A number of personal finance bloggers have engaged in a good discussion of The Matter That Consumes Us All at the thread at the Hope to Prosper Blog relating to my guest post titled The Economic Crisis Is the Best Thing That Ever Happened to Us.
Of particular import is an exchange between the blogger Roshawn @ Watson Inc. and me, set forth below:
Roshawn @ Watson Inc: Okay Rob, Your article has intrigued me. My immediate inclination is the same as Bret: cool concept but applying it (getting people to sale stock during periods of overvaluation) seems incredibly difficult. However, you have a compelling point of how if we become more sensitive to what overvaluation really means to our portfolios, perhaps our natural desire to keep overpriced stock would change. I will certainly read the other articles you linked too.
Rob Bennett: Thanks for keeping an open mind, Roshawn.
I think what is going on here is that many are noting that valuation-informed strategies have never been the most popular strategies before. That’s right. I do not disagree.
But that could be said of many things. Before we had electricity, we never went to baseball games at night. Before we had vaccinations, lots of kids suffered from whooping cough. Before the Civil War, black people had to endure slavery.
Things change! Sometimes for the better!
Things won’t change for the better unless the humans elect to make it happen. But we are the humans! It’s up to us to do this thing! If we want to make it happen, itwill happen!
We just need to spread the word. If we give people the tools to invest in valuation-informed ways, they will do it. I have spoken to thousands of middle-class investors about this and I know from personal experience that there are many people who are very excited about these ideas. They want to be able to talk them over with others. They want to have blogs and discussion boards where they can meet and discuss pros and cons. The internet provides us the technology we need to make it all happen. All that we need to do is to get over this reluctance to try something new and just give it a spin.
There is no downside. If the ideas do not pass muster, people will identify the holes in them and they will be shot down. Which is a good thing. If the ideas are not strong, we don’t want to see them survive. But if they are strong, we DO want to see them survive. What we want to do is to put them to the test. We want to have a debate throughout the Personal FInance Blogosphere for the purpose of airing all sorts of views on how to proceed at this point.
If there are any bloggers reading these words who are open to the idea of running guest post on various aspects of this question, please just contact me and I will send some words your way. If you have a particular question that you would like me to address, just let me know what it is and I will write the words to be responsive to that particular question.
Together, we can change the world in a very, very positive way. It’s all upside and there’s no potential downside. Talking things over is ALWAYS a plus, ALWAYS a learning experience. The internet can be a very powerful communications medium if we put it to work serving positive and constructive and life-affirming purposes.
MoneyEnergy says
Yes, I’m finally coming around to seeing and in part agreeing with your view. It’s quite helpful for TPTB to have the majority of citizens “holding” while the flash-trading elite make millions on 11-second positions. It’s as though we provide a kind of bedrock for the froth in the market. What would happen instead if the majority started using stop losses? Why isn’t the stop loss as ingrained a piece of investing advice as buy and hold?
Rob says
Thanks so much for stopping by, Money Energy. I admire your work and am thrilled to see your name showing up in the comments section here.
We have a different focus. You are looking at the stuff that super-smart/super-engaged people do to protect themselves in the market. There’s obviously merit in that for people who know what they are doing. But I do not think it is realistic to expect the average middle-class person to make use of stop losses. I’m not recommending that.
We need a simple approach for the typical middle-class person. Bogle provided that with Buy-and-Hold and I am extremely grateful for the contribution he made. Where I get off the reservation is re his claim that there is no need to time the market. An investor who is not timing the market is not taking prices into consideration when setting his stock allocation. My view is that timing is 100 percent mandatory for all investors, whether they follow simple strategies or not.
I don’t recommend short-term timing for the average investor. Sophisticated people like yourself might be able to pull it off. But I agree with Bogle that short-term timing is not for the average person. Bogle’s mistake is that it is okay to swear off long-term timing as well as short-term timing. I have searched for over eight years now and never found even a sliver of evidence that this is so. Morover, it defies common sense. So I just am not able to get behind Bogle’s position on this one.
All of the work that I have done in this area boils down to one very simple claim: I say that investors need to take into consideration the price at which stocks are selling when they set their allocations, just as they consider the price of everything else they buy when they buy it. This claim is extremely controversial but I do not believe that it should be. My view is that the idea that price matters when buying stocks is pure common sense. My view is that the claim that should be controversial is the Buy-and-Hold claim, the claim that it is okay to stay at the same stock allocation at all times. That’s the counter-intuitive claim, in my assessment.
Again, thanks for stopping by and sharing your thoughts. Seeing your name turn up here added some cheer to my Monday morning.
Rob