Valuation-Informed Indexing #640: Much of the Wealth Destroyed Through the Creation of Irrational Exuberance Is Never Recovered

I’ve posted Entry #640 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Much of the Wealth Destroyed Through the Creation of Irrational Exuberance Is Never Recovered.

Juicy Excerpt: Say that as investors we create $12 trillion of irrational exuberance in a long bull market and then watch it disappear in a price crash/economic crisis. That sounds bad. But is it really so terrible? Had there never been a bull market, we never would have experienced neither the phony gains nor the sudden loss of them. Skip both the exciting bull market and the scary price crash that inevitably followed it and we would have broken even. Isn’t that right?

 

Not quite.

 

The dollar values that appear on our portfolio statements send signals re all sorts of economic behavior. When the signals are wrong, the behavior is wrong. And making bad economic decisions causes financial losses.