“It Is Hard to Imagine Anything Too Much Worse Than Devoting Your Life to the Promotion of an Investing Strategy That You Believe Is Helping People and to Learn Late in Life That All Along Your Were Hurting People.”

Set forth below is the text of a comment that I recently put to another blog entry at this site:

Buy and Hold is “get rich slowly”

 

That certainly is how it is promoted, Sensible.And I believe strongly that that is what the people promoting it believe it to be.

And I believe strongly that that is what the people following it believe it to be.

But I do not believe it to be that.

And I don’t say that because of some sort of bias against Buy-and-Hold. I was a Buy-and-Holder myself prior to August 27, 2002. I wanted a Get Rich Slowly approach and Buy-and-Hold seemed to me to fit the bill.

I believe that a mistake was made.

I believe that, if the Buy-and-Holders could see that mistake, they would be horrified at what they have done.

So I don’t believe that I would be doing any kindness for my many Buy-and-Hold friends if I were to pretend that I believed that Buy-and-Hold really is a Get Rich Slowly approach.

Do you believe that it is at least POSSIBLE that the Buy-and-Holders made a mistake, Sensible?

If there is any chance whatsoever that that is what happened, I think it would be fair to say that it is very, very important that the Buy-and-Holders hear out those who believe they made a mistake.

I don’t mean that it is just important for the Valuation-Informed Indexers. I mean that it is important for the BUY-AND-HOLDERS.

It is hard to imagine anything too much worse than devoting your life to the promotion of an investment strategy that you believe is helping people and to then learn late in life that all along you were HURTING people.

If I were in that situation, I would like to think that my friends would try very hard to help me understand how I had gotten on the wrong track.

We all should be working together re this matter, Sensible. Deep in our hearts, we all want the same thing.

I naturally wish you all the best things that this life has to offer a person.

Rob

 

Comments

  1. Laugh says

    Actually no. The strategy and reasoning behind buy/hold and matching risk taking to time horizon is straightforward and easy to follow. Market timing schemes which put investors behind over long periods of time before potentially paying off are far more complex and prone to investor emotions becoming a large problem.

    In fact, it seems to be so complex that Rob Bennett, who has spent over a decade fooling around with it, cannot even offer up any specific approach that he recommends aside from opaque and non-understandable calculators that he did not make and himself does not understand.

  2. Rob says

    The strategy and reasoning behind buy/hold and matching risk taking to time horizon is straightforward and easy to follow.

    Buy-and-Hold has won the support of millions of good and smart people. So I think there is something to what you are saying here.

    The trouble is that Buy-and-Hold is not supported by the last 32 years of peer-reviewed academic research.

    The Buy-and-Holders started out believing that what the research says is important.

    I believe that, Laugh. I was a Buy-and-Holder myself for a long time. So I get the appeal of the strategy. What distinguishes you from me is that I am not willing to dismiss 32 years of peer-reviewed academic research (based on 140 years of historical data) just because it requires me to acknowledge that I was once wrong about something. What the last 32 years of peer-reviewed academic research says matters.

    Or so says Rob Bennett.

    I wish you all good things.

    Rob

  3. Rob says

    Market timing schemes

    This language shows how profound the bias is that you are working from.

    Long-term market timing is paying attention to price. Long-term market timing is price discipline.

    Exercising price discipline is a scheme?

    I know of no other field of human endeavor in which exercising price discipline is thought of as a “scheme.” Price discipline is what makes markets work. Please show me one other market that functions reasonably well and in which price discipline is not widely exercised.

    In the event that price discipline matters as much in the stock market as it does in every other market that has ever been created, we should expect the widespread promotion of the idea that exercising price discipline is not required when buying stocks to bring about the collapse of the stock market, resulting in collective losses large enough to bring on the Second Great Depression.

    The thought occurs that perhaps we should all be permitted to question this “idea” that the stock market is the only one that has ever been created in which the exercise of price discipline is not essential (or, heaven help us all, is actually a bad thing!).

