I’ve posted Entry #218 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Shiller’s Record at Short-Term-Timing Predictions Is Poor.
Juicy Excerpt: Most interviews with Shiller focus on his short-term-timing predictions rather than on the important implications of his research re how investors should be changing their stock allocations in response to big price swings as a means of keeping their risk profiles roughly constant. The reality is that Shiller possesses about the same ability to predict where the market is headed in the short term as everyone else — his track record is poor. We all should make an effort to give up our preoccupation with what doesn’t work (short-term timing) and move on to the truly exciting finding of Shiller’s 1981 research — his finding that long-term timing (changing your stock allocation because of a big shift in valuations with an understanding that you may not see benefits for doing so for as long as 10 years) always works.
Anonymous says
You don’t need to worry about timing when it comes to investing. The key is rebalancing. Thus, the next generation of investing beyond buy and hold is really buy, hold and rebalance. Here is just one of many peer reviewed articles that supports this:
http://poseidon01.ssrn.com/delivery.php?ID=567087069087070071094122072000120125049002010083005045124082089108125023070118085067019011000043062111054093001008068120073084110049062017017095031007065083113006056052034112095111065083086007119090105074085072118113096028126077075093086024013001&EXT=pdf&TYPE=2
Rob says
He doesn’t compare Buy-and-Hold with Valuation-Informed Indexing. He compares Buy-and-Hold Without Rebalancing with Buy-and-Hold with Rebalancing.
As you know, every peer-reviewed paper that compares Buy-and-Hold with Valuation-Informed Indexing shows that VII FAR out-performs for the entire historical record both re returns and re risk.
As you also know, the response of the Buy-and-Holders every time a new study shows this is to threaten to kill family members of the person who shared the information with the middle-class investors who need to hear it or to demand unjustified board bannings or to advance tens of thousands of acts of defamation or to threaten to get the academic researchers fired from their jobs.
I wonder why.
Prison sentences are the answer, Anonymous. We adopted the rules against financial fraud for a very good reason. Now we need to unite as a people and see that they are enforced in a reasonable manner. I believe that we will see this following the next price crash. Of course I don’t know everything and it is possible that I am wrong. We will have to wait and see.
My best and warmest wishes to you and yours.
Rob