“There Is Only One Difference Between Buy-and-Hold and Valuation-Informed Indexing. Buy-and-Holders Believe That Stock Price Changes Are Caused By Economic Developments. If That’s So, Risk Is a Constant and Investors Should Be Sticking With the Same Stock Allocation at All Times. Valuation-Informed Indexers Believe That Stock Price Changes Are Caused By Shifts in Investor Emotion. If That’s So, Risk Is a Variable and Investors Who Want to Maintain the Same Risk Profile Over the Years MUST be Willing to Make Adjustments to Their Stock Allocation in Response to Big Valuation Shifts.”

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

The problem is that you are starting with false presumptions.

Backatcha, Anonymous.

There is only one difference between Buy-and-Hold and Valuation-Informed Indexing. Buy-and-Holders believe that stock price changes are caused by economic developments. If that’s so, risk is a constant and investors should be sticking with the same stock allocation at all times. Valuation-Informed Indexers believe that stock price changes are caused by shifts in investor emotion. If that’s so, risk is a variable and investors who want to maintain the same risk profile over the years MUST be willing to make adjustments to their stock allocation in response to big valuation shifts.

The place where you start determines the place where you end up. Shiller is not saying what Bogle had long said. There are today two academic models for understanding how stock investing works, not one.

I naturally wish you all good things, in any event.

Correct Presumption (I Think!) Rob