The Bogleheads Forum has been discussing the merits (or lack thereof) of Valuation-Informed Indexing again.
The discussion is wildly imbalanced. The Bogleheads Forum was created to permit Buy-and-Hold advocates in that community to escape the Morningstar Forum, where honest posting on Valuation-Informed Indexing was permitted for two years. Those discussions were some of the best investing discussions we have ever seen on the internet (a good number of those who were trying to defend Buy-and-Hold from the challenges put to it do not agree, to be sure). The first action taken upon formation of the new forum was to ban honest discussion of Valuation-Informed Indexing. So those listening in to that thread are obviously not getting to hear both sides of the story.
That said, there are lots of smart people in the Bogleheads community and there are some positive as well as negative comments contained in the thread. That’s to the forum’s credit. Also, some of the negative comments are worthy of consideration. You want to explore the pitfalls of a strategy before adopting it. There’s no place where you are more likely to hear a well-crafted criticism of Valuation-Informed Indexing than at the Bogleheads Forum.
Juicy Excerpt #1: You say “You’re right, you are smart and I admire you and you are a sharp dresser. Indexing is great. And we like it so much that we’ve developed something much better than that moldy old indexy indexing. It’s…. active indexing, yeah! It’s Indexing Plus! Or Indexing-X-Treme! Or enhanced indexing or fundamental indexing. It’s indexing, but it’s better! And because it’s better, and only we have it, we get to charge high fees….”
Juicy Excerpt #2: A lot of people on this Forum are skeptical of valuation-informed allocation. I am in the minority. I recently revised my IPS to take into account valuations of both stocks and bonds when making allocation decisions. The algorithm I use is very simple.
Juicy Excerpt #3: Notice that even if he were right that indexing is not the best strategy, it would not follow that his own specific strategy is better. Differences in opinion is what makes horseracing, and difference in opinion on valuation is what makes the stock market. The case against “valuation-informed” anything is that it is hard to value assets correctly. Even in the year 2000, people were arguing dead seriously that Stock Prices Are Still Far Too Low. I just don’t believe that a few simple rules based on numbers that are easily available to everyone will substantially improve your risk-adjusted returns.
Juicy Excerpt #4: To RB’s credit, I’d love to see even an incoherent 18-point list titled, “The Case Against Pyramiding Up”
Programming Note: The blog will return on September, 12. Goodbye, Summer of 2011!