“Any Sensible Asset-Allocation Formula Should Combine Age/Investment Horizon & Valuation Levels”

I recently received a note from the owner of the www.rationalinvestor.biz web site. It stated: 

“After a quick look at your site, I realized that our web site is founded on a very similar understanding of the stock market and investing in general. We would appreciate it if you’d take a look and provide comments.”

I was impressed by an article (to which I was pointed in the e-mail) entitled Valuation and Subsequent Equity Returns. It states:

“A simple age-based asset allocation formula is not appropriate, and any sensible asset-allocation formula should combine both age/investment horizon and market valuation levels.”

Precisely so.

I said in my response e-mail:

“Thanks for writing.

“I like that article (particularly the first paragraph) very much. I am going to
write a blog entry (my daily blog is entitled “A Rich Life”) pointing my
readers to it. I will let you know when it appears (it will be sometime in January).

“I applaud you for the work you do. Please let me know if there are ways
in which you would like to work together to bring sensible investing ideas
to greater public attention.”

It’s been 30 years since Yale Professor Robert Shiller published his research showing that valuations affect long-term returns. I view it as a national scandal that there are still today investment “experts” advocating Buy-and-Hold Investing. I urge anyone who has made the case for valuation-informed stategies to contact me so that we can make an effort to work together to get the word out and to protect the U.S. economic and political systems from further damage brought on by the continued advocacy of the long discredited and exceedingly dangerous Buy-and-Hold “idea.”

Valuations affect long-term returns. I’m sure of it! Deep in our hearts, we all are.

Let’s knock off the word games and get about the business of developing an approach to understanding stock investing that makes sense and that works for real live middle-class workers living in the real world. Let make it our national New Year’s Resolution!