I’ve posted Entry #275 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Saving and Investing Go Together Like a Horse and Carriage.
Juicy Excerpt: We fail to seek strong value propositions with our investing dollars for the same reasons we fail to seek strong value propositions with our spending dollars. You see a car that you cannot afford today and a voice in your head tells you to put the budget aside and buy it because life is hard and you deserve nice things. You worry about your retirement and you want to reduce the worry and you are drawn to the idea of treating those Pretend Dollars as real ones because doing so creates the illusion of moving you closer to your financial independence goals.
We are flawed creatures. But Shiller is popular, his book was a best-seller. We learn over time. We advance in our understanding of things. We’re not so bad.
Anonymous says
The stock market continues to drop and it is being blamed on the drop in oil, the slowdown in China and the change in interest rates. For your plan to work, the blame needs to be pushed on buy and hold. What will cause people to blame buy and hold versus economic issues, such as what is being blamed in the current market?
Rob says
What you say here is correct. It is the overvaluation caused by the continued promotion of Buy-and-Hold strategies that is the primary cause of the price drops. Prices ALWAYS drop hard once they reach insanely dangerous levels. Economic factors can be a secondary factor. For example, changes in interest rates can be the precipitating factor in changing investor psychology. But it is the investor psychology itself that is the primary factor causing stock price changes. When prices are as high as they are today, we are going to see price drops. The economic factors can of course influence the timing of the price drops.
Everyone will properly blame the promotion of Buy-and-Hold strategies once they are educated as to the implications of the last 34 years of peer-reviewed research. To educate people, we need to open every discussion board and blog on the internet to honest posting on safe withdrawal rates and scores of other critically important investment-related topics. That’s it. No one wants to endure a deepening of the economic crisis. We just need to collectively permit ourselves to benefit from the reality that we are the luckiest generation of investors ever to walk Planet Earth and then we make it over the Big Black Mountain and bring on the greatest surge of economic growth ever seen in our history.
The key is getting people to abandon their Buy-and-Hod fantasies. So long as people continue to delude themselves into thinking that the numbers on their portfolio statements are real, they view the last 34 years of peer-reviewed research as a threat to their ability to fool themselves. Once the Pretend Gains are gone, there will no longer be any appeal in self-delusion. Then we will all be working together to achieve learning experiences, just as we today do in every field of human endeavor other than stock investing.
We obviously would have been better in about 500 different ways if we had launched a national debate re these matters back on the morning of May 13, 2002. That said, the good news here is 50 times better than the bad news here is bad. It takes what it takes. No one is going to question whether this was worth the effort it took to get us turned around after we get to the other side and we are all obtained far higher returns at greatly reduced risk. It’s a process. We are today on the one-yard line. We are a blessed people.
I hope that helps a bit, my long-time Goon friend.
I naturally wish you the best of luck in all your future life endeavors.
Rob
Anonymous says
“What you say here is correct. It is the overvaluation caused by the continued promotion of Buy-and-Hold strategies that is the primary cause of the price drops”
LOL
You are too much, dude.
Tell me Rob, does ANYTHING other than b&h ever influence the price of things?
Anonymous says
it seems there is a catch 22 here. I though the crash was supposed to bring awareness to the dangers of buy and hold and resulting all boards being opened up to you, so that you could educate everyone. However, it seems that the boards need to open up first, so that people can be educated on the evils of buy and hold. Seems to be a vicious circle in which one is dependent on the other.
Rob says
Tell me Rob, does ANYTHING other than b&h ever influence the price of things?
Stock price changes are caused by shifts in investor emotion. There is now 34 years of peer-reviewed research showing this to be so.
Economic developments INDIRECTLY affect stock price changes because they change investor emotions. But the effect that an economic change has on prices is greatly influenced by the valuation level that applies at the time the economic development evidences itself. An economic development that would have a positive change at one price level could bring on a negative change at another price level. It is impossible to make an informed assessment of what caused a price change without taking the valuation level that applies into consideration.
It is the promotion of Buy-and-Hold strategies that causes investor emotions to get out of hand and cause economic crises. Stock prices are naturally self-regulating. Problems arise when the Wall Street Con Men recommend that investors ignore price when buying stocks. This is a recipe for disaster for obvious reasons. No market can function without price discipline. Price discipline is the magic that makes it possible for markets to price things properly.
I hope that helps a bit, Anonymous.
My best wishes to you.
Rob
Rob says
it seems there is a catch 22 here.
Yes, we are trapped by a Catch 22.
We all want to bring an end to the economic crisis. To do that, we need to open every discussion board and blog on the internet to honest posting re the last 34 years of peer-reviewed research in this field. However, investors are in great emotional pain today because they bought into the smelly Buy-and-Hold garbage pushed so relentlessly by the Wall Street Con Men. To win the support of investors for our effort to open the internet to honest posting, we first need to educate them to the realities. But we need an open internet to educate them!
Whachagondo?
Rob