Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:
Rob,
You are just using talking lines and zero facts. We look at results to determine what is true. We can use your example as a complete and total failure, while the actual documented return numbers for buy, hold and rebalance has just crushed you and your tired lines.
If your plan worked, people would follow you in droves. But it didn’t work out that way.
All you have right now is a fantasy that someday it will turn around for you and all your detractors will lose their money.
As I have said time and again, I am happy to compare my numbers to your numbers any time. Let the readers decide.
Did people follow the critics of Bernie Madoff in the days before his con was exposed, Sammy?
They didn’t. The investors in his fund called him “Saint Bernie” in those days. Because they were up. Temporarily.
People LOVE Ponzi schemes. People LOVE Get Rich Quick schemes. Otherwise, why would they fall for them?
It’s a human weakness, Sammy. We all have a Get Rich Quick urge residing within us. The Buy-and-Hold Model exploits our Get Rich Quick urge to the greatest possible extent for the purpose of taking money out of our pockets and putting it into the pockets of the Wall Street Con Men. Valuation-Informed Indexing EXPOSES the dangers of following a Buy-and-Hold strategy by pointing to the findings of the past 35 years of peer-reviewed research.
The peer-reviewed research is our friend in our effort to keep our Get Rich Quick urge in check. Valuation-Informed Indexing is the first research-backed investing strategy designed for HUMANS. Humans have emotions. We need to protect ourselves from the emotion-based claims of those who claim to be experts in investing but who really are only experts in the marketing gimmicks used to separate us from our life savings.
My take.
Rob
Anonymous says
Taking 30-35 years to build a retirement nest egg is hardly “get rich quick”.
Rob says
I appreciate what you are saying and to a large extent I agree with what you are saying. The Buy-and-Holders relentlessly stress the need to focus on the long-term. They are 100 percent sincere about this and they have had a positive influence in this area. The percentage of investors who believe that it is important to focus on the long-term is much higher as a result of the work that the Buy-and-Holders have done and because of the advice that the Buy-and-Holders have given.
You can tell that there’s a “but” coming, right?
I don’t call the Buy-and-Holders “Get Rich Quickers” because I am trying to take a dig at them, Anonymous. I have spent a lot of time trying to understand why the Buy-and-Holders are so hostile to the message that Shiller conveys in his research and in his writings. Something that Shiller says bugs them on a very deep level. It is my job to figure out what that something is. I have come to the conclusion that the problem lies in a different understanding of what the term “long term” means.
The reason why the Buy-and-Holders came to the conclusion that market timing is a bad thing is that Fama did research showing that short-term timing never works. That settled the matter, in the eyes of the Buy-and-Holders. They adopted the phrase “timing never works” as a dogma and have stuck with it ever since and have been unwilling even to question the merit of the idea ever since. Shiller showed that long-term timing ALWAYS works and is ALWAYS 100 percent required. The Buy-and Holders have never even tried to dispute Shiller’s findings. They declared the idea that “timing is required” as out of bounds and therefore IGNORED Shiller’s revolutionary findings for the 35 years since he published them.
So the question of “How long is long-term?” is the key to the entire dispute.
The Buy-and-Holders really do reject the idea of looking only six months out or one year out or two years out when making investing decisions. Good for them. They are right on re that one, in my assessment.
But the Buy-and-Holders ALSO dismiss the idea of looking 10 years out or 15 years out or 20 years out or 30 years out or 60 years out. And they don’t just casually dismiss this idea. They HATE the idea of looking out more than five years (at five years out, timing really does not work — it is after five years out that timing begins to work a bit and then of course it becomes more and more critical to engage in timing (price discipline) as the time-period grows longer and longer.
“Quick” is a relative term. The Buy-and-Holders are certainly not Get Rich Quickers compared to day traders. That’s to their credit.
But the Buy-and-Holders are very much Get Rich Quickers compared to Valuation-Informed Indexers. Valuation-Informed Indexers advise investors to consider how their strategies will work over the course of an entire investing lifetime. Valuation-Informed Indexing is ALWAYS far superior to Buy-and-Hold over 60-year time-periods. There has never been a single exception in 145 years of stock market history.
So why do the Buy-and-Holders so much hate the idea of permitting investors to learn this reality? They hate it because they don’t think it is good marketing to tell investors the truth re these matters. Get Rich Quick strategies have huge marketing pull. We all have a Get Rich Quick urge within us. Those who push investing strategies rooted in Get Rich Quick thinking have a huge marketing edge over those pushing research-based strategies.
