Valuation-Informed Indexing #195
by Rob Bennett
I am in the process of writing to the 30,000 professors listed at the Social Science Research Network (SSRN) site to let them know about the Valuation-Informed Indexing concept and the research that has been done over the past 33 years showing the superiority of the new model to the discredited but still dominant Buy-and-Hold Model. I have received lots of wonderful responses, some agreeing with my arguments and some taking issue with them. In almost every case in which I have received a response from the professor contacted, I have learned something important.
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The most interesting responses of all have been the ones that referred to the concept of paradigm change as described in the famous book by Thomas Kuhn, The Structure of Scientific Revolutions. I think the comments that were made in those responses are precisely on point. The reason why it has been such a struggle to get Valuation-Informed Indexing to replace Buy-and-Hold is that the root idea (that it is investor emotions that are primarily responsible for stock price changes rather than economic or political developments) represent a challenge to a deeply engrained belief.
How many times have we all read one of those daily columns in the Wall Street Journal explaining why stock prices went up or down the day before? If Shiller is right, reading those columns is a big waste of time. If Shiller is right, the explanations put forward in those columns are a big bunch of silliness.
University of San Diego Law Professor Ted Sichelman wrote: “Unfortunately, many academics can become quite strident when their views are challenged, which is why I was counseled not to tread on treacherous ground prior to getting tenure. Like most other fields, academia is often subject to self-serving boas that obliterates ethical bounds.”
Jing Chen, Assistant Professor at the University of Northern British Columbia, wrote: “It is natural that powerful people will do what they can to protect their interest. It is the norm in the academic world and in the broader world. I am grateful that you write about it.”
Carol Osler, Program Director at the University of Northern British Columbia, wrote: “I certainly have seen the academic profession in action squelching unfashionable ideas and have often been on the wrong side of it. While there’s no magic solution, especially in the short run for individuals with jobs at stake, I sometimes find it calming to see that both philosophy and science are on our side about academics sometimes being profoundly unreasonable. For philosophy, Kuhn was a good start for me. He shows how most pathbreaking scientific ideas are rejected at first, usually for de