Set forth below is the text of an e-mail that Mike Piper, author of the Oblivious Investor blog, wrote me on August 27, 2009.
Last week, after deleting your comment, I got multiple e-mails from readers thanking me for doing so. The message expressed in each email was that the reader was tired of hearing about Valuation-Informed Investing. Today, after your comment, I received another email from a reader asking me to request that you stop bringing it up.
Two of the emailers explicitly noted that you appear to have the best of intentions with your writings. I’d agree with that statement.
However, I’d rather not ignore the requests of what appears to be a significant portion of my readership. (I’ve always suspected that if a few people take the time to email about something, there are others who have been thinking the same thing, but don’t bother to say so.)
I’ve read Schiller’s “Valuation Ratios and the Long-Run Stock Market Outlook” as well as the 2001 update of that paper. I’m not trying to argue against the historical correlation between future price changes and current P/E 10 ratios. I wouldn’t fault you for integrating current P/E 10 ratios into your asset allocation plan, nor would I fault you for recommending that others do the same.
The primary reason I don’t actively recommend it is that I’m not convinced it’s worth the additional possibility for errors. The issue isn’t that I believe it would be particularly difficult to implement. I’ve just found that investors tend to latch onto the idea that it’s possible to beat the market, and once they latch onto that idea, they don’t have very good ways of separating reasonable methods from unreasonable methods. So they choose between methods by doing the obvious: They compare past performance, which can lead to all sorts of poor investment decisions. Instead, I suggest accepting market returns.
I fully encourage you to continue writing about Valuation-Informed Investing on your blog. I would, however, ask that you refrain from bringing it up on my own. You know where I stand on the topic, and I (and my readers) know where you stand. We discussed it pretty thoroughly in your guest post, and it’s been discussed to varying degrees in other comment threads. I respect your viewpoint on the matter, and I hope that you respect mine. However, I don’t think either of us is going to change the other’s mind at this point, and I’m doubtful as to whether anything would be gained by our continuing to discuss it.