“The Terms “Buy-and-Hold” and “Get Rich Quick” Are Synonymous. Virtually All of the Risk of Stock Investing Comes from the Human Inclination to Be Drawn to a Buy-and-Hold/Get-Rich Quick Strategy”

Set forth below is the text of a comment that I recently put to the Goon Central board:

Do these concepts look the same to you, idiot?

Yes, Drip Guy. The terms “Buy-and-Hold” and “Get Rich Quick” are synonymous. Virtually all of the risk of stock investing comes from the human inclination to be drawn to a Buy-and-Hold/Get Rich Quick strategy.

I will make an effort to explain why this is so. If you make an effort to listen, I am confident you will get it. If you permit your rage at discovering that there was a time when you did not know everything there is to know about stocks overcome your reason, you obviously will fail to get it yet one more time. I can put forward the explanation. It is necessary for you to put a tiny bit of effort into this too for the back-and-forth to bear good fruit.

Here is your definition of “Buy-and-Hold:

used to describe the activity of investing in something and then keeping it for a period of time

That’s a good definition.

Now –

What’s wrong with the idea of investing in something and then keeping it for a period of time?

What’s wrong is that this definition says nothing about whether the thing invested in offers a strong long-term value proposition or not!

Warren Buffett holds his investments for a long time. But he sure as shootin’ ain’t no Buy-and-Holder in the way that it is practiced by Lindauer and Greaney and Bogle. Buffett buys things worth buying and holds them. Lindauer and Greaney and Bogle buy stocks when they are garbage and then refuse to consider selling no matter how much holding on to garbage depletes their portfolios.

Huh?

I am not overstating things when I say that stocks were garbage in January 2000, Drip Guy.

The most likely annualized long-term return was a negative 1 percent real. TIPS were at the time offering a positive 4 percent real. That’s a return differential of 5 percentage points per year. For 10 years running. That adds up to a total loss of 50 percent of the initial portfolio size.

You are telling me that this is an acceptable investment strategy? If you truly believe that, you are insane.

This is suicide investing.

There are ten different aspects of the Buy-and-Hold package that are pure gold. As you know, I praise these aspects of the Buy-and-Hold package to the sky all the time.

But the Get RIch Quick aspect is so devastatingly bad that it overpowers all that could be good about Buy-and-Hold.

There is not one person on Planet Earth who benefits from the continuance of this 10-year-long cover-up, Drip Guy. Certainly not any Buy-and-Holders.

The Buy-and-Holders should be dancing in the streets today. They are the ones who came up with the idea of rooting one’s strategies in the academic research. The research has now taught us how to reduce the risk of stock investing by 80 percent while delivering long-term returns far higher than most people ever thought possible. We should today be in the Golden Age of Stock Investing and celebrating the Buy-and-Holders for being the ones to have brought it to us.

Where are we instead? We are living through the worst economic crisis in U.S. history, one caused by Wall Street’s relentless promotion of an investing strategy that was originally intended to be research-backed but which became the opposite of that when research was published showing that the Buy-and-Holders got one thing horribly, horribly wrong and the Buy-and-Holders reacted not by fixing the mistake but by adopting a policy of engaging in defamation and death threats and board bannings and smear campaigns to block any of the millions of middle-class people whose lives are in the process of being ruined by this pure Get Rich Quick garbage from learning what they need to know to salvage what is left of their retirement hopes.

That’s brilliant work, Drip Guy. Congratulations! You’ve turned John Bogle into Bernie Madoff! You’re a true Boglehead through and though!

Heaven help us all.

Rob

Comments

  1. Drip Guy says

    A real ‘reporter’ (which you claim to be, would have also included my reply, and would not have excerpted me out of context.

  2. Rob says

    There’s a link to the thread set forth in the first sentence of the post, Drip Guy. Anyone who cares to read your reply may do so.

    The purpose of this site is to help people become better investors. I don’t put forward every word ever said on the subject. I put forward stuff that I believe helps people. If I had thought your reply would help people, I would have put it forward.

    Rob

  3. Rob says

    I looked back to check your reply, Drip Guy.

    It was awful.

    It was filled with venom.

    I don’t endorse Buy-and-Hold strategies. If I did, I sure would not like to see that sort of post put forward from someone “on my side.”

    You really argue against Buy-and-Hold with that post. But I don’t want that sort of “argument” being the thing that people associate with arguments against Buy-and-Hold. There are lots of people who can make far better reasoned and warmed and kinder arguments against Buy-and-Hold. Those are the people I like to feature here.

    If you sincerely want to be featured here, you are going to have to step it up big time, my old abusive-posting friend.

    Take care.

    Rob

  4. azanon says

    Rob,

    Your information is just not applicable anymore to the intermediate (or better) investor. Valutations do matter. However, the majority of the world’s stock is actually undervalued. Someone recently did a P/E 10 on Japan, and it was a full standard deviation below its long term mean. Europe is about average long-term P/E 10.

    Anyone investing in ONLY U.S., AT ANY PERCENTAGE AMOUNT, is really not understanding we are in a global market. Even the most casual of investors has easy access to foreign index mutual funds.

