Valuation-Informed Indexing #397: If Shiller Is Right, Today’s Investors Should Be Highly Emotional

I’ve posted Entry #397 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called If Shiller Is Right, Today’s Investors Should Be Highly Emotional.

Juicy Excerpt: Stocks are today priced at more than two times fair value. If Shiller is right, that’s because today’s investors are irrationally exuberant about their stock holdings. Could they maintain their irrationality if they were regularly exposed to the other point of view? We are experiencing a Catch-22. For Buy-and-Holders to be willing to listen to criticisms of their strategy, they would need to be rational enough to permit the voicing of other points of view. But if they were today capable of that level of rationality, we wouldn’t have the high prices that have made Buy-and-Hold so dangerous in the first place.

Buy-and-Hold is popular because prices are high. It’s the irrationality of the strategy that is the source of its appeal! Irrational investors will not permit themselves to be exposed to rational critiques of their investing beliefs. Shiller’s message is common sense. If Buy-and-Holders were open to hearing him, they would not have needed him to make the arguments, they would have come up with them themselves. It’s all a circle.