Set forth below is the text of a comment that I recently posted to another blog entry at this site:
“What you say here is correct. It is the overvaluation caused by the continued promotion of Buy-and-Hold strategies that is the primary cause of the price drops”
You are too much, dude.
Tell me Rob, does ANYTHING other than b&h ever influence the price of things?
Stock price changes are caused by shifts in investor emotion. There is now 34 years of peer-reviewed research showing this to be so.
Economic developments INDIRECTLY affect stock price changes because they change investor emotions. But the effect that an economic change has on prices is greatly influenced by the valuation level that applies at the time the economic development evidences itself. An economic development that would have a positive change at one price level could bring on a negative change at another price level. It is impossible to make an informed assessment of what caused a price change without taking the valuation level that applies into consideration.
It is the promotion of Buy-and-Hold strategies that causes investor emotions to get out of hand and cause economic crises. Stock prices are naturally self-regulating. Problems arise when the Wall Street Con Men recommend that investors ignore price when buying stocks. This is a recipe for disaster for obvious reasons. No market can function without price discipline. Price discipline is the magic that makes it possible for markets to price things properly.
I hope that helps a bit, Anonymous.
My best wishes to you.