I’ve posted Entry #638 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called There Are Two Opposing View of How Investors Go About Investing in Stocks.

Juicy Excerpt: What doesn’t make sense is that as a nation of people we have not for the 41 years since the publication of Shiller’s research done the work needed to resolve the apparent differences between Shiller’s research and Fama’s research. It’s not too difficult intellectually to do so. The thing that is holding us back is that doing so would bring on an enormous change in the how-to investing advice that we offer to millions of people and the experts who have been promoting the approach that became popular in pre-Shiller days are extremely reluctant to acknowledge that because that research was not available to them at the time they developed their strategy (Buy-and-Hold) that got some important things very wrong.

I’ve posted Entry #637 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called If Market Timing Works, Then It Is Absolutely Critical.

Juicy Excerpt: Robert Shiller has described the intellectual leap from the finding that short-term price changes are unpredictable (University of Chicago Economics Professor Eugene Fama showed this in research published in the 1960s) to the Buy-and-Hold belief that the market sets prices properly as “one of the most remarkable errors in the history of economics.” I think that’s right. I don’t think that even those who agree with Shiller and me on this point (most stock investors do not agree) fully appreciate how much harm was done by this mistake and how much good would be done by correction of it.

I’ve posted Entry #636 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Explanations Given for Bull Markets Are Almost Always Made Up.

Juicy Excerpt: Humans have a deep need to make sense of the world about them. So, when stock prices rise, we advance and then come to believe in explanations for the price increases. What we do not do is to submit those explanations to the scientific scrutiny that would be needed to verify them as accurate.

I’ve posted Entry #635 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Economic Growth Is Gradual and Even, Big Jumps Should Make You Suspicious.

Juicy Excerpt: Much of the economic upturns and downturns that we experience are just the product of the creation and disappearance of irrational exuberance. If we all were careful to adjust our stock allocation in response to valuation shifts, going with a lower stock allocation when the CAPE rose to a level that put our risk profile out of whack, stock prices would stabilize. We would no longer see runaway bull markets or scary bear markets.

Which means that the stock market would no longer be pumping pretend money into the economy to push it forward or taking pretend money out of the economy to hold it down. A more stable stock market would translate into a more stable economic system.

I’ve posted Entry #634 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Theory Behind Buy-and-Hold Makes Intuitive Sense.

Juicy Excerpt: Until the price crash hits, most investors remain unconcerned. Most aren’t even aware of changes in the CAPE value. Most of those who are shrug them off. So long as the market doesn’t crash, the CAPE value is just a number. A high CAPE value is a flashing red light. But a red light is not itself a terrifying event, it is only a warning that one is coming. Most investors drive merrily though the red light without a care.

I’ve posted Entry #633 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called There Can Be Good Reasons for the CAPE Value to Go Above 17.

Juicy Excerpt: We cannot say precisely what the CAPE value should be at a given time. There are circumstances in which a CAPE value above 17 could be justified by the economic realities. But we can say with a good bit of confidence what the proper CAPE value cannot be. A CAPE value of 44 is so far off from the norm that it can safely be said that it is the product of irrational exuberance. Any CAPE value above 25 is dangerous. The entire history of the market tells that tale.

I’ve posted Entry #632 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Discussions of Market Efficiency Are Themselves Not Efficient.

Juicy Excerpt: We don’t know. Would that not be fair to say? We kinda, sorta think that the stock market is kinda, sorta efficient. At least we very much want to believe that. But those statements quoted above suggest that we entertain doubts. If we once possessed a high degree of certainty that the market is efficient, that certainty is gone today. 

I’ve posted Entry #631 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Doesn’t Hurt Us Only During Price Crashes.

Juicy Excerpt: The relentless promotion of price indifferent/Buy-and-Hold stock investing strategies undermines the stock market’s efforts to work that magic trick. In ordinary circumstances, stock investors would lower their stock allocation in response to price increases because price increases pull the likely long-term return on stocks down and thereby make the asset class less appealing. But most of today’s investors are reluctant to respond rationally to price increases because they have been told that market timing doesn’t work. So prices cannot correct. Eventually, they do. Eventually, they must. But stock prices can remain at crazy levels for remarkably long periods of time so long as supposed experts are reassuring investors that there is no need to engage in market timing.

I’ve posted Entry #630 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Market Timing Makes Stock Investing Rational

Juicy Excerpt: I look forward to living in a world in which rational stock investing is encouraged rather than discouraged. I believe that that world is coming in the days following the next economic crisis brought on by the relentless promotion of Buy-and-Hold strategies. There are all sorts of interesting questions that experts in this field will feel free to examine in those days.

I’ve posted Entry #629 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Made Stock Investing More Emotional Than It Has Ever Been Before.

Juicy Excerpt: Investors have always wanted to believe that the irrational exuberance that they create by practicing price indifference is real. And so stocks have always been a high-risk asset class at times of sky-high prices. But the Buy-and-Hold Model, which would have greatly diminished our ability to create irrational exuberance had Shiller’s Nobel-prize-winning research been available at the time it was being developed, made matters much worse than they have ever been before.