“The Buy-and-Holders 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 Core Claim That It Is Not Necessary for Investors To Practice Price Discipline When Buying Stocks. 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.”

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

Taking 30-35 years to build a retirement nest egg is hardly “get rich quick”.

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-Holders 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 core 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