Set forth below is the text of a comment that I recently added to another blog entry at this site:
“If you do the math, you will see that you are wrong. There have been six different people who have done the numbers on my personal situation. I have been following VII strategies for 18 years and I have been ahead of where I would have been had I followed BH strategies for a long, long time.”
That comment was posted July 2014. Took me just seconds to find an S&P 500 historical return calculator. The real return between July 1996 and July 2014, counting dividends, is 5.9%. You claim to have everything in 3.5% real TIPS. Please explain how 3.5% is greater than 5.9%, and show your work.
You are right, Doing the Math.
I am going to add some complications below. But I checked what you say here and you are right in what you say in this post. The point you are making is important. So I am grateful to you for putting this post forward.
I do not retract my earlier comment. My personal situation has been analyzed on various boards MANY times (probably more than six times, but at least that many times) over the 13 years of discussions. I HAVE been ahead according to those earlier calculations. The unvarying response of you Goons when it was determined that I was ahead was to respond with acts of deception and intimidation. That has led to a LOT of confusion on both “sides.” In this care you are making a legitimate and important point. I wish that we could work together in future days to come to a better mutual understanding of the REALITIES rather than seeing the nastiness that has poisoned so many earlier discussions. The point you are making here is a POWERFUL one in support of the Buy-and-Hold position. I wish that we could all focus on that and learn what there is to be learned from it.
I do NOT look at these sorts of numbers very often at all. I don’t care about them. I care about long-term results, and, as you know, I am firmly convinced of the long-term merit of Valuation-Informed Indexing strategies. So these sorts of numbers don’t matter much to me.
That said, these numbers DO tell us something important. Buy-and-Hold has done well from 1996 forward even though prices were insanely high in 1996. That’s a LONG time-period. The fact that Buy-and-Hold has done that well for that long a time-period is compelling evidence in support of the Buy-and-Hold strategy, in my assessment. An argument could be made that I should look at these numbers more often than I have in the past. I certainly think that most other investors would want to know about these numbers. I am surprised by the numbers you have presented. I am going to write a column at the Value Walk site pointing out these numbers and noting that they make a strong case for the Buy-and-Hold strategy and that they undermine the case for Valuation-Informed Indexing a bit.
I hope you won’t see me as being defensive if I make a point that applies in my personal case that makes the numbers for my personal portfolio significantly different from the numbers you have presented. I am not presenting this information to undercut your point, which I think is a good one. I am presenting them in the interests of having readers of these words exposed to the complete picture.
I had a very small portfolio in the Summer of 1996, when I moved the money that I had in stocks first to CDs paying roughly 4 percent real and then to TIPS and IBonds paying 3.5 percent real when those became available. Until February 1996, I was directing all of my savings to paying off my mortgage. I owned only a small amount of stocks (perhaps $30,000 worth) when I made the transfer to CDs in the Summer of 1996. I was saving large amounts of money in those days in preparation for my early retirement in August 2000. For example, in the last 12-month period before I handed in my resignation, I saved $88,000. The numbers are VERY different for that segment of my portfolio (and to a lesser extent different for ALL of the post-1996 saving amounts).
The calculator that I used to confirm your numbers shows the annualized return for stocks (with dividends reinvested) from January 2000 forward until today as 2 percent real. My 3.5 percent real return soundly beats that number. And the $88,000 amount we are talking about here is much larger than the roughly $30,000 amount for which the Buy-and-Hold strategy soundly beat the VII strategy. My sense given these numbers is that I am STILL ahead of Buy-and-Hold today, given the size of the disparity.
My recollection, however, is that the earlier analyses showing that I was ahead did not incorporate that factor. So what you are showing DOES appear to me to show a change. That is significant. It also shows that Buy-and-Hold has done very well since 1996 despite the sky-high prices that applied in 1996. In fairness, it also shows that Buy-and-Hold has performed poorly since January 2000, especially in comparison with the results shown for TIPS and IBonds over those years.
This is an interesting development. My expectation is that you are going to respond with nasty Goonishness and undermine the learning experience that we both could profit from as a result of your helpful post. I hope that my unfortunate expectations will prove to be unfounded. My take is that these numbers offer support for BOTH the BH and VII positions. The 1996 numbers really support BH and the 2000 numbers really support VII. Intelligent investors should be thinking about what that combination of realities means re what is likely to work best on a going forward basis.
Anyway, I AM grateful for you willingness to correct the record on this point. I want to state things properly and I was not aware that the numbers were so supportive of the BH position from 1996 forward. I’ve learned something important this morning and I would not have learned that thing if you had not taken time out of your day to help us all out.
Take care, man.