“Irrational Exuberance Is the Cancer of the Personal Finance Realm. Valuation-Informed Indexing Is the Cure.”

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

Since you know the research and how things work, you don’t need us for anything, nor do you need access to our websites, conferences, etc.  You should have millions upon millions in your accounts by now with all that superior knowledge.

None of that is so. Appreciating what the last 43 years of peer-reviewed research tells us all about how stock investing works puts about $300,000 in one’s account over the course of an investing lifetime (more in some cases, less in others, it depends on circumstances). Adding $300,000 is no small thing. It’s a big deal. But it’s not millions and millions. Saying that it has to add millions and millions to have any value is silliness.

And the most important benefits of Shiller’s research are not benefits experienced by the individual but benefits experienced by the entire society. The Buy-and-Hold Crisis of 1929 caused a Great Depression. Someone who invested perfectly experienced no losses on a personal level. But he saw his country brought to its knees. He is being perfectly reasonable to want millions of people to be spared that sort of pain now that we have the knowledge needed to make better decisions.

I would like to see a cure for cancer. I want that party for myself because I may get cancer someday. But even if I were assured that I will never need a cure for cancer, I would like to see one appear because it would help millions of other people. Irrational exuberance is the cancer of the personal finance realm. Valuation-Informed Indexing is the cure. I would like to see every site opened to honest posting so that we can spread the cure for personal finance cancer far and wide. I am not able to imagine any possible downside.

Rob