Valuation-Informed Indexing #445: How Low Will Stock Prices Go Following the Next Price Crash?

I’ve posted Entry #445 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called How Low Will Stock Prices Go Following the Next Price Crash?

Juicy Excerpt: I have been writing on the internet about Shiller’s research for 17 years now and I have seen no evidence that today’s investors possess more emotional balance than did investors from earlier times. I wasn’t on the scene in those earlier days. But I have seen a lot of emotion evidenced by Buy-and-Holders in response to my writings on Shiller’s research. If investors of earlier days were even more emotional, please do not ever put me in a time machine and send me back to experience those days. I don’t think that I could take it.

Shiller’s claim that it is irrational exuberance that sets stock prices in bull markets contains a troubling suggestion. We can never appreciate the instability of stock prices set by emotion at the time that we are living through them. If stock prices really are set by emotion, the emotional creatures doing the price setting are not going to be capable of seeing what they have done. It is in the nature of an emotional phenomena that the rational mind cannot grasp it. Reason and emotion proceed on different mental tracks, they speak different languages.