Valuation-Informed Indexing #642: The Great and Obvious Appeal of Irrational Exuberance

I’ve posted Entry #642 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Great and Obvious Appeal of Irrational Exuberance.

Juicy Excerpt: Stock drunk. That’s a term that I came up with years ago to describe the phenomenon. Buy-and-Holders don’t like it when I use that term. I understand why. It sounds insulting. But it is not my intent to insult. My intent is to understand and to describe. If we cannot name the thing that is causing all the trouble, we will never be able to overcome that thing. Irrational exuberance is a devilish customer. We won’t overcome it by keeping Shiller’s book stocked in the libraries but holding back from discussing openly and frankly what it tells us about the need to go to battle with our inner desire to have something for nothing, the Get Rich Quick urge that drives all this business about not needing to change our stock allocation when prices go nuts.

Have you ever heard anyone else talk like this? Use terms like “stock drunk” to explain today’s CAPE value? It’s not done. That’s why the CAPE value is so high. That doesn’t just happen. It happens because there is something inside us that lets it happen, that wants it to happen. We are all stressed financially. Each and every one of us. The phony gains that appear on our portfolio statement in the form of irrational exuberance ease those concerns. That’s the story.