Set forth below are some words that I posted to the discussion thread for the blog entry titled Wade Pfau: “This Paper…Suggests that the Traditional Approach to Retirement Planning Is Counterproductive and Possibly Damaging.” The words put forward by Wade to which I was responding are in italics.
My null hypothesis is that valuations-based investing is not useful, and now I’m seeking to determine if I can find sufficient evidence to reject this null hypothesis with sufficient confidence.
You are putting your finger on the entire reason for the “controversy” with these words, Wade.
How the heck did Buy-and-Hold (the alternative to Valuation-Informed Indexing) ever become your null hypotheses? There has never been a sliver of data supporting Buy-and-Hold. And the idea that price matters with everything but stocks defies common sense.
Buy-and-Hold was a MISTAKE, Wade. There was never any data supporting it. There was never any logic supporting it. It was just a mistake. Had Shiller published his research 20 years earlier, there never would have been any Buy-and-Hold.
People did some research showing that short-term timing doesn’t work and JUMPED TO THE CONCLUSION that long-term timing doesn’t work either. They just failed to distinguish between the two. There has never been any indication that long-term timing might not work. The idea is revealed as silly, if you think about it for a few moments.
All of the research shows that short-term timing never works and that long-term timing always works. It is more true to say “Timing Always Works” than it is to say “Timing Never Works.” (The better thing to do is to distinguish between the two.)
For Buy-and-Hold to become the null hypothesis, someone should have had to present either a logical argument or some historical data in support of it. No one has ever done so.
The null hypothesis should be that price matters when buying stocks, just as it does when buying anything else. It is the Buy-and-Holders making the fantastic claim. They should be required to present something in support of their fantastic claim before declaring it the null hypothesis.