Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:
As always, you ignore the key point and filibuster on a side remark.
Rob, I’ll make a deal with you. Just answer one question directly and I promise I’ll leave you alone forever. (In fact, I might anyway, because unlike you, I do get tired of this.) Here is my question:
Define the precise formula for implementing VII.
But your usual nonsense is not acceptable. This is the start of a formula: “An investor should be in x% stocks and y% bonds when PE10 is at z.”
These are not formulas: “Buy low, sell high.” “It depends on the person.” “It depends on the market direction.” “I’ll tell you after the next crash.” “We need more people talking about it to figure it out.”
In other words, if your answer cannot be measured, it fails.
What fails in your eyes does not necessarily fail in my eyes or in the eyes of millions of other middle-class investors, Dan. You are not the ultimate authority re this stuff. Nor am I, to be sure. Each investor gets to decide for himself or herself how to play it.
There is no one formula that applies for all investors. Each investor decides for himself what formula he will follow.
That’s exactly how it is done in Buy-and-Hold. You have never heard Jack Bogle say “all investors should go with an x percent stock allocation.” He says that you need to take the investor’s risk tolerance into consideration. He says that you need to take the investor’s age into consideration. That makes perfect sense. I don’t find fault with Bogle for not stating a single formula for Buy-and-Hold and it is my view that you should not either.
I don’t see anything wrong with there not being a single formula for Valuation-Informed Indexing either. Different Valuation-Informed Indexers have different risk tolerances too. They should take that into consideration. And different Valuation-Informed Indexers have differing levels of confidence in Valuation-Informed Indexing. They should take that into consideration.
Someone who is seeking a mix of Valuation-Informed Indexing and Buy-and-Hold would want to limit the number and size of the allocation shifts that he employed in his strategy. For example, he might go with 70 percent stocks at all times when the P/E10 level is below 25 and with 40 percent stocks when the P/E10 level is at 25 or above. That’s not Buy-and-Hold. With Buy-and-Hold, there are no allocation shifts in response to changes in valuations. But it is pretty darn close to Buy-and-Hold. The research shows that that investor would receive a big benefit from switching to Valuation-Informed Indexing but not as much of a benefit as those who were open to making more allocation shifts and bigger allocation shifts.
Why do you feel a need to demand a single formula? What does that add?
I prefer it the other way. The more open we are to different approaches, the more people there will be who will feel comfortable offering their thoughts. I might favor one particular allocation strategy and might write an article advocating it. Someone else might come along and write an article making the case for something different. Isn’t that a plus? Isn’t there a good chance that someone other than me will have some good ideas? That sounds like an absolute lock to my ears. So why discourage people from offering their thoughts? I would like to see as much of that as possible. I would like to see a national debate in which we see thousands of good and smart people stepping up to the plate and taking their swings.
I am a “Let a thousands flowers bloom!” sort of guy, not a “Here is the one acceptable formula and don’t anyone dare question it” sort of guy. It’s dogmatism that got us into the mess that we are in today. So I am not too excited about taking the dogmatism poison that killed Buy-and-Hold and injecting it into Valuation-Informed Indexing. If there is one formula that is clearly better than all others, that will become evident over time. People are not dumb. People can be trusted to figure these things out for themselves.
I personally doubt that there will ever be a single formula that works for all people and for all circumstances and for all times. I am not even on the look-out for a single formula. I think we all learn by talking that sort of thing over. I might argue for one formula on Monday and for another on Tuesday in the way that law students argue one side of a case on Monday and the other on Tuesday. Crafting the arguments helps clarify one’s thinking.
So far as I am concerned, someone could say that his formula is always to stay at the same stock allocation until he got close to retirement. That’s Buy-and-Hold! If a guy wants to say that Buy-and-Hold is his formula for implementing Valuation-Informed Indexing, I am not going to lose any sleep over it. I define “Valuation-Informed Indexing” as a strategy in which the investor makes allocation shifts in response to valuation shifts (because valuations affect long-term returns). So that formula as a technical matter does not fit the definition. But it wouldn’t bother me if some fellow wanted to walk that path with his own money. It’s his money, you know? Who am I to tell him that he is not allowed to do what he wants? Why would it even matter what I said anyway?