    What if these far-fetched ideas produce the same results in the real world this time that they have produced on every earlier occasion in history in which they were tried, Laugh? I think it would be fair to say that we will all be living in very dark days if that ends up being the case. Tens of thousands of businesses will fold. Millions of workers will lose their jobs. The deficit will double or triple as we try to help out the millions of people left homeless in their old age because they believed that the people pushing this smelly Get Rich Quick garbage might be shooting straight.

    I will continue posting honestly.

    I naturally wish you all good things.

    Rob

  4. Rob says

    Market timing schemes which put investors behind over long periods of time

    Valuation-Informed Indexing does not put you behind if you calculate where you stand properly.

    In 2000, prices were at three times fair value. So someone who had a portfolio with a value of $200,000 was pretending that he had a portfolio valued at $600,000.

    Compare the pretend value of the Buy-and-Hold portfolio to the pretend value of the VII portfolio and you might well find that the VII portfolio is “behind.”

    But you get a very different result if you use accurate numbers. Get Rich Quick strategies don’t look nearly as appealing when you use accurate numbers.

    The entire appeal of Buy-and-Hold is that it encourages people to believe that Pretend Wealth is real.

    I don’t get the joke.

    Rob

  5. Rob says

    are far more complex

    No.

    We all look at price when making purchases of everything we purchase other than stocks.

    The complicated thing is spending your life coming up with fantastic rationalizations of following the opposite practice when buying stocks.

    You have spent 11 years trying to justify the refusal of a fellow who got a number wildly wrong in a retirement study posted at his web site from correcting the error. That’s making things more complex than they need to be!

    Rob

  6. Rob says

    and prone to investor emotions becoming a large problem.

    The Valuation-Informed Indexers are the ones who put forward death threats.

    The Valuation-Informed Indexers are the ones who demanded unjustified board bannings.

    The Valuation-Informed Indexers are the ones who advanced tens of thousands of acts of defamation.

    The Valuation-Informed Indexers are the ones who threatened to get academic researchers fired from their jobs.

    The Valuation-Informed Indexers are the emotional ones.

    The Buy-and-Holders are the ones who have it all together.

    Rob

  7. The Pink Unicorn says

    Rob,

    If people widely used your advice, we would be seeing people suffering from financial disaster, just like you. They would be retiring too early and have too little in savings. They would be trying to time the market, which has been shown time and again, you be a disastrous get rich quick scheme.

    On the other hand, we have seen consistent success from many of the portfolios you call buy and hold. These people tend to be very disciplined, save a considerable amount of their income and end up with a well funded retirement that allows them to live a prosperous lifestyle.

    Since you have been thoroughly discredited with your poor track record clearly on display, the damage you could have caused has been minimized.

  8. Anonymous says

    Rob,

    Sometimes “price discipline” is the opposite of trying to time a purchase to save some pennies!

    I’m sure you’ve heard the phrase: “Penny wise, pound foolish”. That describes your theoretical approach precisely, as well as describing your personal results, all in a little nutshell. Let’s consider buying a brake job for the family auto. Perhaps your hometown mechanic quoted you a price of $99, and you mentally tucked that away for future reference. Later, you happen to be on an extended road trip, and in,say, California, you discover your brake pads are worn almost to the metal, and in fact, will be on the metal in a few hundred miles. The local shops are all charging $150 to do the job you thought you could have gotten back home for $99. What do you do?

    (I know what every other logical human would do, but I honestly have no clue what you would do with your wife and kids in the car in that situation, Rob. I really don’t.)

    It is a question of ‘need’ versus ‘price’ to obtain ‘value’, especially against a backdrop of how catastrophic it is to elect to abstain altogether. Those are the variables to consider.

    So, plug in the equivalent situation for an investor’s journey instead of a vacationer’s journey. Today’s stock prices may happen be the best since the dawn of time… but usually they are not. They may be the worst since the dawn of time… but usually they are not.

    Instead, one needs to consider whether they want to get on the train and take (in your case) an eleven year trip averaging about a 6.5% real return per year, which would have resulted in hugely more than double your original nest egg; or choose stand stupidly at the station day in and day out, for over a decade, just hoping without good cause to do so, for heavily discounted tickets to somehow appear! (And to be caught napping and remain frozen still totally immobile when they did actually drop significantly in 2009).

