“My friends, I had not intended to discuss this controversial subject at this particular time. However, I want you to know that I do not shun controversy. On the contrary, I will take a stand on any issue at any time, regardless of how fraught with controversy it might be. You have asked me how I feel about market timing. All right, here is how I feel about market timing: If when you say market timing you mean the loser’s game, the fool’s errand, the speculator’s effort that separates savers from their capital, turns investors into gamblers, lines the greedy pockets of brokers, strategists, and newsletter writers, challenges the irrefutable logic of efficient markets, yea, literally plunders the wealth from widows and retirees; if you mean the evil action that disrupts the well counseled man and woman from the pinnacle of appropriate strategic asset allocation, balanced objectives, long-term orientation into the bottomless pit of fear, and greed, and meaningless noise, high expenses, and tax inefficiency, and short-termism, then certainly I am against it.

“But, if when you say market timing, you mean assessing fundamental value compared to price, favoring undervalued assets while avoiding overvalued ones, always demanding a margin of safety and being in cash when none exists; if you mean being opportunistic and forward looking, buying low and selling high; if you mean the activity which saves investors from catastrophic and permanent losses of capital, achieving positive absolute returns, the endeavor that avoids following the herd up the mountain of excess and over the cliff of despair, favoring instead consistent compounding of modest returns, and the ability to sleep well at night; if you mean that undertaking which has provided capital as the gasoline for the engines of economic growth and prosperity, protected purchasing power and met future liabilities, funded robust retirements, sustainable wealth transfer, and philanthropic endowments, then certainly I am for it.

“This is my stand. I will not retreat from it. I will not compromise.

“JJ Abodeely, 2011″

Holy moly!

I don’t have time at the moment to go beyond those three paragraphs. But I think it would be fair to say that, if this guy were a woman, I would be feeling obliged as a matter of principle to divorce my current wife and marry her instead.

Has no one told this fellow that there are certain sorts of things about investing that just may not be said>

How did you find this fellow, Arty? I am going to be spending lots of time going over everything he has written and trying to connect with him. This is a major find. If I can figure out a way to be in the same room as this fellow for a moment or two, for that moment or two I won’t even be an extremist anymore! I’ll just be good old middle-of-the-road Rob again. Whoever thought that we would see that day again in this Century?

Rob

I’ve sent J.J. an e-mail, Arty.

I included links to my bio and to the “About” page for this blog, which provides background and links re the Buy-and-Hold Crisis.

I haven’t had time yet to read all the articles at his site, but what I have looked at is certainly impressive and encouraging.

Thanks very much for pointing us to this valuable resource. As you note above, this is how the internet works when it is working well.

Rob

I’ll report it here if I hear anything from him.

I am going to put a link to that super three-paragraph explanation of all you need to know to become an effective investor at the “Links That Matter” section of the site (it’s on the right-hand side of this page, near the bottom of the page), in any event.

Rob

That’s a fine article. It’s intelligent and in-depth and fair-minded. I am grateful to you for posting it.

I understand why you say this fellow is not invested in Buy-and-Hold because he picks individual stocks, He is not following the approach urged by the majority of posters at the Bogleheads Forum.

I use the term “Buy-and-Hold Model” in a broader way. I use it to refer to any investing strategy not in accord with Shiller’s findings but instead rooted in the Efficient Market Theory. These are the only two models that I know of that possess intellectual coherence. This guy is NOT following the Shiller model, according to my quick assessment. So he does indeed have something invested in a belief in the Buy-and-Hold Model in at least that sense.

The big difference between the two models is the belief about what causes stocks to be priced as they are. The Buy-and-Hold Model presumes RATIONAL investors pursing their own self-interest. The Shiller model (Valuation-Informed Indexing) presumes EMOTIONAL investors getting caught up in conflicting internal urges to follow Get Rich Quick strategies and to embrace the safety of sticking to what common sense says must be so.

I’ll give an example that illustrates why this difference is so fundamental.

The fellow debates whether stocks are overpriced by 20 percent or not. He brings in all sorts of evidence to make the case that stocks are not overpriced today and worries that those who follow Shiller may miss out on a chance to buy stocks at a reasonable price.

It’s true that the Shiller model is not saying that stocks are dramatically overpriced today. They are overpriced. But if that is all there were to worry about, investing heavily in stocks would not be such a terrible idea today.

The reality (according to Valuation-Informed Indexers) is far, far worse than what the relatively modest amounts of overvaluation present today suggests.

If stock prices are determined primarily by emotion, the losses that investors have suffered from 2000 forward are likely to cause far larger losses in the years ahead. When we go to fair value, the price drop will not stop but will accelerate.

That is 100 percent irrational. If investors were rational, they would BUY MORE when prices reached fair value levels. But investors are NOT rational, not today. When prices fall to fair value levels, emotional investors will give up on stocks and lower their allocations dramatically, causing much steeper price drops. Prices will continue to fall until we get to one-half fair value. Those losses will likely put us in the Second Great Depression.

This guy is good at using his reasoning powers to make an intelligent argument. What he is failing to appreciate is that the thing he is studying is NOT a rational endeavor. So logic alone does not help us understand it.

Can you imagine trying to understand romantic relationships solely though the use of logic? It would be a disaster. Or can you imagine trying to use a computer program to write a song? It would be a disaster. That’s what this fellow is trying to do in this article. He is describing what investors SHOULD do, not what they WILL do in the event that investors act as they have always acted before.

The Shiller Model adds a dimension that has not been considered before. The Shiller model considers the effect of human emotion. That’s why we look at P/E10. P/E10 is a valuation metric and all mispricing is an emotional phenomenon. P/E10 tells us how irrational the market is at any given time. This guy assumes away everything Shiller brings to the table before he starts his analysis because this guy ASSUMES that investors are rational actors.

Rob

My view is that the idea that stock picking can never work is more marketing mumbo jumbo. I have never seen a study that makes an effective case that this is so.

Effective stock picking takes intelligence and discipline. We should admire and learn from effective stock pickers, not ridicule them.

I recommend indexing for the 90 percent of middle-class investors who don’t have the time to do the research needed to pick stocks effectively. But it embarrasses me as an indexing proponent to hear Bogle and others argue that stock picking can never work even for those who put the effort into the job needed for it to pay off. People who overstate their case discredit themselves by doing so.

We are supposed to believe that Warren Buffett is a fool for believing that he can pick stocks effectively? People who speak such nonsense insult our intelligence by doing so, in my assessment.

Rob

I’d bet you find more stockpickers who care for valuations than conventional players.

Yes. The trick is to find solid value propositions. So you want things to be mispriced in your favor, not against you.

The beautiful thing about indexing is that it makes it so easy to identify good value propositions. You don’t need to worry about all the things stock pickers study. All you have to do is look at the P/E10 value.

And the Buy-and-Holders ruin it by saying not to look at that!

This drives me crazy. They came within one step of creating the ideal investing approach and now they refuse to fix that one mistake.

But people are coming around.

Rob

Or perhaps there are just a few who make a lot of noise about the issue.

That’s it, Arty.

I know this because I know how people reacted in the early Motley Fool days. The majority loved the idea of discussing new ideas. Loved, loved, loved it!

But the majority wants nothing whatsoever to do with the ugly, nasty stuff. They hate, hate, hate that stuff. They don’t want to see it and they don’t want to have to put themselves at risk by speaking out in opposition to it.

So the small number willing to dump garbage over everything to get their way essentially have veto power over what can be discussed. It might be 20 percent ruining things for the other 80 percent.

At some point, the 80 percent will get fed up. Then it’s over.

Or should I say — Then it begins!

Rob