Set forth below is the text of a comment that was recently posted to another blog entry here by a long-time critic of the Valuation-Informed Indexing concept, followed by my response:
“It’s true that Buy-and-Hold has lots of short-term success stories.”
Someone working for 20-30 years making a modest salary and still being able to retire a millionaire because of Buy and Hold is not a short-term success story. There are literally countless examples of this actually occurring. People have lived, retired on the back of buy and hold, had a good retirement, and died. Their story is over so you can’t say that it was only short-term success,Some the term is over. All you can possibly argue is that another method could have been more successful. There is honestly no room for debate and until you realize this you will have zero credibility. When you tell people who are currently retired with large nest eggs completely cashed out of stocks that Buy and Hold can’t succeed it is like telling a marathon runner who has already crossed the finish line that his training program will not work.
“Joe has somehow managed to figure out how to take price into consideration when buying cars and bananas and sweaters.”
This is actually a terrible example. Joe knows those things are overpriced only in comparison to other identical offering of that product. I have no idea what goes into creating a sweater or what a fair price is for those things I only know how much every store is selling them for. In the case of your theory all stocks are overpriced at the same time. There is never a time where Joe decides that all sweaters in the world are overpriced. This notion would be ludicrous and that is exactly what you are suggesting Joe does with stocks. Certainly if 10 people were selling stocks of MSFT for $40 and then one person was selling it for $100 Joe could make this value decision. What you suggest is the equivalence of Joe understanding intricacies of making a sweater from labor, to cost of fabric, shipping, etc.
“Throwing all your money on the floor and putting a match to it would be easier yet.”
Again a childish and ludicrous comparison. Buy and Hold is a proven system with LONG-TERM success stories that is incredibly easy to implement. You are arguing in favor of what may be a superior system but it is much more difficult to implement. So much so that you are incapable of laying out principles of how to do so and are incapable of actually following the system yourself.
I like your comment, Tron. Most of the points you make in it are reasonable and real. I am going to run this comment as a stand-alone blog entry. I wish that we could see more comments of this nature, comments in which you VII critics stick to your guns but generally avoid the nasty stuff in favor of making points that would strike many community members in the middle as thoughtful.