Marcelle Chauvet is an Economics Professor at the University of California at Riverside. I wrote her some time back letting her know about the threats that were made by the Buy-and-Hold Mafia to silence Academic Researcher Wade Pfau when he sought to get the errors in the Old School safe-withdrawal-rate studies corrected. She wrote back a kind and intelligent note, saying: “I like it and I totally agree. The market goes through cycles and if we want to or need to sell in the wrong cycle phase all bets are off. The only thing is the cost of obtaining information as opposed to Buy-and-Hold. This would be a good research topic. Why would your job be jeopardized by such a sensible claim?”
I posted the words of my response to Marcelle here. I argued that: “Did we know it was funny money? We did. We all possess common sense. No one really believes on a deep level that their retirement accounts can increase by 20 percent or 30 percent in a year for no good reason. We all knew all along that there was some sort of funny business going on and that we should look into it. BUT WE DIDN”T WANT TO KNOW. So we silenced the voice within us telling us “this is wrong.”
Marcelle recently posted a comment to the discussion thread at that blog entry. She wrote:
Dear Robert,
We have exchanged one or two emails in which you mentioned that buy and hold can be a bad strategy and I agreed with you given the high volatility in the market. However, I think you are mentioning my name outside the context, and you inserted an answer below with your own thoughts, as if I endorse them.
I would like to ask you to take my name out of this article, please. I do not want to be listed as endorsing your positions blanche card. This does not represent our exchanges and they are misleading. Thanks.
I responded with the words set forth below:
Marcelle:
Thanks for writing about your concern. It is nice to hear from you again!
I certainly did not in any way, shape or form intend to suggest to anyone that you endorse all of my views on stock investing. I don’t believe that. I have added a note to the article (in bold type) stating this and directing people to your comment. I hope that helps. If you would like me to add any additional language detailing how your views differ from mine, I am happy to add such language (in bold type) to the note at the bottom of the article.
I’d be grateful if you would tell me how this came to be a concern. I have learned over the past 12 years that there is a lot of funny business going on in the investing advice area. I believe that we all need to work together to clean up the corruption in this field. I don’t know whether people involved in the corruption have contacted you or not. If they have, I would like to know more about what happened and share it with my readers.
My best and warmest wishes to you and yours.
Rob
I also added a note in bold type to the bottom of the blog entry. The note read:
I received a comment (see below) on August 2, 2014, in which Marcelle expressed a concern that readers might pick up the impression that she endorsed all of my views on investing. She has never said any such thing and I do not believe any such thing.
grandpop says
“Dear Marcelle,
Welcome to the acutely Passive-Agressive world of Hocomania!”
Rob says
I obviously don’t agree with the way you are saying things, Grandpop. But I obviously do know what you are getting with your Goon way of expressing things.
When you say “passive,” you are commenting on the fact that I try to interact with people in a warm and friendly way. I do. No apologies.
When you say “aggressive,” you are commenting on the fact that I am determined in my non-acceptance of the 33-year cover-up, that I expect every citizen of our country to do what he or she can to bring the cover-up to an end and to help bring us to a place where we are all enjoying the benefits of being the luckiest generation of investors ever to walk Planet Earth. Again, no apologies.
Marcelle is afraid.
She shouldn’t be.
What she said in her first e-mail was pure common sense. She shouldn’t feel even a tiny bit intimidated.
She feels that way because too many of us have kept quiet for too long and let the Wall Street Con Men and their Internet Goon Squads call the plays.
No.
Too many people have been hurt.
Too many more people get hurt each day that the cover-up continues.
INCLUDING the Wall Street Con Men and their Internet Goon Squads.
Am I “aggressive” about wanting to bring the most massive act of financial fraud in U.S. history brought to a full and complete stop by the close of business today?
I am.
Sue me.
John Greaney once threatened to get me sent to the gas chamber for “crossing” him by posting honestly on safe withdrawal rates. If he really can get me sent to the gas chamber for committing that horrible crime, then he should do that. It naturally follows from what we have seen every day for the past 12 years.
If he does not think that he can pull that one off, then we have a different story. If he does not think that he can pull that one off, then he might have to rethink some things.
Because it’s true that I aim to be warm and friendly in my interactions with all others.
And it’s true that I am pretty darn determined to bring this massive act of financial fraud to a full and complete stop by the close of business today.
