I’ve posted Entry #54 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Data Combined With a Sound Theory Makes a Powerful Case.
Juicy Excerpt: As the poster using the screen-name “Fred Flintstone” notes: “The paper refutes a central tenet of the Boglehead investing philosophy.”
That it does.
But Greyfox brings up a point that has only rarely been examined in much depth.
He says: “Without some sound theoretical basis, there is really no way to know that some superior results of a strategy aren’t just random results that won’t repeat in the future.”
I strongly agree.
The fact that the entire historical record shows both that Buy-and-Hold can never work well for for the long-term investor and that Valuation-Informed Indexing will always offer higher risk-adjusted returns is powerful evidence in support of my favorite investing strategy. But Grayfox is right. Even 140 years of data is not enough. Without a theory that makes sense of that data, making changes in your stock allocation pursuant to the consistent message of the data is a dangerous business.