I’ve posted Entry #577 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Is a Bad Idea Because Markets Must Be Flexible to Function.

Juicy Excerpt: We have public service commercials to encourage good behavior in other fields of life endeavor to stop people from throwing cigarette butts on the ground and from taking narcotics to relieve life’s pains. What if we did that in the stock investing realm?

Only YOU can prevent bull markets.

Please market time until it hurts. 

A financial freedom dream is a terrible thing to waste. 

The retirement plan you save may be your own. 

Keep America valuation-informed.

This is your brain. This is your brain on Buy-and-Hold. Any questions?

I’ve posted Entry #576 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Six Logical Jumps to a Belief in Market Timing.

Juicy Excerpt: Two, it is important to understand WHY short-term timing and long-term timing are so different. The reason why long-term timing always works is that the market’s core job is to get prices right; that is what markets do. So, when stock prices travel far from their fair-value level, you can be virtually certain that they will be moving hard in the direction of the fair-value price over the next 10 years or so. So why doesn’t short-term timing work as well? In the short term, stock prices are determined by investor emotion. Investor emotion is unpredictable. There is just no telling what stock prices are going to do over the next year or so.

I’ve posted Entry #575 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called All Stock Gains Are Rooted in Learning Experiences.

Juicy Excerpt: The rub is that our economic system requires growth to continue making life better for us all. If we were to rule out all change, those 6.5 percent annual stock gains would no longer exist. We need learning experiences to continue living well and we should be grateful that Shiller’s research promises to provide us with many of them. Sticking with the status quo is not always the prudent course of action. Change upsets the apple cart. But blocking change brings on different kinds of risks that often appear over the course of time. I believe that the changes promised (threatened?) by Shiller’s research are changes that we must embrace.

I’ve posted Entry #574 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called How Long Does It Take for Investors to Correct a Mispricing of Stocks?

Juicy Excerpt: Market timing is the means by which improper pricing of stocks is corrected. It is the idea that market timing is not required or is in fact a bad idea that is responsible for the scary high prices that have applied for stocks in recent years. We should all want stocks to be priced fairly at all times. Both overvaluation and undervaluation are a scourge. The key to taking things to a better place is correcting the outmoded thinking that produced the idea that market timing either might not work or might not always be required. 

I’ve posted Entry #573 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called More of the Money We Earn Is Used to Buy Stocks Than Anything Else.

Juicy Excerpt: Our lack of confidence in our understanding of how the stock market works is not an accident. We don’t want to know. In one sense, we do. We know that it is important to know and we do not want to make mistakes with our retirement money. But knowledge of how the market works would make it much harder for us to fool ourselves to the extent we need to to keep a bull market going for long. So we comment ruefully about our lack of knowledge while suppressing any inclination to dig down deep and figure out what is really going on when trillions of dollars of wealth go “poof!” in a price crash.

I’ve posted Entry #572 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called In the Future All Investors Will Practice Market Timing.

Juicy Excerpt: The amazing reality is that there has never been any reason to believe that market timing doesn’t always work and isn’t always required. The idea that there is something suspect about market timing is rooted in a mistake, the biggest mistake ever made in the history of personal finance.

I’ve posted Entry #571 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Stock Investors Overstate Their Gains in the Heat of Bull Markets.

Juicy Excerpt: Investors who obtain good results brag. It is human nature. Most investors who go with a large stock allocation are worried about doing so at the time they make the choice. So they are relieved when their bet seems to have paid off. And they tell everyone who will listen that they have this stock investing thing figured out. When the losses come, as they inevitably do, they keep it to themselves. Stock gains are reported far more frequently than stock losses.

I’ve posted Entry #570 to my Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Strategies Create a Bad Feedback Loop.

Juicy Excerpt: Consider what happens to stock investors who push stock prices up to unsustainable highs. What happens in the real world is they are hit with financial penalties, just as is the driver who fails to observe the speed limit. Every time stock prices go up, the most likely long-term return on stocks goes down. A price rise puts more money in the investor’s portfolio, which of course gives him a good feeling. But price rises that take the CAPE value above its fair-value level also lower the going-forward return enough to counter that good feeling. Investors who are informed of the realities of stock investing do not get excited about price rises greater than those justified by the economic realities because they know that they are temporary.

Buy-and-Holders don’t see things that way. In the Buy-and-Hold mindset, investors are 100 percent rational in the decisions they make regarding stock investing. So there is no such thing as overvaluation — the market always gets prices just right. Even crazy price increases are believed to be justified by economic developments. So there is no reason to believe that they will disappear. Price increases that are justified by the economic realities are good news for everyone. Times of big stock price increases are times of strong economic growth. What’s not to like?

I’ve posted Entry #569 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Nothing But Flexibility in Stock Allocations Can Stabilize the Economy.

Juicy Excerpt: My view is that all of those considerations are secondary ones. The biggest influence on the economy is the amount of irrational exuberance present in the stock market. I don’t recall ever hearing anyone else say that. So I feel that I have to doubt myself. But the case seems so clear and strong that I cannot dismiss the thought from my mind.

I have posted Entry #568 to my weekly Valuation-Informed Indexing column at the Value Walk site. It is called Why the Reluctance to Use CAPE to Manage Risk?

Juicy Excerpt: I have come over time to believe that the most effective way to challenge the emotionalism of investors is to challenge it head on. I like to make direct statements that market timing always works and that market timing is always required for those seeking to keep their risk profile constant over time. No, most investors don’t bite the first time they hear those sorts of words. But the thing that is going to change attitudes is the next price crash and all the pain that it will cause in the event that Shiller’s Nobel-prize-winning research turns out to be saying something useful and important. At that time investors will want to know what happened to the larger half of their retirement money and clear statements of the realities will be more persuasive than efforts to state things in gentle and indirect and less clear ways.