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-Holders believe that the market is efficient”
You really love setting up and knocking down your straw men. I’m a buy-and-holder, and I am telling you that is not what we believe. Yes, the market can become overvalued and undervalued. We simply believe those conditions cannot be used to profitably time the market.
That doesn’t make sense, Dan.
Stocks are obviously a more risky choice when they are overvalued. So the way to profit from the reality that they are overvalued is to invest less in them, to go with a lower stock allocation.
The historical return data shows that that strategy (Valuation-Informed Indexing) has worked for 145 years running now. Buy-and-Hold has not yet worked for a single long-term investor.
And yet the (marketing) experts in this field continue to push it relentlessly. I wonder why.
There’s nothing even a tiny bit intellectually challenging in figuring out how to profit from the reality that the market is not efficient. You go with a lower stock allocation when stocks are overpriced and with a higher stock allocation when stocks are underpriced. How could that ever not work? The problem is an emotional one. Stocks are insanely overpriced today. Millions of investors desperately want to believe that the values nominally assigned to their portfolios are real. And lots of (marketing) experts are happy to turn a quick buck by encouraging them to place their confidence in these fantasies.
Again — that’s my sincere take re these terribly important matters.
I wish you all good things.