I’ve posted Entry #478 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Conditions Were Perfect for Cognitive Dissonance When Shiller Published His Revolutionary Research Findings.
Juicy Excerpt: I am generally skeptical of conspiracy theories. I think that a better explanation of the strange reality is that our confusion over how stock investing works is the result of one of the most widespread cases of cognitive dissonance ever experienced. Shiller published his research and it attracted a good bit of attention. But most of us continued thinking about stock investing in the same way in which we did before he came along all the same. Shiller’s message did not implant itself into our brains because our filters found it too radical for serious consideration.
Cognitive dissonance has been described as “the discomfort felt by a person who holds conflicting ideas, beliefs or values at the same time.” It’s not possible for the same person to believe in both the research of Eugene Fama (in which the Buy-and-Hold strategy is rooted) and of Robert Shiller. A stock portfolio cannot be worth both $200,000 and $100,000 at the same time. And it is of course not possible to form opinions about any investment strategy question without first determining the value of one’s stock holdings. Those who believe in Buy-and-Hold walk one path and those who believe in Valuation-Informed Indexing walk another.
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