A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

“Stocks Have Been Mispriced for 28 Years, With the Exception of a Few Months in the Immediate Aftermath of the 2008 Economic Crisis. That’s Been Bad for Each and Every One of Us. When Stocks are Mispriced, Both Individuals and Businesses Cannot Engage in Effective Financial Planning. Ineffective Financial Planning Diminishes Wealth. So the High Stock Prices of the Past 28 Years Have Left Us All Poorer Than We Would Have Been If More of Us Had Been Following Research-Based Investment Strategies.”

by

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

So stock has been mispriced, in your mind, for the last 25 years.  Look at how all that has worked out for you.  You are in your 60’s and broke.

Stocks have been mispriced for 28 years, with the exception of a few months in the immediate aftermath of the 2008 economic crisis. That’s been bad for each and every one of us. When stocks are mispriced, both individuals and businesses cannot engage in effective financial planning. Ineffective financial planning diminishes wealth. So the high stock prices of the past 28 years have left us all poorer than we would have been if more of us had been following research-based investment strategies.

The difference between Buy-and-Hold and Valuation-Informed Indexing is that Buy-and-Holders accept whatever stock price happens to apply as real while Valuation-Informed Indexers distinguish between stock price gains caused by real economic factors and those cause by irrational exuberance. We believe that all investors should be practicing valuation-based market timing at all times with the aim of keeping noninal prices as close to fair-value prices as possible for the benefit of all concerned.

Irrational exuberance is the enemy of stock investors, in the eyes of Valuation-Informed Indexers. Buy-and-Holders are complacent about irrational exuberance. They do nothing to overcome it. If anything, they celebrate it. They act like it is a good thing. Yucko to the Max, you know?

Rob