A Buy and Hold friend of mine recently posted the following words to the discussion thread for one of my blog entries: “You’re confusing high valuations (a fact, historically speaking) with overvaluations (a judgement that the market is wrong, in effect that you’re smarter than Wall Street).
I like the comment because it concisely and clearly reveals the primary difference between Buy and Hold believers and Valuation-Informed Indexers. It is absolutely correct to say that I believe that the market is wrong. That’s the entire idea of Valuation-Informed Indexing. We can know when the market is getting things wrong and how off the mark the market is and we should put that knowledge to good use by adjusting our stock allocations accordingly.
My Buy and Hold friend dismisses out of hand the possibility that the market has gotten things wrong. His comment suggests that the market is comprised largely of Wall Street experts who possess more knowledge about the value of stocks than I possess. So I should just give up this effort to outsmart the market.