I’ve posted Entry #338 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Burden of Proof re Price Discipline Should Be on the Buy-and-Holders.
Juicy Excerpt: Shiller said (about 10 minutes into the video): “My attitude is — Why are we so interested in the efficient markets model? Because we haven’t seen any compelling evidence for it. It may be that we have trouble rejecting it. It depends on your model of human nature.”
There have been many articles and papers written arguing the case for and against the Efficient Market Theory. A good number of them employ sophisticated mathematical and analytical tools to support their arguments. In fact, I have been told by my critics that I lack both the economics background and the statistics background to be qualified even to question the expert opinion on this topic. And I have run into many middle-class investors whose lives will be greatly affected by whether it is Fama or Shiller who is right and who have staked their personal retirements on a belief that it must be Fama who is right given how sure the experts who argue for Buy-and-Hold strategies claim to be re their conclusions.
It has often seemed to me that there is not really any there there.
That’s what Shiller is saying in the words quoted above. Shiller of course possesses the economics and statistical expertise that I lack and he is able to make use of the same sophisticated analytical tools that the Fama adherents use when making his case for a very different way of understanding how stock investing works. But Shiller is making his case in a very simple way in the words above. He is not presenting any statistical evidence at all. He is asking the question posed by the small boy who noticed that the king wasn’t wearing any clothes.