Valuation-Informed Indexing #477: Buy-and-Hold Has Performed Well in the Post-Shiller Era

I have posted Entry #477 to my weekly Valuation-Informed Indexing column at the Value Walk site. It is called Buy-and-Hold Has Performed Well in the Post-Shiller Era.

Juicy Excerpt: The real question is not what returns have been provided over what time-period. The real question is whether stock price changes are determined by economic developments, as the Buy-and-Holders believe, or by shifts in investor emotion, as Shiller has proposed. If it is economic developments that determine stock price changes, then Buy-and-Hold is the ideal strategy. If shifts in investor emotion determine stock price changes, then Buy-and-Hold is dangerous.

We cannot say when the dangers of Buy-and-Hold will reveal themselves. But if Shiller is right in what he says about what causes stock price changes, we can say for certain that sooner or later they will. Because, if Shiller is right, none of the numbers that I cited at the beginning of this article are legitimate. If Shiller is right, all of those numbers need to be adjusted for the effect of overvaluation (investor emotion). If the numbers were adjusted, investors would form very different conclusions about the merit of the Buy-and-Hold strategy.