I’ve posted Entry #556 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Stocks Are More Risky Today Than They Were in January 2000.
Juicy Excerpt: Stock prices were most an illusion in January 2000. But prices had only reached dangerous levels in 1996. So the illusion had not been in place for too terribly long a time. That means that the shock that would have been felt by investors if prices returned to fair-price levels would not have been as great as the shock that will be felt if the market returns to fair-price levels in the not-too-distant future.
The other way to look at this post is that you predicted the market would have crashed a long time ago, so you stayed out of the market. The market has gone on a huge bull run and you missed out on making a huge amount of money in the market. You are now hoping for a crash so that you don’t feel so bad for missing out.
We all have biases. I have devoted 19 years of my life to the development of and the promotion of the Valuation-Informed Indexing concept. So I certainly have a bias in that direction. I don’t think you are wrong to take that reality into consideration.
My view is that the “bull run” that you refer to was nothing more than the piling on of more irrational exuberance on top of an already existing mountain of irrational exuberance, If irrational exuberance is not real (Shiller’s research shows that is it not), what does it matter how much of it you have in your portfolio? I don’t want irrational exuberance, I want real gains. That’s why I do what I need to do to preserve as much capital as possible to invest in stocks when they are selling at prices that will permit me to enjoy lots of real gains.
My best wishes to you.
Rob
What matters is results. Your market timing strategy didn’t work out like you said it would. Meanwhile, the buy and holders have been richly rewarded. If you based your retirement on VII, you can no longer make up for the past 19 years. It is too late because you would have spent down way too much of your portfolio.
Valuation-Informed Indexing has provided better risk-adjusted results for 150 years now. That’s as far back as we have records.
It’s not even logically possible that things could turn out any other way. Taking valuations into consideration permits you to make rational asset allocation choices. Adding rationality to the decision-making process is always a plus.
That’s my sincere take in any event.
Rob