tekboy,
If you were to plot those dips that you just mentioned against some kind of valid absolute or relative valuation measure, do you think there would be any pattern? I mean, obviously one can't time highs and lows precisely. But with, say, CTXS, is it your recollection that the drops came from unusually high valuations?
On one hand, I don't spend enough time tracking relative valuations to honestly know the answers to those questions. On the other hand, more important for me is that you're only asking about when the stocks dropped relative to a particular measuring point. You're not asking when the stocks didn't drop relative to the same measuring points. I don't have any empirical data, but I suspect Cisco, Microsoft and Intel "should" have dropped many times relative to certain measuring points, when instead they went on to much higher highs.
I don't think it's an issue of randomness that is the foil of short-term thinking. Instead, I think it's our inability to properly model the immensely complex sets of factors.
hence the strong consensus of academic economists behind not just LTB&H but also index funds...
Two thoughts.
That they are "academic" instead of praciticing investors means they are dealing in a realm that is not my realm. I realize I'm completely ignorant when it comes to the stuff of modeling theories that you have so much expertise in, but all the academic studies aren't worth a dime when it comes to me understanding my limitations and capabilities with my money.
If their academic results give them reason to promote the use of index funds, they are doing a tremendous service to the hundreds of thousands if not millions of investors who would otherwise use other kinds of mutual funds of which 80% to 90% underperform the index funds. I can't quibble with that. Frankly, if we could get everyone to spend less than they make, invest what they save, and reinvest what they earn on their investments, the whole world would be a lot better off if those same people did nothing but invest in index funds.
What I do quibble with is the notion that indvidual investors don't have access to the information or the ability to use the information to outperform the index funds or the other mutual funds. The full-service financial institutions want us to believe that so we have a reason to put our money in their pockets. If the academic economists are as wrong as the full-service institutions, at least it's not because of a misplaced motive.
--Mike Buckley |
