I’ve posted Entry #262 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Unpredictability of Short-Term Return Sequences Masks the Predictability of Long-Term Returns.
Juicy Excerpt: Say that it’s 1982 and you have just learned about Robert Shiller’s research showing that long-term returns are highly predictable. You have been advising people for years to follow a Buy-and-Hold strategy and you are questioning whether that is a good idea on a going-forward basis. It’s easy to get caught up in the short-term realty that the P/E10 level is 8. You think to yourself: “We are unlikely to ever again see stocks selling at fair-value prices much less at prices where valuations could create any dangers for long-term investors.” You silence those doubts and continue advocating Buy-and-Hold because your mind focuses on the unpredictable short term rather than the predictable log term.