“A Person Can Obtain Most of the Benefits of Valuation-Based Market Timing By Making Only One Allocation Change Every Ten Years on Average.”

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

Buy and Holders collectively will achieve the market return (minus very small transaction costs)

Market timers collectively will achieve the market return (minus much larger transaction costs)

I appreciate you making an effort in this comment to present a rational case for the Buy-and-Hold position rather than just engaging in name-calling, Evidence.

The transaction costs for Valuation-Informed Indexers do not need to be large at all. They need to check the CAPE value once a year to see if their stock allocation percentage still makes sense given the risk profile that they believe is appropriate for someone in their circumstances and for someone with their financial goals. But dramatic swings in CAPE values do not take place frequently. A person can obtain most of the benefits of valuation-based market timing by making only one allocation change every ten years on average.Making only a small number of allocation changes permits the investor to retire years sooner while dramatically reducing the risk he takes on by investing in stocks. The transaction costs incurred are trivial relative to the benefits obtained by following a research-based strategy,

Please remember that Shiller’s Nobel-prize-winning research bad not yet been published at the time the Buy-and-Hold strategy was being developed. At the time, the Efficient Market Theory was popular among academic economists. If the market were efficient, there would be no need for valuation-based market timing. The reason why Shiller was awarded a Nobel prize is that he DISCREDITED the Efficient Market Theory. He showed that irrational exuberance is a real thing. If irrational exuberance is a real thing, an investor who wants to keep his risk profile stable over time (that is, to Stay the Course in a meaningful way) is REQUIRED to engage in valuation-based market timing. In a world in which valuations affect long-term returns, there is no other way to get the job done.

I naturally wish you all the best that this life has to offer a person, in any event.

Rob