Using PE's with subsequent wide swings in asset allocation is really timing the market. Although appealling in theory, the long term track record of market timers is not very good. Besides this there are many other variables, other than PE, that affect market values: e.g. interest rates, profit growth, etc. Add to this human nature (fear & greed) wouldn't it be difficult to stay out of market because of high PE's & continue to watch the market go up for 6 months, 1 year 2years, etc waiting for the PE's to adjust lower? Then get in only to watch the market go down.
no one is against adjusting a portfolio % asset allocation based upon the individuals risk tolerance, which may well change based upon personal or market conditions. The danger in PE timing is that we are fooled into believing we know what will happen, become overconfident, and start dismissing asset allocation and diversification as prudent fundamental investing tools.