I’ve posted Entry #62 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Valuation-Informed Indexing Will Keep Working After Everyone Finds Out About It.
Juicy Excerpt: If knowledge of the realities spreads, price volatility will be greatly diminished. In a world of Valuation-Informed Indexers, there will never again be another bull market. Each time prices go up more than the amount justified by the economic realities, investors will lower their stock allocations because the long-term value proposition of stocks has been diminished. Those sales will bring prices back to fair-valuation levels. Stock market prices are self-regulating in a world in which investors have access to accurate information about how stock investing works.
Valuation-Informed Indexers will obtain lower returns in a post-Buy-and-Hold world. But the return they obtain will not be bad at all. The return obtained when stocks are selling at fair-value prices is 6.5 percent real. That’s good enough to help most of us finance retirements beginning at a reasonable age.
And we would be obtaining that return in a world of minimal stock volatility. That’s another way of saying that we would be obtaining that return in a world of minimal stock risk. A 6.5 percent real return from an asset class of little risk — I can live with that! I bet you can too.