“You Cannot Touch Investor Emotions. You Cannot Hold Them in Your Hands. They Are Not Tangible. But They Have the Same Effect on the World as Anything That IS Tangible.”

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

Rob, you’re confusing a casual observation with a physical constant. 

No, I’m not, Yip. I am accepting that it is investor emotion that is the primary cause of stock price changes and then reporting on what follows from that. If the market is efficient (as Fama believes), Buy-and-Hold is the ideal strategy. If valuations (emotions) affect long-term returns, Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind.

It’s not casual observation that says that. It’s 32 years of peer-reviewed academic research (based on 140 years of historical return data).

Is investor emotion a physical constant?

It IS, in its way.

You cannot touch emotions. You cannot hold them in your hands. They are not tangible.

But they have the same effect on the world as anything that IS tangible.

Investor emotion ALWAYS determines long-term stock returns. There has never been one exception in 140 years.

And changes in stock returns affect millions of lives in very tangible ways.

Tens of thousands of businesses have failed as a result of the relentless promotion of Buy-and-Hold strategies. Is that tangible enough for you?

Thousands of people who posted at the Motley Fool board have seen their lives destroyed because they thought Greaney was shooting straight in his “study”. Is that tangible enough for you?

Millions of people have lost their jobs in the economic crisis brought on by the relentless promotion of Buy-and-Hold strategies. Is that tangible enough for you?

Confidence in our system of government was shaken in the First Great Depression caused by the relentless promotion of Buy-and-Hold strategies back in the 1920s. Is that tangible enough for you?

You cannot SEE investor emotions.

But you can MEASURE them.

You can PROTECT yourself from them.

You can PROFIT from them.

You can help millions of middle-class people by sharing with them the realities we have learned about them from the last 32 years of peer-reviewed academic research.

I am certainly not dealing with casual observation. I root every word I say in 32 years of peer-reviewed academic research.

And I am certainly reporting on something that is constant, given that it has applied for 140 years without a single exception.

The thing I am reporting on is not VISIBLE like most other physical forces. But it is a force that has tremendous power over what happens in this mixed-up world of ours.

Are you saying that because we cannot SEE investor emotion or hold them in our hands that we should IGNORE them when setting our stock allocations?

I don’t buy it.

Why?

What positive purpose would be served by doing so?

Please tell me the downside of bringing the economic crisis to an end and reducing the risk of stock investing by 70 percent while enjoying dramatically higher returns, returns higher enough to let us all retire five to ten years sooner than we ever imagined possible in the Buy-and-Hold Era.

I LIKE early retirement.

How about you, Yip?

Rob

 

 

Comments

  1. Anonymous says

    I stay away from emotion. I follow Taylor’s three fund portfolio. I don’t need any of those get rich quick schemes like market timing, just slow and steady continual investments. No debt, paid off house, cash flowed the kids college education and living the life.

  2. Rob says

    We obviously don’t agree re the investing questions, Anonymous.

    But I am grateful to you for taking time out of your day to let the readers of this blog know about another way of thinking about things that has won over the hearts and minds of millions of good and smart people.

    Please take good care.

    Rob

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