I guess we’ll see how it goes. I have a funny feeling that there will be a Thanksgiving Day in the not-too-distant future when we all will be happy that we are finally working together to promote HONEST stock investing strategies, strategies that help us all reduce the risk of investing by 70 percent while also permitting us all to retire five to ten years sooner than what we imagined was possible during the dark Buy-and-Hold days.
Just another one of those crazy hunches that I have been known to experience from time to time, Grandpop.
Please take good care.
Rob
Anonymous says
She wrote back
No sympathies for her really. Marcelle fed the troll, and reaped the rewards.
Rob says
That’s the Goon spirit that brought on the biggest economic crisis in U.S. history!
Rob
Anonymous says
Rob,
I thought you said buy and hold could NEVER work. What if we took the worst case scenario of buy and hold:
http://awealthofcommonsense.com/worlds-worst-market-timer/
Funny as to how even the worst case wins out.
Rob says
I am grateful to you for sharing the article with us, Anonymous. I don’t agree with the conclusion. But at least you are presenting numbers here, not insults. LOTS of good and smart people are persuaded by these numbers. So I believe that all investors should at least see them and consider them before making any investing decisions.
The first thing to note is that U.S. stocks provide an average real return of 6.5 percent real. So stocks are an amazing asset class. When you claim that Buy-and-Hold works, what you really are saying is that stocks work. Stocks DO work. But Buy-and-Hold does not. To follow a Buy-and-Hold strategy is to refuse to exercise price discipline when buying stocks. That ALWAYS sets you back. It ALWAYS dramatically reduces return while also dramatically increasing risk. Huh?
Does the guy count the 65 percent price drop priced in to the market today?
He doesn’t.
That’s a big freakin’ deal!
The guy he examines was 22 years old in 1970. That means that he is 66 years old today. He is ready to retire today. And he is about to experience a two-thirds loss in his stock portfolio.
That’s a killer. The guy has been spending more than he can afford to spend for 18 years now (stock prices went to insanely dangerous levels in 1996 and have remained at such levels for most of the 18 years since). And now — when he is ready to stop working and will need to depend on the money in his portfolio to cover living expenses — he is about to lose two-thirds of that amount. You consider this a GOOD thing?
I do not consider it a good thing, Anonymous.
Ignoring price is the worst thing that a stock investor can do, in my assessment.
I don’t say that to hurt your feelings. I know that it does that. But that is not my intent. I believe that you need to take into consideration what the last 33 years of peer-reviewed research tells us about how stock investing works. Buy-and-Hold doesn’t do that. Buy-and-Hold is exactly the same strategy as it was on the day before Shiller published his “revolutionary” (his word) findings. That’s not good.
Ignoring price can never work.
Lots of people BELIEVE that ignoring price can work.
They are wrong.
They would come to understand how they are wrong if discussion of the findings of the last 33 years of peer-reviewed research were permitted on the internet. Those who have advanced death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs are guilty of financial fraud and are responsible for the trillions of dollars of losses that they are in the process of causing for millions of middle-class investors. Again — not good.
The worst case is having your retirement fail. That’s where the fellow described in this article is headed. Along with millions of others who fell for the smelly Buy-and-Hold garbage pushed so recklessly and relentlessly and ruthlessly by the Wall Street Con Men and their Internet Goon Squads.
Get Rich Quick isn’t the answer, Anonymous. Get Rich Quick is THE PROBLEM.
Or at least that’s my sincere take re these terribly important matters.
Rob
Rob says
When articles about the Bernie Madoff fraud were coming out, there was one fellow who came on a discussion thread to say: “This fund isn’t fraudulent — I made over $2 million investing in it!”
People really do make money investing in Ponzi schemes. If they are lucky enough to get out at the right time. The fact that there are some who make money does not show that Ponzi schemes “work” or are a good source for your retirement money. Ponzi schemes are DANGEROUS. The typical middle-class person should RUN from them when they hear one of the Wall Street Con Men promoting them.
A sure sign of a Ponzi scheme is the use of death threats by the people doing the promotion. Or demands for unjustified board bannings. Or tens of thousands of acts of defamation. Or threats to get academic researchers fired from their jobs.
People promoting legitimate investing strategies do not engage in criminal behavior. Not ever. Honest people just do not get involved in such abusive practices.
My take.
Rob
Anonymous says
Bernie wasn’t buying stocks.
