I’ve posted Entry #261 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Unlike Long-Term Returns, Short-Term Return Sequences Are Highly Unpredictable.
Juicy Excerpt: Predictable returns — that’s investor heaven! So why all the controversy? Why is there so much resistance to buying into this research-backed strategy?
The problem is that short-term return sequences are not at all predictable. And investors get to see short-term market reactions, of which there are many, far more often than they get to see long-term market reactions, of which there are few. Asking investors to believe that returns are highly predictable is asking them to believe in something that they have seen disproven again and again and again.