“Market Timing Is Not a Problem, Market Timing Is the Solution to the Problem.”

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

“ When prices are insanely high, they will be headed downward in the long run.”

Prices go up and down, but have always gone up in the long run. We cannot predict when and by how much they go up and down, which is why timing doesn’t work and your predictions didn’t work. As we look back on the last two decades we see that VII failed.

I agree that prices go up and down and I agree that prices always go up in the long run.

I do not agree that prices in the long run follow the pattern of a random walk. There is a strong correlation between the CAPE value that applies today and the return that will apply for the next 10 years and the next 15 years and the next 20 years. So risk is not constant, it is variable. So investors who want to keep their personal risk profile constant MUST practice market timing.

If the next price crash brings on the Second Great Depression, no one is going to say that Valuation-Informed Indexing failed. People are going to be kicking themselves for not insisting that honest posting re the last 39 years of peer-reviewed research be permitted at every discussion board and blog on the internet, without a single exception. If irrational exuberance is a real thing (I believe that it is), then irrational exuberance is the mortal enemy of all stock investors. It makes it impossible for us to plan our financial affairs effectively. If we permit irrational exuberance to get too out of hand, we are always going to see an economic crisis. When the mountain of Pretend Money disappears into thin air, trillions of dollars of consumer spending is taken out of the economy and hundreds of thousands of businesses go belly up. Not good.

There is only one way to combat irrational exuberance — market timing! Market timing is not a problem, market timing is the solution to the problem. No market can function effectively without price discipline and it is by practicing market timing that stock investors practice price discipline when buying stocks.

That’s my sincere take, in any event, Anonymous.

I naturally wish you all the best that this life has to offer a person.

Rob