“Buy-and-Hold Is Promoted As Being Rooted in the Academic Research”

Set forth below is the text of a comment by Drip Guy and my response, both taken from a recent thread at this blog.

Rob,

Your attempted analysis of me is wrong in about every way! But you believe what you want to believe; it’s no skin off my nose.

BTW, you say: “I have never seen this sort of behavior from people following any other investing strategy. ”

Well, I suspect that is becasue you simply have not imposed yourself other places. So, let’s wait until your market timing ideas lead you some where else, like a Quant analysis or TA forum or other ‘pet approach’, and then just be your usual self, Rob, and let’s watch to determine how those investors of other persuasions respond to you. Should be fun to observe from the sidelines!

The real reason you get heat from buy-n-holders, is because you for some reason have chosen to single out that very tame, baseline approach to rail against.

Go tell any other forum that they are all “doin’ it wrong” and I’m sure you will get similar replies to what you got when you were banned at those prior 15 finance forums! (laugh)

 

The real reason you get heat from buy-n-holders, is because you for some reason have chosen to single out that very tame, baseline approach to rail against.

I think you are making a reasonable point here, Drip Guy. But you are also leaving out an important part of the story.

Buy-and-Hold is not just any old “pet approach” (the phrase is from elsewhere in your comment). Buy-and-Hold is promoted as being rooted in the academic research.

But it is not!

There is now 30 years of academic research that shows that Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind, one so dangerous that it is sure to wipe out most of the wealth that the middle-class has accumulated in recent decades and one so pure that it is likely to bring on an economic crisis that will take us all to the Second Great Depression.

All investing strategies are marketed. That’s part of the game. But Buy-and-Hold is special in this regard. Buy-and-Hold’s big marketing edge is the claim that it is rooted in academic research. And this is a demonstrably false claim. That’s over the line, Drip Guy. There are responsibilities taken on when you claim in your marketing materials to be following the academic research. The Buy-and-Holders have failed to honor these responsibilities.

An investing strategy that causes an economic and political collapse cannot fairly be referred to as a “very tame, baseline approach.” This Get Rich Quick garbage is pure poison. It has taken in millions of investors. It has delayed millions of retirements. It has caused huge unemployment numbers. It has caused the destruction of numerous blogs and discussion boards.

It is this claim that Buy-and-Hold is rooted in academic research that makes it different. Buy-and-Hold would not have 1/50th of the power to persuade that it today possesses if not for that claim. And that claim is demonstrably false. Shiller’s research is publicly available on the internet to anyone who cares to look for it.

Once the Buy-and-Holders learned that the entire historical record discredits their claims that there is no need to change one’s stock allocation in response to big valuation swings, they should have stopped making those claims. I did not cause this problem. I reported the safe withdrawal rate accurately. The reason why people were shocked to hear the accurate numbers is that The Stock-Selling Industry has directed hundreds of millions in marketing dollars promoting precisely the opposite of what the last 30 years of academic research says.

The boards that I have posted at are not even boards that were set up solely for Buy-and-Holders. The Motley Fool board was a Retire Early board. Accurate retirement numbers are obviously in place there. So the Buy-and-Holders had no right to burn that board to the ground. The Morningstar rules state clearly that all posters are permitted to post honestly on what the academic research says. Again, the Buy-and-Holders were 100 percent off base to destroy the integrity of that board with their abusive posting.

Why did they do it? Because it makes the Buy-and-Holders look absolutely horrible for people to learn that it is all a con, that there is no research showing that there is no need for investors to engage in long-term timing.

The problem needs to be fixed. We need to provide a means for middle-class investors to hear accurate and honest reports of what the academic research says re stock investing. I am happy to work with the Buy-and-Holders to make this happen so long as they are willing to honor the behavioral norms that apply in our society in discussions of every subject other than stock investing. I am not willing to post dishonestly on safe withdrawal rates or any other topic. The very fact that a good number of Buy-and-Holders demand this as a condition of posting to “their” boards illustrates how deep the problems go with this investing “strategy.”

Marketing tricks and claims of support in the academic research do not mix, Drip Guy. Valuation-Informed Indexing is what Buy-and-Hold started out being. Valuation-Informed Indexers report what the academic research says accurately and honestly. People need to know that and people need to know that the claims of Buy-and-Holders that they do that have been demonstrably false for 30 years now. Help me spread the word re that, and we will be best friends. Stand in my way and I think it would be fair to say that we will find ourselves working at cross purposes.

Rob

Comments

  1. Rob says

    Okay.

    I wouldn’t want someone saying that about a fellow community member unless he were sure.

    In this case, it sounds like we are on solid ground.

    Rob

  2. Drip Guy says

    You are not a member in any community *I* am a part of. Nor am I your ‘friend.’ Your appropriation of these terms specifically for passive-aggressive needling/baiting purposes is sickening and ridiculous.

    How could you ever expect anyone to take you seriously about topics you are supposedly committed to, when you are full of such rancor and spite to anyone who dares disagree?

  3. Rob says

    You’re wrong, Drip Guy.

    We are all part of the community of investors. Buy-and-Hold has been tried four times in U.S. history. It has caused a financial wipeout for all who followed it each of those four times. It also caused an economic crisis each of those four times.

    If the ban on honest posting remains in effect for too much longer, we will be in the Second Great Depression. I will be suffering the effects of that just as you will. An investing strategy that causes the Second Great Depression causes horrible life setbacks for everyone in the society that tolerates widespread promotion of that strategy.

    I am your friend. There is a part of you that does not want to follow a Get RIch Quick strategy. There is a part of you that would like to be able to invest effectively. There is a part of you that does not want to be living through the Second Great Depression.

    Get RIch Quick is not the answer, Drip Guy. Get Rich Quick is the problem.

    I wish you well. I wish all of us well.

    Rob

  4. Rob says

    How could you ever expect anyone to take you seriously about topics you are supposedly committed to, when you are full of such rancor and spite to anyone who dares disagree?

    Reporting the SWR honestly and accurately is not an act of rancor and spite, Drip Guy. It is an act of friendship. It is an act of love. You would benefit from knowing the true SWR if you would get over your feelings of hurt pride.

    Once you become unwilling to say the words “I” and “Was” and “Wrong”, you become unable to learn new things. All learning begins in an acceptance of the reality that you don’t already know it all. The Buy-and-Holders didn’t know it all back in 1974. It’s not even possible that they could have because Shiller’s research hadn’t even been published at that time.

    Once the ban has been lifted, we will all be working together to develop effective investing strategies that will make us all richer than we ever imaged was possible back in the Get RIch Quick/Buy-and-Hold Era. I look forward to those good times.

    Hate is not the answer, Drip Guy. Love is the answer. I am sure!

    Rob

  5. Rob says

    I said “Love is the answer,” What. I didn’t say “Spraying water through your nose is the answer.”

    You need to listen more closely, my old friend!

    Rob

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