Robert Savickas, GWU Associate Finance Professor: “All the Things You Say About Buy-and-Hold and About the Importance of the Valuation Levels for Choosing Your Portfolio Entry Points Is Very Intuitive, Was Always on My Mind, and I Am Surprised That Anyone In Their Right Mind Would Argue With It. This Should Not Generate Controversy and I Am Surprised That It Does. You Don’t Need Any Financial Education to Intuitively Understand These Things.”

I have been contacting numerous people to let them know about my article reporting on The Silencing of Academic Researcher Wade Pfau by The Buy-and-Hold Mafia.

Friday’s blog entry reported on my correspondence with Robert Savickas, Associate Finance Professor at George Washington University Business School. Set forth below is the text of an e-mail that I sent to Robert as a follow-up to the e-mail of mine described in the earlier blog entry:

Robert:

>

Thanks again for your interest. You have brought a nice measure of cheer to my Tuesday evening. I have 10 years of my life invested in this concept.
>
The best overview is here:
 >
 >
Rob
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Robert responded with the following words:
>
Hi Rob,

 >
All the things you say about buy-and-hold and about the importance of the valuation levels for choosing your portfolio entry points is very intuitive, was always on my mind, and I am surprised that anyone in their right mind would argue with it.  It did not make sense to enter a buy-and-hold in 1999 or 2000.  It was clear that we were on the unsustainable top.  A normal person would wait for things to come down first before buying for the long term.  this should not generate controversy and I am surprised that it does.  You don’t need any financial education to intuitively understand these things.
 >
All of your email makes sense and I have been aware of, basically all of these things, due to my watching and trying to play the markets over the past dozen of years.
>
There is only two things that I have some disagreement with.  The first is the interpretation of P/E ratios.  Each time they reach high levels, a whole lot of people come up with rationalizations why this time it is different, the high levels are justified and the valuations will continue to grow.  Those tales often sound reasonable enough (they are designed to sound that way) and thus introduce uncertainty about the interpretation of the valuation ratios.  With uncertainty comes risk.
 >
We all know about the risks of investing in single stocks, especially for the long-term.  Single stocks are a good vehicle for short-term trading, but not for long-term holding.  We all know about indexing, diversification, etc.  We all know that index portfolios trach economy.  My second disagreement is in regards to your statement that economy is highly predictable.  It is true that business cycle imparts some clear patterns on the economic growth and financial markets.  We have many economic indicators that help us gauge the health of the economy.  All that we have.  With the help of all these things, we can predict recessions, troughs, recoveries, booms, etc.  BUT: there is one major source of uncertainty and risk in all of this: the timing.  For example, it was as clear as day that the economy was overheated in 1997 and a bust is impending.  However, it took three more years for this predictable scenario to actually unfold.  If you, as an investor, bet against the overheated economy in 1997, you would be burned out of the market and out of your money before your prophesy comes true; by that time you would have no money left to take advantage of it. John Maynard Keynes has a quote on that, something like that the markets can remain overpriced longer than you can keep money in your wallet.  Same with the real-estate bubble. It was a clear bubble back in 2004, but we had to wait a whole two years till it finally burst.  In the end of 2005, credit spreads were razor-thin, indicating that people have no respect for credit risk: a surely unsustainable state of affairs.  But the credit bubble finally started blowing in 2008.
 >
About the timing risk in economic forecasts, I speak from personal experience: I payed with investing in economy-wide, index, and sector ETFs, all with the purpose of taking advantage of the apparent predictability of the economic cycle.  I was darned right! But often at the darned wrong time, usually too soon.  The problem in the real time is that you don’t know how long yet to wait till your anticipated scenario will finally start unfolding.  You are afraid to miss the point, so you usually end up jumping the gun…  So, I don’t know if all risk can be eliminated.
 >
Robert

Comments

  1. Anonymous says

    We learned two things:

    Someone that Rob thinks agrees with him, actually disagrees with him on several things,

    The Professor admits that you can’t time the market.

    Thanks for wasting our time, Rob

  2. Rob says

    You’re being argumentative, Anonymous.

    It’s the argumentative approach that you take to these matters that is the true time-waster.

    That’s my sincere take, in any event.

    Thanks for stopping by.

    Rob the Time-Waster (Or Perhaps Not)

  3. The Deleted plop contributor says

    Rob,

    One major problem that you have is that most people that are critical of you have done much better than you, have a higher teturn rate on investments and have a much higher net worth. You then waste your trying to tell them that they are all wrong and should take your advice. Is it any wonder why people think you are a joke?

  4. Rob says

    That’s ALWAYS true when someone is trying to warn his friends of the dangers of a Get RIch Quick approach, Deleted.

    People don’t WANT to lose money. No one invests in a Get Rich Quick scheme with full knowledge of what he is doing.

    I wish that Buy-and-Holders did not get angry at me. But I certainly acknowledge that they do.

    What would you have me do? Should I tell lies so that I am more popular?

    I see it as the JOB of anyone writing about investing to tell unpopular truths. It is my view that those who fail to do this are failing at the work they have taken on.

    I wish you all good things, in any event.

    Rob

  5. The Deleted plop contributor says

    And market timing is a get rich quick scheme. I see YIP has already provided you a long list of portfolios that have done well over time. Those are all fact based numbers and telling people otherwise would be a lie.

    As said before, most people responding have done much better than you. When you look at the data, it looks like you should be taking advice from them.

