I’ve posted Entry #286 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Why Do Stock Buyers Applaud Price Increases?
Juicy Excerpt: But today we have millions of people buying stocks who never exercise any price discipline whatsoever. Millions of middle-class investors buy stocks with each paycheck as a means of financing their retirements. They don’t research particular stocks, they buy index funds. And they cheer every price jump. They measure success by how much their portfolio value increases. They view price drops not as a buying opportunity but as a failure. They like overpaying for stocks!
This is what needs to change. There is no natural brake on stock overvaluation. It always gets out of hand. So long as investors view overpricing as a good thing, the inventive for more overpricing is too powerful to overcome. Sooner or later prices will reach insanely dangerous levels. Then there will be a price crash, taking trillions of dollars of consumer spending power out of the economy. Hundreds of thousands of businesses will fail when consumers can no longer afford their products. Millions of workers will lose their jobs. Political stresses will evidence themselves.