Valuation-Informed Indexing #396: Would You Prefer to See Stock Prices Double or Drop by 50 Percent Over the Next 12 Months?

I’ve posted Entry #396 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Would You Prefer to See Stock Prices Double or Drop by 50 Percent Over the Next 12 Months?

Juicy Excerpt: The problem that I have with the idea of taking joy in price increases is that there is no end to it. If it would be a good thing for prices to double, wouldn’t it be an even better thing for prices to triple? Or to quadruple? There is no point at which the logic employed by Buy-and-Holders would ever reject a price increase as being just too darn big. In the Buy-and-Hold world, the market is rational. That is the core assumption. If the market decides that it is proper for prices to quadruple, then it is proper for prices to quadruple. The market is all wise. The market decides.

We are the market. That’s my concern. We are emotional creatures. It seems entirely possible to me that we could decide to increase stock prices to a point at which further increases are no longer in our best interest. And with no way to recognize the point at which further price increases become a negative, we would just keep stepping on the gas as things got more and more out of control.