Tom Drake, owner of the the Canadian Finance Blog, has posted a Guest Blog Entry of mine titled The Five Big Benefits of Valuation-Informed Indexing:
Juicy Excerpt: Buy-and-Hold purports to be a strategy for long-term investors. The reality, however, is that most Buy-and-Holders pay almost as much attention to the short-term ups and downs as stock investors have since the beginning of time. The reason is that Buy-and-Hold posits that price changes are the result of economic developments. Investors who believe that short-term economic developments are affecting their retirement hopes can hardly expect to honour vows not to pay attention to what is going on in the economy.
Shiller’s research suggests that the primary driver of short-term price changes is investor emotion. Thus, short-term economic developments are of little consequence to the Valuation-Informed Indexer. By encouraging a thought process in which the short term truly doesn’t matter, the new strategy helps investors tune out the short-term noise not just in theory but in reality.