    Rob, unlike your slavery, drunk driver, and other horrible analogies, this one serves the purpose of a proper analogy: It illuminates a situation by applying SIMILAR (bur hopefully simpler or easier to understand) scenarios to make an accurate point.

    In other words (or analogies): You could have been cutting wood for season after season with that brand new chainsaw, making a lot of money selling cord wood, and stacking it up for winter, but instead, your tightwad, illogical, and innumerate ways have left you waiting eleven years for a super-bargain-sale that simply never was going to happen for you. So you’re cold, grumpy, and complaining about not having any wood, as if it’s the world’s fault. Rob, the day you accept whose fault your troubles really are, is the day there might be hope for you to recover financially, but much more important, morally and as a man.

  9. Rob says

    Long-term timing is the exercise of price discipline. There is now 32 year of peer-reviewed academic research showing that ALL investors must ALWAYS exercise price discipline when buying stocks, just as they do when buying all other good and services.

    There obviously are going to be lots of different circumstances that are going to apply at lots of different times. There is NEVER going to be any investor who can risk going with the same stock allocation at all prices levels. If the stock allocation he chooses is a good one for when prices are low, it is going to be a horrible one when prices are high. If the stock allocation he chooses is a good one for when prices are high, it is going to be a horrible one when prices are low.

    The key to successful long-term stock investing is getting your stock allocation right. This is a logical impossibility for those following Buy-and-Hold strategies (because Buy-and-Holders do not change their stock allocations in response to big price swings.

    My warmest wishes to you and yours.

    Rob

  10. Anonymous says

    “The key to successful long-term stock investing is getting your stock allocation right. ”

    And how are you doing at that task over the last decade?

  11. Rob says

    I’ve been doing well, Anonymous.

    I have been at a zero stock allocation for the entire time-period. I have been earning 3.5 percent real in TIPS and IBonds.

    Stocks will be offering an annualized 10-year return of 15 percent real following the next price crash. I will have lots of money to buy stocks at a time when they are offering an AMAZING return. You make a lot of money in a short amount of time earning 15 percent real per year for 10 years running.

    Then I will have DECADES of compounding returns on the hundreds of thousands of dollars of added portfolio value over what I would have had had I gone with a Buy-and-Hold strategy.

    I have tested Buy-and-Hold vs. Valuation-Informed Indexing strategies over 30-year time-periods hundreds and hundreds of times. VII beats all BH strategies in 90 percent of the cases. It is not common but not entirely unusual to see VII portfolios that are DOUBLE the size of the BH portfolios at the end of 30 years. VII typically tops BH by HUNDREDS OF THOUSANDS of dollars.

    There is no comparison between the two.

    That’s the biggest problem I have in promoting VII. It hurts the feelings of Buy-and-Holders to see how much wealth they have given up by putting their confidence in the Wall Street Con Men. This is the element of the story that Fama missed. He assumed that investors would make rational decisions. Hurting yourself financially because you don’t want to experience the hurt feelings that come with acknowledging that you have made a mistake is not rational. But it IS human.

    I cannot change the facts. I cannot change the numbers. I cannot change the research. I cannot change the data.

    The transition from BH to VII is the biggest advance in the history of personal finance. The only thing keeping us all back from entering the greatest period of economic growth in U.S. history is the hurt feelings of those who have been taken in by the Wall Street Con Men. I believe that a lot of hearts are going to melt following the next price crash and that we will in future days all be working together to get to a much better place than the place where we find ourselves today. I certainly hope so!

    Please don’t let the bad guys get you down, Anonymous.

    Rob

  12. Rob says

    Stocks offered a strong long-term value proposition when they were selling at those prices. I think that much is fair to say, Sensible.

    Hang in there, man.

    Rob

  13. Anonymous says

    “Please don’t let the bad guys get you down, Anonymous.”

    Oh, I won’t ever let you get me down, Rob.

    In fact, seeing what new craziness you come up with every day is a hoot of a good time!

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