Yesterday’s blog entry reported on an e-mail that I sent to Academic Researcher Wade Pfau on May 18, 2011. My next e-mail from Wade arrived on May 31, 2011.
Jacob Irwin, publisher of the My Personal Finance Journey blog, posted an analysis comparing Valuation-Informed Indexing with what he calls “Passive Investing” (what I call “Buy-and-Hold” — sticking with a single stock allocation in the face of big changes in the price being charged for stocks):
Jacob sent a link to me and Wade and Wade copied me on his reply to Jacob.
Wade said: “VII tends to work as long as there is mean reversion in PE10, which there usually is. The unprecedented run-up of PE10 in the 1990s makes it hard for VII to compete then. I think there is not much else that can be done about that. But I don’t think this means that VII has permanently stopped working. Trying to find a specific strategy for VII to have worked in this 1990-2011 period sounds too much like data mining. Though in other time periods, it hardly matters which strategy you choose as it is hard to find a period in which VII does not work.”
He also linked to a discussion at the Bogleheads Forum that he said he thought might be of interest to us:
In the Bogleheads discussion, a poster using the name “Fred Flintstone” said that Wade’s research showing the superiority of Valuation-Informed Indexing over Buy-and-Hold “refutes a central tenet of the Boglehead investing philosophy. It’s a big deal.”