Set forth below is the text of a comment that I recently posted to another blog entry at this site:
A good number of years back, I asked John Walter Russell to calculate the dollar amount of overvaluation in January 2000 (the high point of the bubble) using the figures for total market capitalization. The market was overpriced by a factor of three at the time; the fair-value P/E10 is 15 and the P/E10 at the top of the bubble was 44. This calculation showed mispricing of $12 trillion.
If the market were to return to fair-value levels (it always does), we were looking to experience losses of $12 trillion. Those are the direct losses attributable to the promotion of Buy-and-Hold strategies. If we permitted honest posting on the last 34 years of peer-reviewed research, we never could experience overvaluation. So we never would have experienced those losses.
There are several indirect effects as well.
One is that much of the money that investors “earned” via the bull market (which the Buy-and-Holders were telling them was real) was invested in real estate, causing a secondary bubble there. The real estate bubble caused about $4 trillion in overvaluation. That brings the total overvaluation to $16 trillion.
We never stop at fair value. Emotional extremes beget emotional extremes. Irrational Exuberance leads to Irrational Depression. There has never been a time in U.S. history when the secular bear created by a secular bull did not take us down to a P/E10 level of 8 or lower, half of fair value. That drop will cost us another $4 billion, bringing the total overvaluation to $20 trillion.
The Congress enacted an economic recovery bill in 2009 in response to the onset of the Buy-and-Hold Crisis. That cost us several more trillion dollars, bringing the total losses up to about $22 trillion.
The Federal Reserve has put several trillion into the stock market since then in an effort to keep the collapse from accelerating, bringing the total losses to somewhere in the neighborhood of $24 trillion.
In contrast, the entire Federal debt (comprised of all of the annual budget deficits going back to the days of George Washington) is only $18 trillion. The losses that we need to cover as a result of the continued promotion of Buy-and-Hold “strategies” for 34 years after the peer-reviewed research was published showing that there is precisely zero chance that a pure Get Rich Quick strategy could ever work for even a single long-term investor either here or in any other solar system is $6 trillion more than the entire Federal debt.
Buy-and-Hold is bad stuff, Anonymous.
Truly bad stuff.
The absolute worst for humans and other living things.
Hence, the great emotional pain you evidence in every comment that you post to this site.
We all need to pull together and persuade our good friend Jack Bogle to walk to the front of a big room and to say the words “I” and “Was” and “Wrong” and thereby to take us to the other side of The Big Black Mountain, where investing risk is reduced by 70 percent and where we all can realistically expect to be able to retire five to ten years earlier than we ever imagined possible in the Buy-and-Hold Era.