While it is far more diversified than the actual stock pickers, you're still choosing to invest in one thing and not another, perhaps based on a view that you expect that thing to outperform the other.
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To keep it simple, in deciding between stocks and bonds, people with a long-term outlook recommend a heavy stock allocation, because in the past stocks have outperformed bonds (on a risk-adjusted basis? I assume so)
The part you are missing is that people have different risk tolerances, due to different circumstances and goals in their lives. For this reason, different people's "risk-adjustments" of the returns can be very different.
For example, some home bias is justified because foreign assets have extra currency risk. For this reason, your domestic assets are safer for you, so to you their risk-adjusted returns seem higher and you overweight them. People from other countries find your domestic assets more risky, because to them they contain currency risk, so they underweight them.
Overweighting stocks for MMMers is similar. MMM people generally invest their own money over long periods of time, so short-term volatility is no risk to them, especially in the accumulation phase. For institutional investors like insurance companies, who invest money borrowed from their customers, a short-term drop can be terminal: if their assets depreciate temporarily, they are often forced to liquidate them in order to not lose the money entrusted to them, so they cannot stay invested throughout a crash. For such investors, short-term volatility is a huge risk, and they want to underweight stocks.
Bonds, on the other hand, are valuable to institutional investors like banks. In Europe, for example, banks can invest in bonds with huge leverage, as they are officially "riskless" so that banks need no equity to invest in them. It's like free arbitrage, they borrow money at almost 0% interest from the ECB and lend it out at 1% to some government. The risk-adjusted return on bonds, using huge leverage, is therefore quite good. For an individual Mustachian, who cannot get such cheap leverage and who invests his own money, the prospects of getting 1% nominal return on his investments are much less appealing. So while banks rationally overweight bonds, Mustachians underweight them.
In all these examples, the prices might accurately reflect "average risk adjusted-prices" for the average market participant, but as every market participant is different, everyone reasonably uses different risk-adjustments for their own investment decisions, based on their individual risk profile.