I’ve posted Entry #382 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Does It Help to Add a Moving Average Component to a Valuation-Informed Stock Investing Strategy?
Juicy Excerpt: A member of the Bogleheads Forum recently started a thread (“Using CAPE to Time Market?”) in which he expressed a view that the reason why using valuations alone to adjust one’s stock allocationis unsatisfying is because CAPE doesn’t predict short-term market moves. He sought feedback on whether it might be a good idea to combine the use of Shiller’s CAPE valuation metric (P/E10) with an examination of moving averages. The idea would be that the risks of using moving averages to time one’s allocation changes would be mitigated by making reference to the P/E10 level, which would signal to the investor times when severe price drops were more likely. The community member explained: “According to this strategy, I would follow a moving-average sell rule only when CAPE is high. At other times, I would refrain from using moving-average timing.”
I don’t think much of the idea.
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