Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
What if you are 70 years old and then a crash still doesn’t happen when another 10 years go by?
The money gets left to your heirs and they receive the benefit.
You continue to focus on how long it takes for the crash to occur. My response is always that it doesn’t matter. Overvaluation is the product of fantasy. Reality-based strategies are always better than fantasy-based strategies. It is not even possible for it to ever be otherwise (when measuring results on a risk-adjusted basis).
We cannot tell how long it is going to be before a crash takes place, only that one is certainly coming. And it doesn’t matter. That is always my two-part answer to questions along these lines. If the crash comes quickly, you are ahead. If the crash comes slowly, you are ahead. You are ALWAYS ahead. So you shouldn’t fret so much about when the crash will come. It doesn’t matter in the long run.
It SEEMS like it matters in the short run. You look at your portfolio statement and you say “Gee, I am ahead of where I would have been had I followed a reality-based strategy.” And on paper, it really is so. But the numbers on the piece of paper are rooted in fantasy. The numbers on the piece of paper do not control the long-term result. It is reality that controls the long-term result. You want to try to tune out the short-term fantasy stuff and focus on the long-term reality stuff.
Valuation-Informed Indexing ALWAYS works, Anonymous. We have 145 years of historical return data available to us and there has never been an exception. Something like that doesn’t happen by accident. It plays out that way over and over and over again because it MUST play out that way.
If I said that it is better to brush your teeth than not to brush your teeth, you wouldn’t argue. You would accept that it is better to have clean teeth and not feel any need to push back. If someone for some reason felt that he wanted to make a case for not brushing your teeth, he could point to people who have not brushed their teeth for a few days or even a few weeks and who have not suffered terrible consequences. He could argue that it is much better not to brush your teeth because you save the time you would have devoted to the task and you don’t necessarily suffer negative consequences for doing so. In the long run, though, you do always suffer negative consequences for not brushing your teeth. It is a foolish way to proceed. We are lucky that there is no industry in place that generates billions in revenue by advising people not to waste time brushing their teeth.
Unfortunately, we do have an industry that generates billions in revenue advising people not to practice price discipline when buying stocks. The foolish advice this industry pumps out has destroyed millions of lives and is in the process of destroying millions more. Not one person benefits from their lies. The investors would all benefit from knowing the realities. The millions who are now unemployed as a result of the Buy-and-Hold Crisis would be benefit from people knowing the realities. The industry would benefit from being free to tell the realities; more people would feel comfortable buying stocks if there were no price crashes. But we cannot get from the horrible place where we are today to the wonderful place where we all want to be tomorrow without working up the courage to stand up to you Goons. That’s been the rub for 14 years now.
You should brush your teeth, Anonymous. I am sure. And you should practice price discipline when buying stocks. Again, I am sure. You can come up with all sorts of crazy scenarios in which it might appear that in the short term the failure to do so might not produce horrible results. In the long term, the results of Buy-and-Hold are always horrible. The crazy scenario is going to come to an end and the realities are going to come to dominate in the long run. There is no other way it can play out. There are no exceptions. It is not possible to imagine any.
Please brush your teeth. Please practice price discipline when buying stocks.
It’s your call.
But if you elect not to practice price discipline when buying stocks, please don’t ask me to go along with your lies, to encourage or tolerate them. I can tolerate them to the point of letting you say them; everyone has a right to offer their take, in my view. But I cannot tolerate them to the point of not pointing out the 35 years of peer-reviewed research revealing the error that you are making in going with a pure Get Rich Quick approach. I believe strongly that my friends need to know about that 35 years of peer-reviewed research whenever some Buy-and-Holder tries to con them. So, when I see you conning my friends and when I have the ability to do something about it, I am going to do that something. It’s not personal. It is a matter of conscience. I don’t approve of cons. I don’t approve of financial fraud. I don’t approve of Get Rich Quick. I don’t approve of Buy-and-Hold.
I hope that helps a bit.