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:
The flaw in the Buy-and-Hold Model is the idea that investors are 100 percent rational. Investors are humans. And humans are not 100 percent rational. All novelists know this. All marketers know this. All psychologists know this.
The core Buy-and-Hold idea is crazy. When people hear me say that, their first reaction is to think “that’s rude.” But is it? People employ the Buy-and-Hold strategy to determine how to invest their retirement money. It’s important that they get that right. And if the premise of a model is wrong, everything that that model produces is wrong. And of course it gets more and more wrong over time. Little errors become big errors. Innocent mistakes or misunderstandings become economic crises.
I started out as a Buy-and-Holder. So I fell into the trap of believing that the way that you make a persuasive argument in this field is with data. I was surprised when I produced peer-reviewed research showing that Buy-and-Hold is in error and the Buy-and-Holders shrugged. Now I see that that reaction makes a certain amount of sense. The error is to ignore emotion, to not even make an effort to rein in the Get Rich Quick emotions that have been hurting stock investors since the first market opened for business. So of course the people who have fallen prey to the error block out knowledge of it with emotion — they tell themselves that what the peer-reviewed research tells us doesn’t matter, that the millions who believe in Buy-and-Hold cannot be wrong regardless of what the peer-reviewed research says.
The more persuasive argument is to point to the behavior of the people who “defend” Buy-and-Hold with all sorts of abusiveness. I don’t mean just you Goons, Sammy. There are Goons in all fields of human endeavor. The thing that is remarkable in the investing advice field is the power possessed by the Goons. Why do people like Bogle not speak up when they see this sort of thing playing out in front of them? Why do web sites not enforce the rules they have that were put in place to protect us all from the trickery and ugliness of internet Goons?
It hurts too much, that’s why. When you have ignored the most important piece of the puzzle for 35 years, you have done great harm to millions of people. To acknowledge that is painful. There’s no getting around it.
The painful story must be told. The alternative is to let 35 years become 36 years and to cause even more pain. So there is no charity whatsoever in keeping our heads firmly buried in the sand.
We will get there. I have spoken to too many people who want the investing field to operate under the same rules as those that govern every other field of human endeavor to believe that we will not get there. It’s a big wall we have to break through. We come to feel defeated when we think of how hard the job is. I think we need to take it the other way, we need to focus on the encouraging reality that exposing a 35-year cover-up means making 35 years’ worth of powerful insights available to millions of investors in the space of a few weeks or months of time. A truly astounding opportunity!
Anyway, those are my sincere thoughts re this terribly important matter, Sammy.
I wish you the best of luck in all your future life endeavors.