I’ve posted Entry #324 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Valuation-Informed Indexers Only Temporarily Miss Out on Gains When Bull Markets Continue Longer Than Expected.
Juicy Excerpt: Valuation-Informed Indexing strategies often do not pay off for a good bit of time. That much is certainly true. But they always pay off (at least on a risk-adjusted basis and usually even on a nominal basis) to those patient enough to permit the various waves of investor emotion to play out. Stocks were not worth buying at the prices at which they were being sold in 1996. The insanity of the last four years of the century did not render the smart choice to protect one’s portfolio by lowering one’s stock allocation a less-than-smart one. The power of that second wave of investor emotion delayed the day of reckoning for Buy-and-Hold investors while increasing the price they paid.
There is no getting around the price that follows from following Buy-and-Hold strategies. But the price can arrive in several different forms. There are always a variety of wave scenarios that may apply in given circumstances. Investors need to consider the possibilities, note how they apply to those in their particular circumstances, make the choices that follow from those considerations, and then exercise the patience needed for the various wave scenarios to play out.
It can be frustrating and unsettling waiting for the various wave scenarios to play out. But Valuation-Informed Indexing strategies always work if given enough time. The reason why is that they MUST always work. Long-term timing is how price discipline is exercised in the stock market. It is absurd to think that there might be a market in which it were a good thing to fail to exercise price discipline. Price discipline is a positive, valuations always matter and Valuation-Informed Indexing is always superior to Buy-and-Hold in the long term.