Free Money Finance Blog Links to WSJ Article on Market Timing Myth

I recently wrote a column on the Wall Street Journal article acknowledging that the Buy-and-Hold claim that long-term investors need not engage in market timing is a marketing gimmick aimed at making the “experts” rich at the expense of the millions of middle-class investors sure to be wiped out by following such a “strategy.” I wrote a second column pointing out that few Buy-and-Holders have acknowledged the article or commented on it or debated it.

The blogger who writes the Free Money Finance blog has now done so!

This is a big deal. It is the Get Rich Quick aspects of the Buy-and-Hold strategy that were the primary cause of today’s economic crisis. The problem we face today is that all of us who either advocated Buy-and-Hold or followed Buy-and-Hold strategies at some time — and that’s most of us! — feel shame over what we have done and are highly reluctant to come clean. But until we come clean there is no way for us to get to work rebuilding the economic and political systems we have destroyed!

The first step on the way back is opening up the possibility of honest discussions of the flaws in the Buy-and-Hold Model on the internet. We all want the same things. We all wants our economic and political systems to survive. We all want to be able to obtain good returns without taking on insane amounts of risk. We all want to feel that we are good and honest and helpful and kind and reasonably intelligent and reasonable people. Once we become able to have a conversation about how we came to find ourselves on the wrong track, it will not be long before we all will be celebrating the day this economic crisis began the struggle that over time is leading us to form doubts over the insane dogmatism that we have come to evidence in discussions of the merits and dangers of Buy-and-Hold Investing.

FMF is a longtime advocate of Buy-and-Hold. Other Buy-and-Holders will be following his lead (Let us pray!). He has advanced the ball in a major way by sending a signal to other Buy-and-Holders that permitting honest posting at their sites will not cause the world to explode. This is how we begin the process of bringing about a healing process.

I am grateful to FMF for what he has done here and I believe that you should be too. I hope you will consider letting him know how you feel in an e-mail or in a post at his blog (if you are the especially brave sort!). Heaven knows the humans move slowly when they have messed up in a big way. But they do move. We are not doomed. There will be better days ahead, perhaps sooner than some now expect to see them arrive.

Set forth below are the words that I posted in the comments section of FMF’s blog:

I am very grateful to you for posting this article, FMF. Yes, this is the method that I follow and advocate. It is called Valuation-Informed Indexing. At my site there are four unique calculators (which took years of effort and many thousands of dollars to develop) and 200 podcasts and 100 articles and scores of links to Guest Blog Entries describing the various aspects of how it works.

It greatly increases returns while also greatly reducing risk. It permits middle-class investors to retire five years sooner on average. If we could teach people about it, we would be unlikely to ever again see the sort of economic crisis we are living through today. I would need to write an entire book to describe all the benefits (I’m in the process of doing so — it is called Investing for Humans: How to Get What Works on Paper to Work in Real Life).

I know that you are widely respected in the personal finance blogosphere (and entirely properly so, in my assessment). I hope that some of the people who have been hostile to an examination of the pros and cons of VII and Buy-and-Hold will perhaps see your article and rethink whether as a community we have proceeded with our consideration of these topics in the best possible way. I can assure you that from my end I will do everything I can to make the discussions that I believe are going to begin soon a success for EVERY SINGLE PERSON involved in them.

Our discovery that long-term timing always works is a win/win/win/win/win. Do you know who gets the most credit for development of the VII strategy? A fellow named John Bogle. And of course the thousands of smart and good people who followed in his footsteps also deserve huge amounts of credit for their many positive and helpful and constructive contributions. Valuation-Informed Indexing would not exist if it were not for the many powerful insights developed by the Buy-and-Holders that form its foundation.

We all want the same thing. We are all in this together. Buy-and-Hold was a huge advance over what we had before it came along. VII is a huge advance over Buy-and-Hold. The Buy-and-Holders need to understand that no one ever expected them to get the data-based approach 100 percent right on the first try. We are learning new things all the time. We need to incorporate those new things into our investing strategies. The very first step is acknowledging that we do not already know it all and that it is silly even to imagine that we do.

Please let me know if there is ever anything that I can do to help things to get kicked off in the right way or to proceed in the right way. I admire and respect and like the Buy-and-Holders and I have long hated having been placed in circumstances in which I have come across to many as being critical of my friends who follow (and believe in) Buy-and-Hold strategies. I want to be working WITH my friends for our mutual benefit and for the benefit of all our readers.

Thanks again for showing the courage and love for your readers that I know it took for you to advance this post. There’s wonderful, wonderful stuff on the other side of this black mountain. There’s going to come a day when we all are going to look back at the past eight years and laugh that it took us so long to understand the importance of Learning Together all that we can about how stock investing works in the real world.

Rob

Comments

  1. says

    There truly is a correlation between free speech and a free market. When one starts to suffer, so does the other. You are completely right in that “the first step on the way back is opening up the possibility of honest discussions of the flaws.” Great post.

  2. Rob says

    Thank you for those encouraging words, Jessica.

    I am very much in the minority re the Buy-and-Hold issue. Nothing could be more clear.

    I am also very much in the majority re the Free Speech issue. That is also exceedingly clear.

    We need as a community to begin holding the Buy-and-Holders to at least minimal conformity to the broad social norms that have always applied in our free society. Once we do that, we begin walking in the direction of the sunshine instead of going deeper and deeper into the darkness that most of us don’t understand today because we gave up the possibility of understanding when we elected to tolerate tactics that keep us from learning what we need to learn to be able to understand.

    It’s a two-step process. First, we address the process questions that are keeping us in the dark. Then we become able to talk in reasonable and realistic and balanced and life-affirming ways about the substance questions that we all very much want and need to come to terms with. We’ve been making significant progress in recent months. I think that much is clear to all and an important sign of hope to all (even the Buy-and-Holders are experiencing some positive emotions re the increased tolerance of different viewpoints that we have seen recently, in my assessment).

    Rob

  3. says

    Amen.

    Keep spreading the truth Rob. The more the normal average day people know how to invest their money in simple and smart ways, avoiding big losses, the better it is for the stability of the economy (since they safe their savings when markets fall deep).

  4. Rob says

    Thank you for those kind words, Van Beek.

    I of course do not by myself possess access to the full truth. I like to think that I have something of value to contribute and I make an effort when possible to share the bits and pieces of truth that I have picked up in my travels. It’s my fellow community members who taught me much of what I have come to know. And the experts helped me in many ways.

    That of course includes the experts who promote Buy-and-Hold. We are all in this together and we all have managed to grasp different aspects of the overall truth and it all works well when we all feel brave enough and generous enough to add our little bit to the mix.

    And when we all feel brave enough and generous enough to let those with viewpoints other than our own add to the mix as well! (as Free Money Finance did in that exciting post of his).

    Rob

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