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:
Here is another point of reference for you Rob. Prior to the 2008 banking crisis, I was working in a business that had a 5year CAGR growth rate in the double digits. To continue that growth, obviously access to capital and the cost of that capital, is important. With the banking crisis, the money dried up. You would have been lucky to even see anything better than a 3x lever and WWAC doubled in a short period of time. As a result, growth went flat going into 2009. Clearly, the value of the company dropped because the growth rate dropped. It had NOTHING to do with emotion. This happened to a large number of companies. You can look it up. Tell me again about emotion being the cause.
I’ll give it a shot, Sammy.
You call it “the banking crisis.” I call it “the Buy-and-Hold Crisis.”
You say “the money dried up.” I say “valuations dropped.”
You say “growth went flat.” I say “irrational exuberance diminished.”
You cite “a 5 year CAGR growth rate in the double digits”. I cite “the most out-of-control bull market in U.S. history.”
You suggest that we are talking about different things. I suggest that we are talking about the same things using different words.
You claim that the bad economic developments caused the poor stock returns. I claim that the poor stock returns caused the bad economic developments.
You argue that these things happen from time to time. I argue that in 1981 we learned why they happen and thus gained the ability to stop them from ever happening again.
You advocate Buy-and-Hold. I advocate Valuation-Informed Indexing.
You point out that Buy-and-Hold remains dominant. I point out that those who see the dangers of Buy-and-Hold are holding back from saying so in clear language because of the intimidation tactics employed by those who make money from advocacy of the dominant model.
You observe that it appears that I’m not listening. I observe that it appears that we are working at cross purposes.
I hope that helps a tiny bit.