I know timing the market is a fool's errand. However, for an index fund investor, if market valuations are significantly higher than historical averages, wouldn't it make sense to get out? After all, the only ways that (index) prices wouldn't revert to the mean are 1) prices remain constant or price growth slows while earnings catch up or 2) we have reached new "permanent" valuation territory. I find 2 to be likely only if interest rates remain low, which they probably won't. I also find 1 to be unlikely just given human psychology - people just aren't that patient.
A more likely scenario is that prices continue to hammer upward until they get too high and plummet either close to historical average valuations or even below, at which point it's a great time to purchase again. Sure, selling now would miss out on some (potentially significant) gains before the plummet, but those gains aren't really gains if you operate by the true by-and-hold methodology.
I think what I'm espousing here is a less precise version of market timing. I'm not trying to figure out when we're at the absolute top or absolute bottom. I'm trying to preserve more moderate gains and avoid significant losses.
Does any of this make sense?
