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:
Buy and hold what, Rob? You just use it as a label. If you go to the Boglehead forum (which is your stated nemesis, the portfolios vary greatly and there is the common practice of rebalancing. Meanwhile, your plan crashed and burned a long time ago.
Your emotions (most notably, your envy) comes through loud and clear.
When I say “Buy-and-Hold,” I am referring to the investing strategy advocated by Jack Bogle by which investors are advised to stick with the same stock allocation regardless of the valuation level that applies for stocks. I believe in Valuation-Informed Indexing, which incorporates all of the many powerful insights advanced by the Buy-and-Holders over the years but which also incorporates the peer-reviewed research from 1981 forward by Robert Shiller and others showing that valuations affect long-term returns and that therefore stock investing risk is variable rather than static and that investors thus MUST be willing to adjust their stock allocations in response to big valuation shifts to have any hope whatsoever of keeping their risk profiles roughly stable.
I view the strategy known as “Buy-and-Hold” as a first-draft effort at developing a research-based model for understanding how stock investing works. I LOVE the idea of following a research-based model for guidance on how to invest (not surprisingly, I was once a proud Buy-and-Holder myself). But I HATE the idea that there can ever be any idea that is so well proven that it can no longer be subject to questioning and challenges. I believe that Shiller’s “revolutionary” (his word) research of 1981 discredited the fundamental belief on which the Buy-and-Hold Model was constructed, the idea that the market is efficient and that thus valuations (prices) do not need to be taken into consideration in all investing decisions.
I have spoken to hundreds of people in this field who hold varying degrees of doubt re the merit of the idea of ignoring valuations when setting one’s stock allocation but who decline to express those doubts as strongly as they feel them because they have seen the abusive practices followed by the more dogmatic advocates of the Buy-and-Hold strategy and don’t want to see their personal lives or their careers destroyed because they hold these beliefs. I view it as a national tragedy that as an entire society advances in our understanding of the realities of stock investing have been delayed for 35 years now as a result.
I have taken on as my life’s work the project of doing all that I can to create safe places for people of all investing persuasions (Buy-and-Holders and Valuation-Informed Indexers alike) to express their sincere views on the many far-reaching implications of Shiller’s powerful research-based insights.
Rebalancing is the thing I oppose. To rebalance is to return to the same stock allocation that one held before a price change caused one’s stock allocation to change. I believe that investors should go with higher stock allocations when valuations are low and with lower stock allocations when prices are high. It is only by encouraging investors to exercise price discipline that we can prevent bull markets.
If investors sell every time prices get too high and the long-term value proposition of stocks diminishes enough to make stocks unappealing relative to other investment options, stocks will never get too overpriced and we will not again see the sorts of insane overpricing that led to the 2008 price crash and the economic crisis that followed. Teaching investors that it is not necessary to change their allocations in response to big price changes is the most dangerous advice imaginable, in my assessment (and it is my further assessment that there is strong support for this view in the last 35 years of peer-reviewed research in this field).
We all have emotions. I aim to keep mine in check. But the brutal reality is that, if I have at times failed to do so, I would probably be the last to notice this. Because of my flawed human nature, I am possibly every bit as biased against Buy-and-Hold as the Buy-and-Holders are biased against Valuation-Informed Indexing. I wish that I could change that, but I cannot. The best that I can do is to warn all who read my words that they are reading one person’s opinion and that they would be fools to make any investing decisions based solely on that one person’s views.
I don’t entirely agree that the Bogleheads Forum is my “nemesis.” I can see why some would put it that way. I posted at that forum for about 20 months. I loved the experience; there are more smart people there than at any other forum I have visited. And the feeling was mutual. There were a large number of posters there who identified me as one of their favorite posters of all time. However, I am today banned for life at that forum. Even posters who have spoken up in my defense or who have requested that I be readmitted have been banned. Amazingly enough, the entire board was moved from the Morningstar site because the owners of the Morningstar site refused to follow the demands of a few of the “leaders” of the board to ban me. Those leaders have made clear that they hate me with a burning hate.
My view is that the forum as it exists today should be called the “Lindauerheads Forum” rather than the “Bogleheads Forum” because Bogle at least publicly supports the idea of looking to the peer-reviewed research for guidance on how to invest and Valuation-Informed Indexing is the first true research-based strategy (Buy-and-Hold was intended to be a research-based strategy but Shiller’s research showed that the first draft approach was rooted in error).
Valuation-Informed Indexing could properly be called “Buy-and-Hold 2.0.” It is what Buy-and-Hold would be today if Bogle had followed his own advice of staying on top of the peer-reviewed research and had updated Buy-and-Hold when Shiller’s revolutionary findings were published. It is my intent to take Bogle’s ideas in the direction in which he himself would have taken them a long time ago had only he not gotten caught up in the cognitive dissonance that all of us humans are prone to fall victim to when we become too emotionally attached to one way of thinking about a subject important to us.
I don’t envy the Buy-and-Holders. I love them. They have taught me many important things. I naturally regret the stubbornness with which SOME Buy-and-Holders have responded to my pleas to incorporate the lessons of the last 35 years of peer-reviewed research in this field into their thinking and to the willingness of a much larger group of Buy-and-Holders to tolerate the insanely abusive practices that the small group has employed to block the millions of middle-class investors who have both a desire and a need to learn more about the many far-reaching implications of Shiller’s findings from doing so.
I hope that helps a bit, my old friend.