My Obsession

There’s a fellow (“Allan”) at the Vanguard Diehards board who describes my interest in knowing whether the stocks that I buy will be able to provide an acceptable long-term value as an “obsession.”

Is he right?

In a way, I guess.

There’s no question but that I wouldn’t think of putting money down on stocks without first taking into consideration the price at which they are being offered. My desire to know the price I pay for stocks, and whether the stocks will be able to provide an acceptable long-term value given the price paid, affects all of my investing decisions. Price and value are pervasive concerns of mine. I suppose that some would say that any pervasive concern can fairly be characterized as a bit of an “obsession.”

We don’t use the word “obsession” when people ask questions about the prices they pay for other sorts of assets they buy, however. Why is it that some employ words with negative connotations to describe the idea of looking at the price offered and the value obtained from purchases of stocks but not from purchases of other assets?

Say that a car salesman talked up the benefits of a particular car and asked you kindly to sign your name to the bottom of the piece of paper he was holding in his hand? Suppose that you asked to know the price that you were agreeing to pay before signing and he responded that this request was a sign of an “obsession”? Would you go ahead and sign the piece of paper without knowing the price, as he was aiming to pressure you to?

I wouldn’t. I would wonder why he was pressuring me. In fact, there’s a good chance that I would walk away even if he agreed to reveal the price at that point. His reluctance to tell me the price would make me concerned whether he was the sort of person with whom I would want to strike a deal. I don’t even like to get involved with people who become hostile when I ask simple questions that anyone putting money down has an obvious need to have answered prior to signing on the dotted line.

Say that it was a house you were buying. Again, say that you asked to know the price and the response of the real estate agent was to say: “This is going to turn out to be a fine purchase for you in the long run, I am sure of it, now please just go ahead and sign without requiring us to waste further time dealing with this obsession of yours to know the price of the house you buy.”

Would that give you a good feeling about the house purchase?

It wouldn’t give me a good feeling. The reality, of course, is that the amount of money you will direct to buying stocks over the course of your lifetime will be a far larger sum than the amount that you will direct to buying cars or houses. The fact that those selling stocks are so defensive about discussions of price should alarm you. Your common sense should tell you that this is an extremely bad sign.

I want to know the price of something I buy before I buy it. You can call me obsessed. You can call me madcap. You can call me O.J or you can call me Ray; you can call me anything, what’s the difference what you say? It ain’t gonna change my take on this one. I want to know the price of something I buy before I buy it. That’s not a rule that applies just to stocks. It applies to stocks too, though. I am not aware of any reason why I should be willing to grant an exception to the usual rule for stocks.

Here is the portion of the article by Cliff Asness entitled Bubble Logic that inspired the riff that I am fumbling around with in this blog entry:

“Let us put our cynical hats on for a moment. Wall Street (buy and sell side) is in the business of selling you stocks, and they do not want you to leave the market. Let us rephrase the advice ‘Do Not Try and Time the Market’ another way. How about, ‘Ignore the Price of What I am Selling You and Buy No Matter What.’ If you think about it, it is the same advice.

“If your salesman told you to ignore the price of any other purchase than common stocks because it will all work out over the long run, you would run clutching your wallet. While perhaps usually good advice, ‘Do Not Try to Time the Market’ cannot mean ignore prices entirely, as in the extreme this is obviously silly. However, making great long-term returns without any imposition of effort or vigilance (i.e., having to watch prices for opportunities or bubbles) is obviously a seductive siren’s call.

“If being price sensitive means timing the market, and timing the market is a cardinal sin, then prices have no anchor to reality. If one is looking for possible causes of a financial bubble, then the ban on market timing must be a prime candidate.”

I see nothing bearish or obsessive in those words. Those are just plain old common-sense observations.

That’s the sort of investing advice that I would like to see a whole bunch more of in days to come. Cliff Asness is telling it straight, and today’s middle-class investor would be well-advised to pay heed to this speaker of straight-talk trying to break through the noisy salesmanship being put forward by too many of the best-known investment advisors (real-estate agents and used car salespeople like to put themselves forward as helpful advisors rather than pushy salespeople too, of course — Are those telling us not to worry our pretty little heads about the prices at which stocks are being sold today all that different?) regularly featured in newspapers and magazine articles and television programs.

I hereby declare Cliff Asness a Hero of the First Rank to the Financial Freedom Community and to the Retire Early Movement.