I’ve posted Entry #127 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Overvaluation Is the One Market Inefficiency That Investors Will Always Be Able to Exploit.
Juicy Excerpt: Mike does a good job here of articulating why it is that many Buy-and-Holders dismiss Valuation-Informed Indexing as too good to be true. There’s now 30 years of peer-reviewed academic researcher showing that we all can reduce the risk of stock investing by 70 percent just by giving up on Buy-and-Hold strategies and accepting the critical reality that we must adjust our allocations in response to big swings in valuation levels. The entire historical record shows this to be so. So it MUST be so! Yet it CANNOT be so! It cannot possibly be that easy!
The dispute between Buy-and-Holders and Valuation-Informed Indexers is an existential dispute. Debate cannot change it. Data cannot change it. Research cannot change it. The dispute goes to core beliefs. When Valuation-Informed Indexers tell Buy-and-Holders that there is an easy way for them to greatly increase their returns while also greatly diminishing their risk, we are essentially questioning their religion. They are not willing to go there because to go there would mean to revisit every belief about stock investing that they have come to hold over the course of their investing lifetimes up until today.