Set forth below is the text of a comment that I put recently to the thread on a Guest Blog Entry I wrote for the Invest It Wisely site.
So it isn’t buying and holding that you are against it is the common eduction piece that goes along with it?
I love the “hold” part of Buy-and-Hold, Evan. I am the biggest Bogle fan in the world because he has done more than anyone else to stress the fact that investors need to tune out the short-term noise and focus on the long term. That was a huge advance and we all should be grateful to the Buy-and-Holders for working so hard to help people understand why this is so.
The thing that I am against is buying without giving thought to the long-term value proposition being obtained. I believe that stocks offer an amazing long-term value proposition when prices are low, a very strong value proposition when prices are moderate and a poor long-term value proposition when prices are high.
I am widely viewed an being anti-Buy-and-Hold. There was a day when I would have objected to that characterization. I personally think of what I recommend (Valuation-Informed Indexing) as just being a version of Buy-and-Hold, a revision to the conventional way of practicing it. I am writing a book on investing and for a long time my working title was “The New Buy-and-Hold.”
I have given up on that title because so many Buy-and-Holders have reacted with hostility to the idea of taking valuations into consideration when setting their stock allocations. I still like these people and I am grateful for the many things I have learned from them. But I think it would be fair to say that at least among a good number of Buy-and-Holders it is absolute heresy to say that valuations should be taken into consideration. I don’t agree with that. So I guess it’s fair to say that I am anti-Buy-and-Hold, at least in the minds of many conventional Buy-and-Holders.
I believe that in time we are all going to come to see that Buy-and-Hold was never intended to be one set of rules that could never change, even when what the research tells us changes (Buy-and-Hold was developed prior to the publication of Shiller’s research showing that valuations affect long-term returns). At that point Valuation-Informed Indexing will be viewed as one approach to Buy-and-Hold and there won’t be any problem. It makes me sad that that’s not the case today. But I have just come to accept that for now this is the reality.
The bottom line is that I believe that Buy-and-Hold was a huge advance and that the Buy-and-Holders got it right on everything except one point. The one point on which I differ is that I think that investors must from time to time adjust their stock allocations to take into consideration big changes in valuations (one change every 10 years or so on average is enough to do the job). I call this approach “Valuation-Informed Indexing.” There would be no Valuation-Informed Indexing without all the years of good work done by the Buy-and-Holders. So I personally think of VII as being just a variation. But that doesn’t seem to be a widely held viewpoint at this particular moment in time.
It makes me feel good that those participating on this thread are making me feel perfectly welcome although I have no doubt that you all maintain a healthy skepticism re what I am saying). For that I am exceedingly grateful. I suffer no illusions that I know it all. I obviously need to be open to learning new things and I learn more when people challenge my views in a respectful way than I do when people just pat me on the back. I think that the discussion being put forth on this thread (with both “sides” being represented) is just super.