This all wouldn’t be such a big deal if the Buy-and-Holders didn’t object to others pointing out what the last 35 years of peer-reviewed research says. Many investors LOVE Buy-and-Hold. Many investors do not want to wait 10 or 15 or 20 years to see their strategies pay off. There is no reason why the Buy-and-Hold advocates shouldn’t be able to promote Buy-and-Hold to that group of investors. So long as they limit themselves to that, everyone is happy and there is no problem.
But the Buy-and-Hoders want to have it both ways. They want the marketing edge that comes with pushing a Get Rich Quick approach. And they ALSO want to be able to say that there is peer-reviewed research supporting their claims. Huh? There is zero peer-reviewed research supporting the claim that it is not necessary for investors to practice price discipline when buying stocks. That is the core Buy-and-Hold Lie. It is that particular lie that played the primary role in bringing on the economic crisis. Wade Pfau spent months checking all of the literature in this field to make 100 percent sure that there is not a single study supporting the key Buy-and-Hold Lie. There is not one. All people who love this country need to call out the Buy-and-Holders when they push this dangerous untruth.
Get Rich Quick strategies do not help investors. They help the people who sell stocks, not the people who buy them. My job is to help the people who buy stocks, not the people who sell them. So I have no choice but to call out my Buy-and-Hold friends when they tell this horrible and irresponsible lie that is today believed by so many (I believed it myself for a time).
There is a sense in which the key Buy-and-Hold Lie makes Buy-and-Hold even more dangerous than day trading. It is a limited segment of the population that finds appeal in day trading. Most middle-class people are just not interested in taking on the sort of risk involved in following such strategies. But Buy-and-Hold is presented as a respectable investing strategy. The claim is made that there is research supporting Buy-and-Hold and most investors never take the time to research the question; they assume that there must be at least some truth to the claim given that there are so many “experts” (experts in marketing!) repeating it. The trickery of the Buy-and-Holders has caused millions of people who want to be responsible in their investing choices to follow an approach with a heavy Get Rich Quick component to it.
So I think that it is fair to describe Buy-and-Hold as the purest and most dangerous Get Rich Quick strategy ever concocted by the human mind. I do not believe that it was the intent of the Buy-and-Hold pioneers to create a Get Rich Quick approach. It is important to remember that index funds were not available at the time that the Buy-and-Hold concept was being developed. So Fama had no way of knowing how important it was to check out whether long-term timing works before declaring that timing in general either does not work or is not required. Fama made a mistake, he did not engage in deliberate fraud in the early years. The same is true of Bogle.
But 35 years have passed since that mistake was revealed by the peer-reviewed research in this field. People of Fama’s stature and of Bogle’s stature obviously have a responsibility to stay on top of the peer-reviewed research before shooting their mouths off about what works in stock investing; millions of investors take what these two men say seriously and have put their financial futures at risk on a belief that these two are telling them the straight story. They are not telling the straight story when they repeat findings that were discredited 35 years ago. At the very bare minimum Fama and Bogle and all the others should be letting the millions of investors following their advice know that there is 35 years of peer-reviewed research telling a very different story than the story that they are telling.
Or so it seems to Rob Bennett, in any event.
I hope that helps a bit, old friend.
Please take good care.
Rob
laugh says
Interesting. I am buy and hold mostly and I really like what Shiller says. What it means to me is that we can expect that every so often major corrections will occur to swing the pendulum the other way. These corrections are big opportunities for me to create huge wealth at the expense of the weak hands in the market.
What exactly is the problem?
Rob says
If you are taking advantage of corrections, you are not following a Buy-and-Hold strategy, Laugh. To take advantage of a market that is mispricing stocks on the low side, you need to be willing to increase your stock allocation at such times. Buy-and-Holders don’t do that. Buy-and-Holders call that “timing” and claim that for some mysterious reason it might not work.
Common sense tells us that practicing price discipline must always work. The peer-reviewed research of the past 35 years confirms that indeed it always has worked. Buy-and-Hold is a marketing gimmick that has destroyed millions of middle-class lives for the purpose of enriching a small number of Wall Street Con Men. I oppose it.
Rob
laugh says
I’ve yet to meet a middle class person who ‘lost it all’ through buy and hold. Most of them appear to be in serious debt, which has everything to do with spending habits and nothing to do with investing habits – which normally are erratic and undisciplined – the farthest thing from buy and hold.
What universe do you live in where middle class people have stock portfolios and have been ruined by buy and hold? Let’s take the past 30 years, which has had 2 major recessions. The US market has returned about 7.9% real. Looks like those middle class folks that actually invested in stocks did very well.
Rob says
Stocks are an amazing asset class, Laugh. There is certainly no disagreement there.
