I’ve posted Entry #311 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Stopped Being Science When It Was Not Corrected to Reflect Shiller’s Findings on Valuations.
Juicy Excerpt: Silver points to the flaw in human nature that caused the downfall not only of those who dismissed Trump’s chances of winning the Republican nomination but of those who grew so emotionally attached to the Buy-and-Hold dogmas that they became incapable of incorporating new insights into their thought processes when they were presented to them. “The distinguishing feature of the scientific method is not that it always gets the answer right, but that it fails forward by learning from its mistakes,” he says. The tragedy of the last 35 years is that the Buy-and-Holders stopped falling forward on the day in 1981 when Shiller showed them that it really is investor emotion that drives stock price changes rather than unforeseen economic developments….
A numbers-based model that is not corrected when found to be in error can no longer be said to be scientific. An uncorrected numbers-based model is the opposite of science. It has the appearance of science and thus possesses an unmerited credibility in the eyes of those making use of it (millions of middle-class investors!). But it no longer possesses the reliability of a model that is being corrected on an ongoing basis through regular application of the scientific check-and-correct process.