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:
“But I don’t see that you have offered any justification for the belief outside of your assertion of it”
That statement applies to almost everything you post. When anyone asks you to back up a single thing, you merely reference something you posted.
There’s only one thing that I believe that you don’t, Sammy — I believe that valuations affect long-term returns. That’s the opposite of what Buy-and-Holders believe — Buy-and-Holders believe that the market is efficient (that is, that it is impossible for the market ever to be overvalued or undervalued because investors always collectively act in their self-interest and price things properly).
We start from differing starting points and so we end in very different places. That’s the entire story.
I wouldn’t say that I ask anyone to take my core belief on faith. Shiller showed with peer-reviewed research that valuations affect long-term returns But I do acknowledge that millions of good and smart people believe in Buy-and-Hold in the sense that they follow it themselves (whether these people possess a true confidence in their strategy or not is a different question).
And I of course acknowledge that Eugene Fama was awarded a Nobel prize on the same day that Robert Shiller was awarded one. So a good case could be made that both Buy-and-Hold and Valuation-Informed Indexing are academically respected strategies. What I find shameful about Buy-and-Hold is how many of those who believe in it engage in abusive behavior to block millions from hearing about the alternative strategy and how many more fail to speak up when they see their fellow Buy-and-Holders engaging in such tactics.
If you were to list the 20 most important beliefs about how stock investing works, you would find that you and I agree re 19 of them. We disagree only about the most important one of all, the one that has the greatest influence on whether an investor experiences long-term success — whether it is true that the market is efficient or that valuations affect long-term returns.
I believe that the idea that the market is efficient was a MISTAKE that was made because index funds were not available at the time Fama did his research and that, had Fama never done the research that was misinterpreted as showing that no form of market timing is required, every investor who today follows a Buy-and-Hold strategy would today be following a Valuation-Informed Indexing strategy because of what we learned when Shiller published his “revolutionary” (his word) findings of 1981. Those findings would not have been considered revolutionary had an entire industry not already been built teaching the opposite belief.
The battle between Buy-and-Holders and Valuation-Informed Indexers is not an intellectual debate. All of the intellectual content supports Valuation-Informed Indexing. The battle is a turf battle. Buy-and-Hold makes mountains of money for those who promote it and the rich and powerful people who promote the strategy don’t want to give up that money.
That’s my sincere belief re these terribly important matters, in any event.
I naturally wish you all the best that this life has to offer a person.