The question is — Presuming that stocks are an amazing asset class that everyone should be using as the primary means of supporting his or her retirement, is it better or worse that people be taught to exercise price discipline when buying stocks? The last 35 years of peer-reviewed research shows that it is far, far better if people are taught to exercise price discipline.
Failing to exercise price discipline adds nothing to the equation except to help turn a quick buck for the Wall Street Con Men. And they could make plenty of bucks offering honest, research-based advice. The Wall Street Con Men themselves would love to make the transition from Buy-and-Hold to Valuation-Informed Indexing. I have never seen any evidence that Bogle was not sincere when he developed the Buy-and-Hold concept as a first-draft effort at developing a research-based strategy. If Bogle is okay with people following a research-based strategy, (at least according to most of his public words — I of course understand that he has offered an implicit endorsement of Mel Lindauer’s abusive posting), who are you to object?
Shiller’s “revoltionary” (his word) 1981 findings represent an advance in our understanding of how stock investing works. They help everyone: the Wall Street Con Men; the millions of middle-class investors who need to finance their retirements; even the millions of non-investors who would like to see the economic recessions and depressions that cause such economic and politicsl turmoil put to an end. A huge advance in knowledge is a win/win/win/win/win.
The only thing that has been holding us back now for 35 years is the unwillingness on the part of the Buy-and-Holders to acknowledge having made a mistake. It was an honest mistake. And it was certainly not a dumb mistake. So there is nothing to be ashamed about re the mistake. What the Buy-and-Holders are ashamed about is the 35-year cover-up of the mistake. It is the shame re the long cover-up that is causing all the problems.
That should be our focus. That’s why I often make reference to your prison sentence. The announcement of your prison sentence will give people the confidence that our system is operating properly, that we have overcome the wealth and power of the Wall Street Con Men and the hate of the members of their Internet Goon Squads. Once we have more and more people speaking out honestly every day re their sincere views re how stock investing works, we will all come to feel better and better about ourselves every day. We need to bring an end to all the ugliness and just let the same process of gradual learning that applies in every field of human endeavor other than stock investing apply in the stock investing realm as well. We need to overcome the corruption that has been keeping us in ignorance for over three decades now. We need to let our system work in the investing realm in the same manner that it works in all other realms by applying U.S. law in a reasonable manner when we see people like you committing financial fraud.
There is nothing wrong with stocks. If you somehow got the idea that I am saying something negative about stocks, you dialed a very wrong number. But I do see something wrong with those two major recessions that you made reference to. We now know how to describe how stock investing works in a way that helps us either do away with recessions or at least greatly reduce their impact. All we need to do is to be honest with people re what the peer-reviewed research says about how stock investing works. Why not do that? What’s the downside? The only downside is that Jack Bogle will need to say the words “I” and “Was” and “Wrong.” But once he does that, he gets applauded as a hero for the remainder of his days and long into the future. Is that so terrible an outcome for a fellow who was intending to do good for everyone going back to his early days? I don’t see this as a terrible outcome.
Say that someone goes bankrupt because he over-extends himself using credit cards irresponsibly. That happens all the time, right? Does that mean that credit cards are bad? I don’t see it that way. I say that it is the irresponsible use of credit cards that is bad. We need to help people to understand how to spend reasonably in the present while also planning effectively for their futures.
So it is with stock investing. There is nothing even a tiny bit wrong with people investing in stocks and earning that 6.5 percent real return that stocks really do reliably provide. The problem comes when people start believing that they can earn MORE than 6.5 percent real just by believing in the Buy-and-Hold fantasy that it is the economy producing those oversized returns rather than their Get Rich Quick impulses left untethered and out of control. The message of the last 35 years of peer-reviewed research is that Buy-and-Hold investing strategies are every bit as bad as irresponsible spending strategies. Failing to rein in our irrational emotional impulses hurts us big time in the personal finance realm (as well as in all other realms, to be sure). We need to update the investing advice that we provide people to reflect the last three decades of research-based learning experiences.
I am saying that we should tell people the truth about stock investing. Stocks provide an awesome return. They are the best asset class for middle-class people seeking to finance their retirements. But stocks don’t ever provide returns of 20 percent or 30 percent in a single year. That’s what the Buy-and-Holders were telling people in the late 1990s. The Buy-and-Holders caused a great deal of human misery by telling those lies and I am asking them to knock off the darn funny business. I am telling them to continue to encourage people to buy stocks to finance their retirements but to begin doing so RESPONSIBLY. Doing so irresponsibly adds nothing and subtracts a great deal indeed.
