I’ve posted Entry #269 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Eight Questions That Should Be Keeping Buy-and-Holders Up at Night.
Juicy Excerpt: Yale Economics Professor Robert Shiller showed in peer-reviewed research published in 1981 that valuations affect long-term returns. That “revolutionary” (Shiller’s word) finding changed everything we thought we knew about how stock investing works. If valuations affect long-term returns, stock risk is variable rather than fixed; that means that we can reduce risk by taking valuations into account when setting our stock allocations. Shiller’s book exploring this finding in depth was a national bestseller. He was awarded a Nobel prize for his work.
Given the importance of this advance in our understanding of how stock investing works, one would have expected that the Buy-and-Holders would have made scores of changes to their strategy to reflect the new understanding. Can the Buy-and-Holders identify even ten changes?
Can they identify even one?
Anonymous says
Uh oh, Rob. Jack is back out there promoting buy and hold:
http://finance.yahoo.com/news/investing-legend-jack-bogle-stay-183611168.html
Notice the end of the article in which he calls you an idiot.
Rob says
Here are the last three paragraphs of the article:
The recent fall in stocks and commodities, particularly oil, has raised questions as to whether or not the economy is at risk of entering a recession. Bogle said the long-term relation between the economy and the stock market is very tight.
In the short term, however, Bogle said: “Nothing has changed.”
“In the short run, listen to the economy; don’t listen to the stock market,” he said. “These moves in the market are like a tale told by an idiot: full of sound and fury, signalling nothing.”
I agree that short-term market moves signify nothing.
That’s why I say that investors should not count bull-market gains as real. Gains above 6.5 percent real (the gains justified by the economic realities) are Pretend Gains.
If you don’t count those Pretend Gains, the safe withdrawal rate at the top of the bubble was 1.6 percent of the retiree’s portfolio value.
Bogle is talking out of both sides of his mouth. He says that the Pretend Gains are not real. But then he tells investors to count them when planning for retirement. And he takes credit for them! Larimore called his house “the House That Jack Built.” He was talking about a house paid for with Pretend Gains. Huh?
It’s a scam, a marketing gimmick, a Get Rich Quick scheme, a Ponzi scheme.
We should permit honest posting. It’s the only way to help people see through these con men.
My take.
Rob