Valuation-Informed Indexing #418: The Shiller Revolution Is About Shifting the Focus from Economics to Emotions

I’ve posted Entry #418 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Shiller Revolution Is About Shifting the Focus from Economics to Emotions.

Juicy Excerpt: The Shiller investor would have been frightened by those gains. He would not have seen them as something to celebrate; he would likely have characterized them as “out of control.” All investors want the market to be as rational as possible; we have our retirement money invested in it. The difference, though, is that Buy-and-Holders see nothing concerning about big price gains — they are caused by economic developments as much as are small gains. Valuation-Informed Indexers, in contrast, see bull-market gains as emotion-generated gains. Times of high valuations are times of irrational exuberance. The times in which the market delivers big gains are the most dangerous times for stock investors.