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:
It has always been that way.
I was brought into the brokerage business because the head office noticed that I was doing arbitrage trades that their research department had not thought of yet. I got to look at the business from behind the scenes until the crash in 87. I was short index futures hedged with index future calls after that Labor Day and did quite well. I had to bail out family members that had borrowed against their homes because they were sold the buy and hold mantra. It killed the business because nobody wanted to talk to a broker so I went back to university. There I was exposed to MPT, CAPM, EMH and could see the insanity of it all. It is very interesting as a practitioner to try to point out the errors of academic finance to professors that admit it is all wrong but easy to teach. I fear that the advisory business lives by that rule – it is all wrong but easy to indoctrinate the people into buy and hold.
I am a value guy and I am at 70% cash. After the dollar finishes its run I might make a few more purchases. Baidu and Tencent look like the most miss-priced compounding machines out there right now. Whether looking at net nets or compounders or anything in between my holding period is about 5 years under normal conditions. Markets are not operating normally so I watch and wait for a better opportunity set. Waiting for the reversion to the mean. It will kill the buy and hold crowd again.
Okay. Thanks so much for taking the time to respond.
I agree that it’s always been that way. I have hopes that we are on the threshold of a big change because of Shiller’s research and because he was awarded a Nobel prize for his work. I think that, as our society has become richer, stocks have become more important to more people. So I believe that as a society we are going to have to advance in our understanding of how the market works. With Shiller’s research and with the interest that I have seen both among experts in the field and with everyday investors, I see us as being ready for a great leap forward.
We never had computers until some fool worked up enough courage to give the idea a good shot. We never went to the moon until some fool worked up enough courage to break the sound barrier. We never had the Beatles until Ed Sullivan took a chance by putting them up on his stage.
People have to do things for things to happen. I was amazed when I learned in 2002 that Shiller’s research had been around for 21 years and yet people planning early retirements didn’t realize that what Shiller showed meant that the safe withdrawal rate could not possibly be a constant number. So I got off my duff and did some things. And here I am.
I haven’t earned a dime with this for 14 years. I just got a lot of people mad at me. So maybe it will continue always to be the way it has always been in the past.
But I sure hope not! I’ve got a lot riding on my bet that we are all going to see a giant leap forward in coming days.
Rob
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