I’ve posted Entry # 231 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Last 19 Years of Returns Offer Support for Both the Buy-and-Hold and Valuation-Informed Indexing Strategies.
Juicy Excerpt: A regression analysis of the historical return data shows that the most likely 20-year annualized return for a stock purchase made at the price that applied in January 1996 (a P/E10 of 25) is 2.9 percent real. The historical data indicates that there was a 20 percent chance that the 20-year annualized return would be less than 0.9 percent real and only a 20 percent chance that it would be better than 4.9 percent real. 6 percent real is better than 4.9 percent real. Either stock investors got very lucky over the past 19 years or the Buy-and-Holders are right that the Valuation-Informed Indexers are exaggerating the importance of taking valuations into consideration when setting one’s stock allocation.