Set forth below is the text for a comment that I recently added to the discussion thread for one of my columns at the Value Walk site:
Rob, you are the one claiming to have a superior system. The onus is on you to prove that, not on me to disprove it. “Take price into consideration” using “common sense” is not an actionable strategy. It’s “buy low sell high” by gut feel. I see now that VII’s vagueness is its key feature, not a bug. If it can’t be defined, it can’t be proven wrong.
I am not the one saying that Valuation-Informed Indexing is superior to Buy-and-Hold. It is the entire historical record that says that. The record shows that for 145 years running VII has provided FAR higher returns at GREATLY reduced risk. I just tell people what the data shows, nothing more and nothing less.
There is no onus on me. Price discipline is the key to success in every market that has ever existed. It is the Buy-and-Holders who are making the extraordinary (and frankly, preposterous) claim that the stock market is the one exception to the otherwise universal rule. The burden of proof is on those making the extraordinary and preposterous claim, not on those suggesting that what common sense says must be so and what the entire historical record confirms is so just might in fact really be so.
When I refuse to provide a “system” by which to exercise price discipline, I am merely doing what the peer-reviewed research shows must be done for price discipline to work in the real world. Jack Bogle is the lead advocate of Buy-and-Hold. He has never set forth a “system” that applies with perfect precision to every investor. Bogle says that investors should take their risk tolerance into consideration when setting their stock allocations. He is right to say that. That’s what common sense says must be done. I do the same.
There is no one stock allocation that will work for every investor in a Buy-and-Hold world and there is one stock allocation that will work for every investor in a Valuation-Informed Indexing world. Those who demand precise “systems” that apply in exactly the same way in every possible circumstance are revealing their disdain for the peer-reviewed research when they do so. I like the idea of using the peer-reviewed research for guidance (I am grateful to my friend Jack Bogle for persuading me of the merit of this idea). I reject the idea that investors should adopt “systems” that the research shows cannot possibly work solely because a group of abusive internet goons demand this of them. Call me madcap.
Wade Pfau and I co-authored peer-reviewed research showing that VII has been far superior to BH for 145 years running now. The response of you Goons was to threaten to send defamatory e-mails to Wade’s employer in an effort to get him fired from his job unless he agreed to stop spreading the word about this research. That tells the tale about the level of confidence you hold for the Buy-and-Hold “strategy.”
The VII strategy has never been proven wrong by any fair-minded person. You Goons have pretended to have proven it wrong by applying the ideas in absurd ways that everyone who has ever endorsed the idea have rejected since the first time they endorsed it. Any idea can be “proven” wrong by a mind determined to prove it wrong. Every test that has been done by a reasonably fair-minded person (including many who were once ardent Buy-and-Holders, like myself) has shown VII to be far superior. That’s good enough for me.
I wish you the best of luck in all your future life endeavors, Dan.