I’ve posted Entry #89 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Keeping Your Stock Allocation Constant Might Be the Riskiest Choice Of All.
Juicy Excerpt: Market timing earned a bad reputation in pre-Shiller days, when people did not know how to do it right. But many investors have drawn the wrong conclusions from their negative timing experiences. It’s not timing that is bad. It is guessing which is bad. The form of timing that involves guessing (short-term timing) really is bad. The kind of timing that does not involve guessing (long-term timing) is very, very, very good.
If valuations affect long-term returns, it is staying at the same stock allocation at all times that increases risk to unacceptable levels. If valuations affect long-term returns, stock risk is not a constant but an ever-changing thing. Close your mind to the need to engage in long-term timing and you insure that your stock allocation will be wildly off the mark through most of your investing lifetime.