I’ve posted Entry #348 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Possesses Great Intuitive Appeal.
Juicy Excerpt: A group of my critics posts at my blog on an almost daily basis, trying to trip me up or harass me or whatever. One time one of them asked a question that really did give me pause. This fellow pointed out that I say that at a time when stocks are priced at two times fair value investors need to divide their portfolio value by two to know the true value of their portfolios. Then he asked whether I thought that he could receive the full amount of the stated value of his portfolio if he converted his stock shares to cash on that day.
The answer of course is that he could indeed obtain the full stated value of the shares. The mutual fund company that would be engaging in the transaction is run by smart people. Why would those smart people be willing to turn over two times the real value of the portfolio in exchange for those shares? That doesn’t make sense.
Valuation-Informed Indexing doesn’t make sense. That’s why it hasn’t caught on. Buy-and-Hold makes sense. That’s why it is the dominant strategy.