I’ve added an article to the The New Buy-and-Hold section of the site called Investing in Index Funds — The Need to Follow Valuation-Informed Strategies.

Juicy Excerpt: The introduction of index funds in the mid-1970s changed the history of stock investing in a dramatic way. We are only now (this article was posted in June 2011) beginning to come to terms with the significance of this innovation.

Stock pickers succeed or fail based on whether they are able to successful identify successful companies or not. Indexers of course do not need to worry about this. So in the early days of indexing the conventional wisdom has been that there is not need for indexers to employ investing strategies. All they need to do is to buy the indexes and hold them and they are sure to make out well in the long run, according to this line of thinking.

No! It doesn’t work like that.

Indexers must be strategic in their purchases of index funds to hold any realistic hope of long-term success. It is true that the strategic considerations that apply for indexers are different from those that apply for stock pickers. But it is a terrible mistake to think that by virtue of buying index funds rather than picking stocks you have freed yourself from the need to adopt smart investing strategies.

• Index Funds Don’t Work In Bear Markets
• Podcast #196 — Valuation-Informed Indexing and Buy-and-Hold Are Opposite Strategies