Valuation-Informed Indexing #443: Return Predictions Rooted in Factors Other Than Valuations Don’t Work

I’ve posted Entry #443  to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Return Predictions Rooted in Factors Other Than Valuations Don’t Work.

Juicy Excerpt: I agree with Shiller that it is generally not possible to know why stock prices rise or fall. Where I part company with him is in his apparent belief that it is necessary to offer an explanation. My view is that there is only one factor that we can understand with some confidence and that all of our efforts to predict stock prices should be tied closely to that factor. When prices are high, they must drop hard (because it is the core job of any market to get prices right). And, when prices are low,, they must rise dramatically. That much is always so. The particular considerations that affect investor psychology in a given case don’t really make that much difference.