John Greaney destroyed many lives with his lies about safe withdrawal rates. The people who met at the Retire Early board were friends of mine. I wanted to tell them the truth about what the peer-reviewed research in this field says. Those people made clear that they wanted to hear the truth. I have every right in the world to tell them the truth. We even have laws in place to protect me and those people when Goons like you enter the scene and engage in insanely abusive posting practices to block people like that from being able to engage in the conversations that they need to engage in to learn the truth. Those laws need to be enforced in a reasonable manner. Otherwise lots of people (including you Goons) get hurt. It’s a lose, lose, lose, lose, lose for us to fail to enforce our laws against financial fraud.
I believe that Greaney himself wanted to help the people who met at the Retire Early board. I believe that he knew all along on at least one level of consciousness that his retirement study lacked a valuations adjustment and that that was a problem. His problem is that he saw that Bogle and the other Wall Street Con Men were not including valuation adjustments in their studies and so he felt that he didn’t need to include one in his study either. It’s worse than that. If he did include a valuations adjustment, his study would generate accurate numbers. But those accurate numbers would look funny because they would differ from the numbers being generated by the Wall Street Con Men. Once Buy-and-Hold became dominant, any studies rooted in reality began to look funny. Greaney got trapped by that insanity. He took the easy route of pretending that he didn’t understand why it was wrong not to include a valuations adjustment and look where he ended up as a result.
Greaney was wrong to conclude that it was okay for him to commit financial fraud because Bogle is a big shot and Bogle was doing it long before Greaney came on the scene. Greaney should have reported the numbers honestly. At the very bare minimum, he should have pointed out in the study that it lacked a valuations adjustment, that there was research showing that such an adjustment is required and that the study would generate very different numbers if the adjustment were included. That way the readers of his study would be put on notice that they were following a Get Rich Quick approach and Greaney would be off the hook for committing financial fraud. There has to be deception for there to be financial fraud.
The same is of course true of Bogle. Bogle thought he was doing good when he developed the Buy-and-Hold concept. And of course he did do a great deal of good in about 20 different ways. But he messed up re the valuations question because the world just did not know at the time he was developing the Buy-and-Hold concept how stock investing really works. Then Shiller provided us the missing piece of the puzzle in 1981 and it became possible for us to develop a research-based approach that really works, Buy-and-Hold 2.0 or what we today call Valuation-Informed Indexing. All of Bogle’s many years of hard work were about to pay off.
The man dropped the ball. Like Nixon, he went into cover-up mode. Nobody destroyed him. He destroyed himself. Like all of the humans are tempted to do from time to time. And Greaney a number of years later elected to follow Bogle down the road of self-destruction. And of course Mel Lindauer eventually did the same.
When does the madness end, Laugh?
It ends when enough of us join together and form a resolve to send you Goons to prison. That’s my sincere take, in any event.
There is nothing whatsoever wrong with investing in stocks. The thing that is wrong is financial fraud. Those who report honestly what the last 35 years of peer-reviewed research says never feel the slightest temptation to commit financial fraud. Buy-and-Holders feel that temptation ALL THE TIME and give in to it over and over again when “forced” to do so by people like me who stubbornly continue to post honestly despite the many warnings dished out by their Buy-and-Hold friends re what will happen to them if they continue to do so.
I post honestly, Laugh.
That one is non-negotiable.
There is nothing whatsoever wrong with stocks. Stocks are wonderful. For all the reasons that both Buy-and-Holders and Valuation-Informed Indexers cite.
It is financial fraud that is not so wonderful. The financial fraud practiced by the Buy-and-Holders has caused a mountain of human misery over the past 35 years. I want no part of it. I have led the effort to EXPOSE the financial fraud of the Wall Street Con Men and their Internet Goon Squads for 14 years now. I intend to continue until we all achieve a second Independence Day and we all feel free to state our sincere beliefs re the last 35 years of peer-reviewed research at every investing discussion board and blog on the internet.
I hope that’s okay by you.
I intend to soldier on in either event.
I naturally wish you all the best things that this life has to offer a person.
Rob
laugh says
You wrote a lot of words. Most of it seems completely unrelated.
Fact: Middle class people using buy and hold would have had 7.9% return. But mysteriously they own almost no stocks, carry incredible amounts of debt, have shrinking job prospects and real incomes.
Conclusion: If it can be defined as a ‘problem’, which I disagree with, Buy and Hold is the 999th problem of middle class people.
Secondary conclusion: Because it is their 999th problem, Rob will never be successful because middle class people just won’t care as his crusade is not relevant to the things they need to solve first.
Rob says
I guess that one can never really know for sure.
We will have to wait to see how people react to the next price crash to find our for sure, Laugh.
I wish you the best of luck with it in any event. I don’t anticipate my wishes for your good luck are going to amount to much in the practical realm. But you certainly have my best wishes for it for whatever good it may happen to do you.
Hang in there, old friend.
Rob