Set forth below is the text of a comment that I recently posted to another blog entry at this site:
I like how you call buy and hold a get rich quick scheme but one of your favorite claims is that VII can help the average person retire 5-10 years earlier.
I DO believe that Buy-and-Hold is a Get Rich Quick scheme. But I do NOT believe that it was intended to be that. And I do not believe that the people who follow it do so because they were looking for a Get Rich Quick scheme. I believe that the people who developed the Buy-and-Hold concept were excited about it because they believed it was real. And I believe that the people who follow it are excited about it because they believe it is real.
I believe that as a society we tolerate heavy promotion of this Get Rich Quick scheme because of a MISTAKEN understanding of how stock investing works that an understanding of the implications of Shiller’s research CORRECTS. The need for a correction has come as a shock because the people who made the (understandable) mistake were trying to do something good and over time became highly confident that they had indeed done so.
All that said, we DO need to correct the mistake. The only way we can pull enough people together to bring about the correction is by engaging in civil and reasoned discussion of what Shiller’s research reveals. This is why I am so “strident” on the honest posting question. There is just no other way to make good things happen here.
One day about five years back my wife and I were driving somewhere and I was telling her about the wonders of Valuation-Informed Indexing. At one point she said: “You sound like one of those infomercial people!”
I would have more success pushing VII if the benefits were less! People would be more inclined to believe me if the benefits were less!
But I cannot lie to make the benefits seem less appealing. That simply makes no sense.
The reason why the benefits are so huge is that we are as a society still at a primitive stage of our understanding of how stock investing works. It is when you are at the primitive stage of understanding that huge advances remain possible.
We messed up on a fundamental question. We learned that short-term timing doesn’t work and we jumped to the conclusion that long-term timing doesn’t work either. Now we know (intellectually if not emotionally) that long-term timing is the key to success, long-term timing is 80 percent of the game.
How do we get that mistake corrected?
There are lots of rich and powerful people who are embarrassed to have made the mistake. They don’t want the millions of middle-class investors to learn about the mistake. But the longer the cover-up continues, the more embarrassment these people feel. It gets worse very day. There is no possibility that it can ever get better.
We do these people no kindness by aiding the cover-up. The charitable thing is to insist that the cover-up be brought to a complete and total stop by the close of business tomorrow. We can show kindness by applauding the people who made the mistake for their genuine contributions and by explaining that the mistake was understandable and by noting that we wouldn’t be where we are today without the work these people did at an earlier time. But continuing the cover-up is an UNMITIGATED DISASTER for every single person involved. We are making these people look worse and worse and worse with each new day of financial destruction that we permit to take place.
We have to return to first principles. We have to remember that the point of Buy-and-Hold in its early days was to root one’s investing strategies in the PEER-REVIEWED RESEARCH. We cannot continue to pretend that the last 33 years of peer-reviewed research does not exist. It exists! It matters! It is important!