I’ve posted Entry #98 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called It’s Better to Get Stock Prices Roughly Right Than Precisely Wrong.
Juicy Excerpt: One of our favorite rationalizations is to demand perfection of the numbers used to make valuations adjustments while permitting lots and lots and lots of slack in the numbers we use for all other purposes. It is of course true that P/E10 is not a perfect tool. It is possible that the proper adjustment in 2000 was not to reduce our portfolio values by 65 percent but by 60 percent or 70 percent. The adjustment indicated by the P/E10 valuation metric is merely the best adjustment available to us today, nothing more and nothing less. The thing that shows that the objections to making valuation adjustments are purely emotional in nature is the failure of those making the adjustments to impose the same perfectionist standards on the non-valuation-adjusted portfolio numbers.