VII #29 — Valuation-Informed Indexing Is Not the Same Thing As Tactical Asset Allocation

I’ve posted Entry #29 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Valuation-Informed Indexing Is Not the Same Thing As Tactical Asset Allocation.

Juicy Excerpt: The similarity is that both VII and TAA call for occasional allocation shifts. The big difference is in the thought process that goes into the decision-making process as to when to make those shifts and what sorts of shifts to make. The allocation shifts made by Valuation-Informed Indexers are not optional shifts made with the hope of gaining some short-term edge. They are mandatory shifts. They are made solely with long-term considerations in mind. They are strategic shifts, not tactical shifts.


  1. Arty says

    Hi, Rob,

    Thought you’d be interested in this weekly from John Hussman. Lots of valuations info. Worth reading each Tuesday.

    Hussman uses Shiller PE/10 as part of his analysis, though also looks at recent market action for his implementations, which I think is less effective and more as a way of trying to please his investors who (lacking his patience) can grow weary of temporary losses on market upswings. Still, Hussman is man who pays lots of attention to valuations as you see them, and his background and experience are impressive.

    After some thought on equity diversification, I think you are correct that if you choose to use a strategy based on PE/10, you’re better off using exclusively the S&P 500 as that is where all the supportive data comes from. The idea of traditional equity diversification (adding Small Caps, Internationals, etc.) might actually muddy the waters in this sort of timing strategy as the Shiller work is not based on those at all. Not saying it wouldn’t work, as often equity classes move together, but no real need to complicate things with less well-supported valuations data.

    Jeremy Grantham, on the other hand, also pays respect to Shiller but attempts to establish valuations and forward estimates on multiple asset classes (about 8 or so). He has quite a following too, but naturally, things get more complex his way.


  2. Rob says

    Thanks for the link, Arty.

    All of what you say makes sense to me.

    Yes, there are some approaches that would make things more complex. I don’t bother trying to figure out which is best and which is second best and all this sort of thing. My view is — Let a thousand flowers bloom!

    If everyone has their say, we’ll figure it all out together in the by and by. Different people see things from different perspectives. I don’t worry about that aspect of things.


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