“Price Discipline Is Key to the Functioning of Every Market That Ever Existed. When We Discourage People From Exercising Price Discipline When Buying Stocks, We Set Up Circumstances in Which the Stock Market Crashes Because It Cannot Figure Out Any Other Way to Get Prices Down to Where They Should Be for the Market to Continue to Function.”

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

Wade’s firm says you should avoid all timing and just rebalance.

https://retirementresearcher.com/occams-should-you-try-timing-to-avoid-bad-markets/

Bottom line: Avoidall these get rich quick timing schemes.

Thanks for the link, Anonymous. I am not personally persuaded. But I think the guy does a good job of making the case. I think that anyone considering going with a Valuation-Informed Indexing strategy should read that article, think it over and discuss it with people from both sides of the table to come to a better understanding of the issues. If there are flaws in the VII concept, you want to identify them before you put money on the line. When someone goes to the trouble to present a reasoned argument against your strategy, he is helping you out in a big way. So I like this one.

Here’s the sentence where I think his logic chain breaks down: “They’ve priced in that information, and the current prices are the market’s best estimate of the value of the stock market.” If investors were 100 percent rational beings, that would be so. But what if most investors are humans, in which case they would be highly emotional beings. If investors were humans, we should expect to see a lot of abusive posting on all investing discussion boards and blogs at times when prices reach the level where they are today. We should expect to see death threats and demands for unjustified board bannings and thousands of acts of defamation and threats to get academic researchers fired from their jobs. Investors are not able to price in information that they do not even know about or that they are not able to discuss, are they? If the market (which is really just all investors acting collectively) is not even able to gain access to the information it needs to estimate the value of the market, how the heck can it do so effectively?

This guy is helping us. I 100 percent support the idea of permitting him to post his honest views. But I also 100 percent support the idea of permitting all others to post their honest views, including those of us who believe that Shiller’s Nobel-prize-winning research is legitimate research.

My bottom line? Always, always, always practice long-term timing, which is just price discipline going by a different name. Price discipline is key to the functioning of every market that ever existed. When we discourage people from exercising price discipline when buying stocks, we set up circumstances in which the stock market crashes because it cannot figure out any other way to get prices down to where they should be for the market to continue to function. That hurts all of us in very, very big ways.

Market Timing Advocate (and Buy-and-Hold Critic) Rob