I’ve posted Entry #461 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Purpose of Investment Research Is to Learn Things About the Subject That Are Not Intuitive.
Juicy Excerpt: I of course do not believe that that’s the deal. I think that Shiller is on to something important. The portfolio statement says what it says because as a society we have made a collective decision to count irrational exuberance as real. We don’t even permit the implications of Shiller’s ideas to be discussed in an in-depth way at most internet sites. We want to believe that the numbers on our portfolio statements reflect reality. So we tune out challenges to those numbers and thereby keep our confidence up.
But the purpose of research is not to tell us what we want to hear. Marketing people can do that. The purpose of research is to dig deep and discover things about how stock investing works that are not intuitive, that are not widely known, that perhaps are even more than a little difficult to accept. That’s Shiller. That’s what he did with the 38 years of “revolutionary” (his word) peer-reviewed research that caused him to be awarded that Nobel prize. Shiller questioned our most fundamental beliefs about how stock investing works. And he backed up what he said with data. That’s an amazing trick.
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