Rob says
And John Greaney wasn’t giving consideration to the effect of valuations when he told people that the safe withdrawal rate is always 4 percent.
Madoff produced pieces of paper that pretended to reflect stock transactions that in fact were never made. This was an act of fraud.
Greaney produced pieces of paper that pretended to reveal the safe withdrawal rate that in fact did not do so. This was an act of fraud.
Madoff is already in prison because his fund has already collapsed.
Greaney will be put in prison when the overall market collapses.
I am not interested in going to prison. So I make it a practice never to commit fraud myself and never to encourage others to commit fraud. I take it the other way. I DISCOURAGE financial fraud. I OPPOSE financial fraud.
I have never given two seconds consideration to playing it any other way. I love my country, Anonymous.
I naturally wish you all the best that this life has to offer a person.
Rob
Rob says
Why do you think the laws against financial fraud were adopted in the first place, Anonymous?
Is it because the sorts of people who commit financial fraud always make clear that that is what they are doing?
Or is it because the sorts of people who commit financial fraud often put on a pretty darn good show, one that is capable of pulling in lots of smart people, and because this is the reality we decided as a society that we need PROTECTION from these sorts of people and their fancy footwork?
People don’t like to be cheated out of their retirement money. It makes them angry when they learn that they were taken for a ride. You are going to find this out in an up close and personal way following the next price crash.
But I’m not God. Please feel free not to go by what I say. Roll the dice.
Just don’t ask me to get involved. This sort of thing is not my particular cup of tea.
Rob
Anonymous says
“I don’t agree with the conclusion.”
And you don’t agree with the facts because??????
Rob says
I don’t understand this comment, Anonymous.
I don’t think that there is a dispute re the facts. The dispute is re the conclusion that it is appropriate to draw from those facts.
There are millions who have seen these facts and have drawn the conclusion that Buy-and-Hold is a good strategy. They are of course free to draw that conclusion. And we all should be grateful when they take time out of their day to help the rest of us understand why they draw that conclusion.
I do not draw that conclusion. It would be dishonest for me to say that I did. And I don’t feel even a tiny bit comfortable going down the dark road where I post dishonestly re the strategies that my friends employ to invest their retirement money.
I hope that you will be able to find someone else.
My best and warmest wishes to you and yours.
Rob
Anonymous says
But the conclusion is based on the facts. Therefore, it reflects facts. As we can see, even buying on the peaks, the buy and hold has worked, and this is the worst case scenario. Again, tell us how the facts are wrong.
Rob says
I don’t believe that the facts are wrong, Anonymous.
But I also don’t agree that the conclusion is based on the facts.
I don’t believe that the phrase “buying on the peaks” means anything of significance. What you should be trying to do is to buy stocks when stocks offer a strong long-term value proposition and buy something other than stocks when something other than stocks offers a strong long-term value proposition.
Say that you wanted to buy a car with a fair value of $20,000. And the dealer offered to sell it for $30,000. Is that buying on the peaks? It’s a bad deal, right? Whether you are buying on the peaks or not.
Say that at another time one dealer offered to sell you the car for $15,000 and another offered to sell it for $16,000. Taking the second deal would be buying on the peaks. But it is still a good deal, isn’t it? Buying on the peaks or not buying on the peaks isn’t the thing that matters. It’s getting a strong long-term value proposition that matters.
Stocks offered a great long-term value proposition all through the 70s and 80s and the first half of the 90s. If you bought stocks at the peaks during those years, you did well. But if you bought stocks at the peaks or at the non-peaks during the late 1990s or the 2000s, you got a bad deal.
You are focused on this buying at the peaks stuff and it just doesn’t matter. The peaks that you are referring to are short-term peaks. You need to forget about that stuff. Focus on the long-term. That’s what matters. Focus on the long-term value proposition obtained and forget about whether you are buying at short-term peaks or not.
My take.
Rob
Rob says
The conclusion is NOT based on the facts. The conclusion is based on a way of seeing the world that has been found to be in error.
Fama says that stock price changes are caused by economic developments.
Shiller says that stock price changes are caused by shifts in investor emotion.
These are two different worlds, two different models for understanding how stock investing works. The model you use as the starting point of your analysis determines your take on every strategic question.
The two paths can never meet. They proceed from different starting points and go in entirely different directions.
Rob