Set forth below is the text of a comment that I posted in the discussion thread for a recent entry at my weekly column at the Value Walk site:
My comments are based on the truth and supported by facts. All one needs to do is read your posts and see that the vast majority of your posts include complaints about what you think Shiller, Bogle, Pfau and others. You want to talk about taking people Down, Down, Down? Just read your own posts. Tell us again about people going to prison, or made up death threats or defamation that are frequent topics that you bring up on your board. Who is bringing us Down, Down, Down?
Secondly, you like to take a creative license to what people say. Notice how you make it seem that Aaron believes your negative views on buy and hold (which you have yet to fully define). I see nothing in his posts that mentions buy and hold (and what that really means).
Third, you position yourself as an expert, yet you want to hide from the fact that your retirement plan failed and that you also don’t really follow your own investment strategy. that all cuts towards credibility and I think gives an insight to readers as to why you say what you do. You are looking for a scapegoat for your own failures.
It’s not my intent to bring anybody down, Sammy.
The historical reality is that we did not know all we need to know about how stock investing works until 1981, when Shiller published his “revolutionary” (his word) research. The Buy-and-Holders made many wonderful contributions. I say that all the time. But they dropped the ball on one key issue — the need for investors always, always, always to be 100 percent sure to practice price discipline when setting their stock allocations (that is, to always, always, always practice long-term timing, the one form of market timing that has been working for 145 years now, as far back as we have records).
Were the Buy-and-Holders dumb or bad to make that mistake?
They were not.
Bogle didn’t found Vanguard until the mid-1970s. So index funds were not available at the time when Fama did the research on which the entire Buy-and-Hold Model is based. Long-term timing only works with index funds. So Fama had no way of knowing that it was important to check whether long-term timing works. Naturally, he didn’t attempt to perform any check. He obviously couldn’t get this one right without even doing a check!
Shiller was the first researcher to check whether long-term timing always works and is always required. He found that it is. Dozens of researchers have checked this finding in the 34 years since. Every single one has confirmed that Shiller was right. We are the luckiest generation of investors ever to walk Planet Earth. We are the first to know (at least intellectually) that it is possible to reduce the risk of stock investing by 70 percent just be being open to the idea of practicing long-term timing (I am the co-author of peer-reviewed research showing that this is so).
So everything is great, right?
Between 1965, when Fama did his research, and 1981, when Shiller did his, tens of thousands of businesses were formed promoting the Buy-and-Hold strategy. It was promoted as “research-based.” It is not that. Shiller’s research shows that Buy-and-Hold never works in the long run. But the people who founded those businesses truly believed that Buy-and-Hold was research-based at the time they founded them. And, when Shiller showed that Buy-and-Hold can never work, they were none too excited about the idea of acknowledging their mistake.
So as a society we developed a Social Taboo against speaking frankly about the implications of Shiller’s amazing findings. 34 years have now passed. It is now harder than ever for the Buy-and-Holders to come clean. They have been covering up Shiller’s findings for 34 years now. What to do?
These people WANT to come clean, Sammy. I know. I have spoken to many of them and they have told me so. Others try to sneak lots of valuation-based stuff into their presentations even though it makes zero sense to consider valuations if the market is truly efficient, as Fama believed. So we are all on the same side. We all know that we need to make every investor on the planet aware of what Shiller showed and of what his research signifies.
But how do we get from this horrible place where we are today (where the relentless promotion of Buy-and-Hold strategies has caused an economic crisis) to the wonderful place where we all want to be tomorrow (where we reduce risk by 70 percent and ALSO earn sufficiently higher returns to be able to retire five or ten years sooner than we ever imagined possible during the Buy-and-Hold Era)?
We get there by talking frankly about this stuff. That’s my take. That’s certainly how it is done in every other field of human endeavor when huge advances are produced.
The reason why we have not made more progress in the past 34 years is not that this stuff is not so important. It is that it IS so terribly, terribly important. The Buy-and-Holders cannot bear to acknowledge their mistakes because it has caused so much human misery and because the cover-up has continued for so many years, something that should never happen in a free society.
You are hurting. It comes through in ever comment you advance here. You really do follow Buy-and-Hold strategies yourself and you really do hope that they will work out. But you have doubts. And you cannot bear to have those doubts encouraged by someone who writes a weekly column on Valuation-Informed Indexing. So you come here and engage in all sorts of disruption.
That’s not the answer.
I am sure.
We have had thousands of people express a desire that every board and blog on the internet be opened to honest posting on these matters. That’s the answer. Once people are able to hear all the arguments pro and con, they will make their decisions. But we have to have honest posting. That means that the intimidation tactics need to go. The Buy-and-Holders need to work to rein in their emotional impulses.
We all have a role to play in seeing that that happens. We will benefit as a society when Shiller’s ideas are discussed more openly and more freely. And so we all need to direct our energies to seeing that we complete this transition from a model for understanding how stock investing works that at one time seemed plausible to lots of smart and good people to a model that is truly supported by the peer-reviewed academic research in this field.
I love the Buy-and-Holders. I was once a Buy-and-Holder myself. I want to work with the Buy-and-Holders to develop their ideas that make it possible that they will work in the real world. That’s why I call them out on their mistakes. The Buy-and-Holders are my friends. If I had made such a mistake, I would want my friends to call me out on it. So that’s how I play it.
I naturally wish you the best of luck in all your future endeavors, my long-time Buy-and-Hold friend.