations to make long-term return predictions.