Set forth below is the text of a comment that I recently put to the Goon Central site:
Even those investors who favor a valuation based investing strategy are not so extreme to suggest that the strategy is a complete replacement for buy & hold.
Many don’t say this. Many don’t even personally acknowledge it. That much is so. The reason why they either don’t personally acknowledge it or don’t say it out loud publicly is because they are AFRAID to do so given the reactions they have seen from Buy-and-Holders when others have spoken honestly about what the research says. Did I say that Buy-and-Hold was a big pile of smelly garbage on the morning of May 13, 2002, Yip? I did not. I was a Buy-and-Holder on that day. I knew that the SWR had been calculated improperly. So what? Everyone makes mistakes. I didn’t see it as a huge, big deal. I LOVED Buy-and-Hold. Buy-and-Hold was the research-based strategy. Why would I abandon that because of one mistake made re the calculation of retirement numbers?
It was the fact that 200 Buy-and-Holders endorsed the Greaney post saying he would kill my wife and children if I continued to “cross” him by posting honestly on safe withdrawal rates that persuaded me that Buy-and-Hold was a big pile of smelly garbage. It was on the night of August 27, 2002, that I knew that never again could I feel comfortable advocating this “strategy.”Even then, I rarely said the words in a clear and firm and simple and bold way. I WANTED to believe in Buy-and-Hold. I wanted to work out some compromise with the Buy-and-Holders so that I could again be one of them, so that I would not be outside the crowd. I am a social being, like all the humans. I wanted to belong. I didn’t want to violate the Social Stigma that tells us all that we must pretend to believe in Buy-and-Hold even if we see some flaws in it.
I don’t believe anymore, Yip.
I’ve seen too much to ever be able to believe again.
I LIKE the Buy-and-Holders.
I admire them.
I respect them.
I have zero problem saying that they made huge contributions to our understanding of how stock investing works and that we all should be grateful to them for that.
I can say that they are good people.
And smart people.
And hard-working people.
I can say that they practice what they preach.
I can say that they are trying to help others when they advocate Buy-and-Hold strategies.
But I cannot believe myself.
Because I have seen too much ugly stuff to ever again feel good about what Buy-and-Hold has done to us as a people.
Buy-and-Hold was a mistake.
There was no bad intent present when the mistake was made.
But it was a mistake all the same.
The idea that long-term timing (price discipline) is not required is the biggest mistake that was ever made in the history of personal finance.
We need to FIX the mistake.
We don’t fix it by calling each other names.
We fix it by working together to achieve the goal we all hold in common (becoming effective long-term investors).
But we cannot fix anything if we are not honest about what we are dealing with.
The idea that long-term timing is not required was not some little mistake that can be ignored or discounted. It was a wrong turn that over the course of 30 years has taken us to a very, very dark place.
If you believe in Buy-and-Hold, you should say that you do. If you believe, you have not only a right to say you do, you have a responsibility to do so.
But don’t say that the differences between a world in which long-term timing is required and a world in which long-term timing is not required are not stark.
These two worlds are opposite worlds.
If long-term timing is not required (that is, if the market is efficient), Buy-and-Hold is the ideal strategy and VII is nonsense. It’s not Mel Linduaer that says that, it’s Rob Bennett.
The other side of the story is that if the market is NOT efficient (that is, if long-term timing is required for any investor hoping to keep his risk profile stable), then Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind.
At least Buy-and-Hold has an intellectual basis to it. That intellectual basis has been discredited by subsequent research, in my assessment. But I can say that the Buy-and-Hold pioneers were honest people. They said what they said because they really believed that the research supported what they said.
There is ZERO intellectual support for the idea that there is not much difference between a world in which the market is efficient and a world in which valuations affect long-term returns. Those worlds are OPPOSITE worlds in every possible way.
Acknowledging this is the key to everyone being able to get along.
I talked about this stuff with my friend Brian from Ernst and Young every day years before I put up my famous May 13, 2002, post. Brian often said I was “nuts,” just like you Goons do. But he said it in a friendly and warm way. And when the Wall Street Journal reported that I was right about safe withdrawal rates, he was able to call me and acknowledge that the “nut” had been vindicated.
You should be able to do that.
You can’t because your pride is caught up in your belief in Buy-and-Hold.
That needs to change.
If you believe, you believe. You are in good company if you believe.
But if you believe that there is not much difference between a world in which the market is efficient and a world in which valuations affect long-term returns, you are dishonest. Those are OPPOSITE worlds.
People can be friends while believing opposite things. There are people who say the Beatles were the best group and people who say the Rolling Stones were the best group and who remain good friends despite their differences. I can be your friend even if you continue to believe in Buy-and-Hold.
But I will have to say things that will sound unfriendly to your ears if you say that there is little difference between a world in which the market is efficient and a world in which valuations affect long-term returns. If you do that, I will be required to say that you are dishonest because no honest claim that those worlds are roughly the same can possibly be made. When I call you dishonest, I am saying something 100 times worse than saying that I believe you have a mistaken understanding of how stock investing works. So you should knock off that funny business.
I believe in VII. There are other good people who believe in Buy-and-Hold.
So be it.
There are not good people who say that Shiller’s findings do not carry “revolutionary” implications. People who say that are dishonest people.
Shiller may be right or Shiller may be wrong. I think he is right. Millions think he is wrong.
But there is no honest argument that the research that discredited the idea that the market is efficient did not change things in very big ways if it is ultimately found to be valid.
We should be talking about whether Shiller is right or not, not about whether he said what he said. Shiller said that the conventional ideas about how stock investing works are wrong. There is no other possible honest interpretation of his life’s work.
And I have spent 11 years of my life exploring the implications of Shiller’s work. Right or wrong, I am NOT exploring the conventional ideas. I am exploring something NEW.