I’ve posted Entry #331 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Valuations Matter — But How?
Juicy Excerpt: I can count seven others ways of thinking about valuations among people who cannot bear to come to the conclusion that I have come to, that profits attributable to overvaluation rather than true economic growth are always reduced to cotton-candy nothingness in the long term.
One, there is a tiny group of people who truly believe that the market is efficient, that is, that the idea that the market can ever be overvalued in a meaningful sense is a logical impossibility. I don’t agree with these people but I admire them for their intellectual integrity. If overvaluation exists, the market is not efficient. If the market is efficient, overvaluation does not exist. For those who truly believe that the market is efficient, Buy-and-Hold really is the ideal strategy and I of course wish those in this group the best of luck with the strategy that makes perfect sense for them.