Stupid Assertions

4) The fourth tenet of Valuation-Informed Indexing is that it is far too soon in our examinations of the historical data to be reaching dogmatic conclusions.

Here are some stupid assertions:

1) Predictions and estimates are meaningless because nobody knows the future.

Nobody knows exact future outcomes. We can know quite a bit about what is likely and what is not likely.

2) Past performance tells us nothing about future results.

Past performance tells us quite a bit about likely future results. Past performance is the ONLY thing that can give us ANY guidance about future results.

The truth hidden underneath these words has to do with the KIND of information being extracted and its PRECISION. People frequently misinterpret results and reach erroneous conclusions.

3) Nobody can time the market.

This is absurd on the face of it. We are being asked to believe that a person who bought stocks at the 1929 peak did the right thing.

Add Qualifiers.

Add the right qualifiers and you can get something useful. Very few people add any qualifiers. Almost nobody adds a full set of qualifiers.

In each instance, there is an important truth hidden underneath a stupid assertion. Too many people remember conclusions. They forget (or never know) the conditions for them to apply.

It is critically important for us to distinguish between what we know and what we don’t know. It is critically important to discern what we can know and what we cannot know.

It is OK for us to reach conclusions. We need to be aware of the qualifiers. It is OK for us to apply some conclusions judiciously even when they are in doubt, so long as we understand the limits of our knowledge.

It is wrong for us to insist upon conclusions without knowing the qualifiers. Those are the dogmatic conclusions that cause problems.

Have fun.

John Walter Russell
November 6, 2005