  6. Rob says

    And market timing is a get rich quick scheme.

    This is a 100 percent false claim, Deleted.

    The trick that the Wall Street Con Men use to sucker us is to pretend that there is some mystical, magical “study” somewhere showing that there is some magical, mystical planet where there is no need to engage in long-term timing. There has of course never been such a study. There is zero chance that any investor failing to take price into consideration could ever achieve good long-term results. It has never once happened in history and it is not about to start happening now.

    I am not a Wall Street Con Men. So I have zero willingness to repeat this dangerous lie.

    ALL investors should be looking at price when setting their stock allocations.

    That’s my sincere take, in any event.

    Rob the Honest

  7. Rob says

    most people responding have done much better than you.

    Not in the long-term they haven’t, Deleted. The long-term hasn’t arrived yet.

    I’ve got 32 years of peer-reviewed academic research based on 140 years of historical data backing up Valuation-Informed Indexing

    You’ve got the promises of some of the most ruthless con men who ever walked Planet Earth that this will be the first time in history when the pure Get Rich Quick approach might work for one or two long-term investors.

    Good luck with that!

    Rob, the Fellow Who Prefers Research to Con Men Promises

  8. Rob says

    When you look at the data, it looks like you should be taking advice from them.

    I could do better than that.

    I could go straight to the source.

    Do you think Bernie Madoff can still give investing advice from his prison cell?

    Rob, the Fellow Who Believes In Going Right to the Top When Putting Together a Get Rich Quick Retirement Plan

  9. bannwd plop contributor says

    Rob: “…promises of some of the most ruthless con men who ever walked Planet Earth that this will be the first time in history when the pure Get Rich Quick approach might work…”

    Sounds pretty bad. I agree with you Rob, that I’d steer clear of any such hucksters, myself!

  10. Rob says

    Friend!

    Comrade!

    Rob, the Fellow Who Is Relieved That It Is Possible to Find Common Ground With His Goon Buddies on At Least A Tiny Number of Issues

  11. The Deleted plop contributor says

    Sorry, Rob, but the facts speak for themselves. We can all look at the numbers and market timing has been shown time and again to fall short. Take a look again at the numbers given by YIp.

  12. The Deleted plop contributor says

    We have seen your link many times Rob. Look at the numbers Yip gave you. They are fact. Like I said before, people are doing better than you. They have no need to take your advice. They would be complete idiots to do so.

  13. Rob says

    We have seen your link many times Rob.

    You haven’t read the material presented at the link carefully enough if you still believe that there might be some alternate universe where an investor who failed to engage in long-term timing might have a tiny chance of seeing good long-term results, Deleted.

    It’s not just that it has never happened in 140 years.

    It’s that it is impossible for the rational human mind to imagine circumstances in which it could happen.

    My best wishes to you and yours.

    Rob

  14. The Pink Unicorn says

    I don’t want anything to do with that smelly garbage that is pushed by the market timing con-men. I only believe in honest investing by going the slow steady course of setting a portfolio allocation, primarily in low cost index funds with continued monthly investments and holding for the long term.

  15. Rob says

    They would be complete idiots to do so

    I think you were a complete idiot to commit felonies that are going to get you tossed into a prison cell following the next price crash, Deleted.

    Rob, the Fellow Who Sees It As Truly Bad Stuff for His Friends to Commit Felonies and Get Sent to Prison

  16. The Deleted plop contributor says

    I have read your link. I have looked at the returns. I go with the long term results and when you look at the facts demonstrated by Yip’s post, we see the truth.

    Like I said Rob, when people are doing better than you, it is silly to expect that someone would take your advice. Results matter.

  17. Rob says

    I don’t want anything to do with that smelly garbage

    It’s obviously your call, Pink.

    I think it would be fair to say that there are millions of smart and good and hard-working people who believe as you do.

    I certainly wish you the best of luck with whatever strategies you elect to pursue.

    And I feel comfortable in saying that, if you were to follow some investing advice I offer solely because I offer it, you would be a damned fool. My only qualification in this field is that I figured out how to get stuff posted to the internet.

    My best and warmest wishes to you.

    Rob, the Fellow Who Might Be Wrong In Everything He Says About Stock Investing and Who Thinks It Is Important That Everyone Reading These Words Knows It

  18. Rob says

    Results matter.

    Confidence matters too, Deleted.

    I’ve seen Buy-and-Holders advance death threats and demand board bannings and put forward tens of thousands of acts of defamation and threaten to get academic researchers fired from their jobs. And I’ve seen many more Buy-and-Holders observe such behavior and say nothing about it.

    It’s not for me.

    I want an investing strategy that I can stick to for the long term. I want an investing strategy that inspires true and lasting confidence.

    Don’t let the bad guys get you down, man.

    Rob the Confident

  19. The Deleted plop contributor says

    I follow the facts and the numbers speak volumes. Confidence comes with numbers. Te defamation claims, etc are not factually based. Merely, it is just your diversion from the topic at hand.

  20. bannwd plop contributor says

    Rob repeated: “I’ve seen Buy-and-Holders advance death threats… and threaten to get academic researchers fired from their jobs…”

    You are a liar.

    You have NO evidence of any such activity, notwithstanding your own circular repeated bleating about it.

    None.

  21. Rob says

    Te defamation claims, etc are not factually based.

    We disagree, Pink.

    But thanks for sharing your thoughts.

    Rob the Factual

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