    Shiller’s work on P/E 10 as it relates to the S&P 500 is interesting, but it is also quite limited. Not only is that just representative of the U.S. market, but also that is just relating to large caps. Overvalued large cap U.S. doesn’t automatically mean the small-caps don’t carry different valuations.

    “You” U.S. only investers, be it the Rob value types, or the U.S> buy and hold are really missing out. By all means continue with your argument, and debate who’s substandard portfolio is better.

    /flame off.

  5. Rob says

    I don’t see view that as a flame, Azanon. I am grateful to you for making the points you put forward.

    But I think you are missing something important.

    You say “Valuations do matter.” If valuations matter, the market is not efficient. If the market is not efficient, Buy-and-Hold is madness. If the market is not efficient, we all should be considering valuations when setting our stock allocations (and NOT mindlessly sticking to the same stock allocation at all times, as the “experts” on Wall Street are so happy to advise us to do).

    I believe that a valuation-Informed investment in the U.S. market will do well in the long term. But I certainly have no objection to people making a case that Europe or Japan or anything else offers a better deal.

    You can practice Buy-and-Hold in the U.S. or you can practice VII in the U.S. You can practice Buy-and-Hold in Japan or you can practice VII in Japan. You can practice Buy-and-Hold in Europe or you can practice VII in Europe.

    If you are saying that you think people should practice VII in Europe and Japan, we agree on the central point. Perhaps I am a bit more positive re the U.S. market than you. But the biggie is the question of whether Buy-and-Hold can ever work in the long run or not. If we agree on that one, we agree on the biggie.

    If we don’t agree on that one, then all I can say is that I don’t see anything in your post justifying disagreement. Shiller used the data from the S&P not to learn how investing in the S&P works but to learn how investing in general works. If he is right, valuations affect long-term returns in ALL markets, not just the S&P. Regardless of whether we are moving to a global economy (I believe that a good case can be made that this is indeed so), Shiller’s work is of huge importance, Buy-and-Hold has been discredited for 30 years and we all need to be helping our fellow investors make the shift to Valuation-Informed Indexing.

    I am grateful to you for stopping by and sharing your thoughts, Azanon. We need to be hearing from lots of different people coming at this stuff from lots of different perspectives. If your post was a flame, then FLAME ON!

    Rob

  6. Rob says

    Your information is just not applicable anymore to the intermediate (or better) investor.

    My work is aimed at the typical middle-class investor. Some of those are probably best classed in the “intermediate” stage. A good number are no doubt best classed in the “Beginner” stage. I am happy if well-informed investors learn something from the discussions that take place here. But I cannot say that I focus on that group of investors.

    My work is aimed at helping the sort of people that Bogle was seeking to help with his work. I see myself as the person taking Bogle’s work to the next step. Valuation-Informed Indexing could properly be termed “The New Buy-and-Hold” or “Buy-and-Hold 2.0.”

    Rob

  7. Drip Guy says

    Rob strutted: ” If you sincerely want to be featured here, you are going to have to step it up big time, my old abusive-posting friend.”

    1. I have no desire to be ‘featured’ on any product associated with Robert Michael “Hocus” Bennett.

    2. I posted merely to point out your misattribution and failure to follow general journalistic norms.

    3. I am not your friend.

    4. Most people would not have to be told this: “Passive-aggressive snide” is just not a writing style likely to develop a winning Blog for you, Rob. Since you have stated that is your dream, one would think you would fix that if it were within your power to do so. Clearly it is beyond your capability to change voluntarily.

  8. Rob says

    I have no desire to be ‘featured’ on any product associated with Robert Michael “Hocus” Bennett.

    Okay.

    But please understand that if you ever change your mind, you’re going to need to bring it up more than one or two notches, Drip Guy.

    I’m just telling it the way it is. No personal offense intended, my long-time abusing-posting friend.

    Rob

  9. Rob says

    I posted merely to point out your misattribution and failure to follow general journalistic norms.

    Yeah, yeah.

    Rob

  10. Rob says

    I am not your friend.

    The feeling is very definitely NOT mutual, Drip Guy.

    The hate energy in this case is traveling in only one direction, from the Buy-and-Hold side of the table to the Valuation-Informed Indexing side of the table.

    I wonder why.

    Rob

  11. Rob says

    “Passive-aggressive snide” is just not a writing style likely to develop a winning Blog for you, Rob.

    How about loving and warm but honest?

    I will continue to report the accurate safe withdrawal rate numbers, Drip Guy.

    Non-negotiable.

    Now — Strut!

    Rob

  12. Rob says

    Here’s another line from that one:

    I ain’t got no girl and it’s a crying shame.
    But I can’t figure out who’s to blame.

    And they say the Monkees weren’t smart!

    Rob

  13. Rob says

    Re the snide thing, Drip Guy.

    Please remember that I was the one telling the Buy-and-Holders to correct the Old School SWR studies back in May 2002.

    I think it would be fair to say that the Buy-and-Holders have had no better friend in the world these past 10 years than Old Farmer Hocus.

    But do I ever hear any thanks from them?

    Oh, noooooo.

    Snide is as snide does, Drip Guy.

    The hand of kindness will always remain extended to you and all the other Internet Sewer Rats. That is not a time-sensitive offer.

    Still, re the dishonest posting thing, no can do. Please try to find someone else.

    Rob

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