I will be writing a monthly column on the dangers of Buy-and-Hold and on our need to move on as a society to promotion of the Valuation-Informed Indexing model at the Balance Junkie site. My first entry there is called The Gene Mauch Rule for Investing Success.
Juicy Excerpt: Bull markets are the stock market’s equivalent to baseball winning streaks. During bull markets, the temptation is to get overly excited about stocks, to count the phony and temporary bull market gains as permanent. Gene Mauch would not approve.
Gene Mauch would be yelling at investors who took the numbers on their portfolio statements seriously in the late 1990s. Stocks were priced at three times fair value in the late 1990s. That means that stock investors should have been expecting to see a loss of two-thirds of their accumulated wealth of a lifetime as stock prices worked their way back down to fair value in the coming years. But how many investors knew that? How many of the “experts” in this field reminded them?
Gene Mauch would have reminded them. He understood that believing in your own press releases when things are going good leads to laziness and arrogance and that laziness and arrogance lead to losses, both in baseball and in investing. We didn’t need to hear financial planners telling us how smart we were to invest in stocks in the late 1990s. We needed them to bust our bubble. If Gene Mauch had been around, he would have given a few of us a kick in the bottom.
He wouldn’t be doing that today, however.