Index investing and allocation of capital based on PE — these were two ideas I was mulling about for few months now. Today I happened to see a website which is dedicated to research and data on both these. Here is a good food for thought on valuation based index investing:
http://www.passionsaving.com/stock-market-investing-advice.html
Specifically, read up the eighth tenet:
The eighth tenet of Valuation-Informed Indexing is that valuations matter.
It is different from normal investing advice because:
1. It promotes low cost and low overhead index investing, but not just the passive SIP type of investing. For the record, I do not think SIP type of investing is a bad idea for retail investor. But it is important to continue to do SIP when valuations are low.
2. It advises effectively retail investors to try to time the market, by getting light near high index valuation and allocating more capital near low index valuation.
Also read up other good links on same website. Some of the advice is more applicable to US equity, but still relevant.
http://www.passionsaving.com/stock-market-investing-advice.html
A tiny bit of due-diligence goes a long way: you need to google your cites before you publish.
While there is merit to trying to apply some valuation metrics to stock buying decisions, I’m afraid the source you chose to quote from is a much-debunked internet crank, one whose many delusions and personal issues are apparent from a rudimentary scan of the past history of this guy, as archived by Google.
I did not look at the source’s reputation etc… Merely the various articles, their consistency of message, and the argument behind them.
Investing has to be done by making one’s own decisions. Many great investors are wrong in some of their individual decisions… so it can’t be reduced to a game of second guessing them.