VII #106 — Buy-and-Hold Investing Caused the First Great Depression Too

I’ve posted Entry #106 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Investing Caused the First Great Depression Too.

Juicy Excerpt: Now let’s consider the other factors listed. Aren’t they all things that could well have followed from the crash? Yes, we had bank failures. People had just lost most of their money in a stock crash! So what would you expect? I think it would be fair to say that these purported causes might be only secondary factors, things that themselves were caused by the crash and that then went on to cause the economic crisis. If that were so, it would really be that nasty stock crash that caused all the trouble.

The same general pattern applies today. People say that it was mortgage failures that caused the economic crisis. But wouldn’t a crash in stock prices cause mortgage failures? People say it was the unexpected performance of derivatives. Okay. But wouldn’t derivatives perform in funny ways following a price crash? Could it not well be that all of the factors that we put forward to explain the economic crisis were only secondary factors and that the primary factor was the price crash?


  1. what says

    Interesting, on the front of your website you have this:

    “The problem is that Buy-and-Hold was developed in the late 1960s and early 1970s”

    So, how did it cause the first great depression (too, lol).

  2. Rob says

    It is the idea that is at the core of the Buy-and-Hold strategy that caused the Great Depression, What.

    In the 1920s the idea caught on that the price of stocks doesn’t matter, stocks are always a good deal. The popularity of that idea took all price discipline out of the market. That’s why stocks prices were able to rise high enough to cause a crash and a Depression.

    It’s the same thing today. Our common sense tells us that the price of stocks must matter, that we should be lowering our stock allocations as price rises. But the “experts” (who are really just experts in selling stocks) tell us “no, there is a secret study that we cannot give you the URL to that shows that paying attention to price would be market timing and even this 100 percent common-sense approach to market timing is bad, bad, bad.”

    Lots of people came to believe this smelly garbage back in the 1990s. So again all price discipline was removed from the market. And again prices were able to go high enough to cause both a crash and a Depression.

    Common sense says that Buy-and-Hold can never work, What. And the entire historical record CONFIRMS what our common sense tells us must be so. The Stock-Selling Experts count on us getting caught up in all the short-term emotionalism. They tell us “oh, it’s okay to count those portfolio gains as real, they might not disappear this time, you never know.” Yeah, sure. It all might turn out different this time. That’s a good core principle on which to invest your retirement money.


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