I’ve posted Entry #348 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Possesses Great Intuitive Appeal.
Juicy Excerpt: A group of my critics posts at my blog on an almost daily basis, trying to trip me up or harass me or whatever. One time one of them asked a question that really did give me pause. This fellow pointed out that I say that at a time when stocks are priced at two times fair value investors need to divide their portfolio value by two to know the true value of their portfolios. Then he asked whether I thought that he could receive the full amount of the stated value of his portfolio if he converted his stock shares to cash on that day.
The answer of course is that he could indeed obtain the full stated value of the shares. The mutual fund company that would be engaging in the transaction is run by smart people. Why would those smart people be willing to turn over two times the real value of the portfolio in exchange for those shares? That doesn’t make sense.
Valuation-Informed Indexing doesn’t make sense. That’s why it hasn’t caught on. Buy-and-Hold makes sense. That’s why it is the dominant strategy.
Anonymous says
“Valuation-Informed Indexing doesn’t make sense. That’s why it hasn’t caught on. Buy-and-Hold makes sense. That’s why it is the dominant strategy.”
VII has not caught on as there is no track record of success. To the opposite, buy and hold is dominant because it consistently works.
Rob says
Okay, Anonymous.
Please take good care, man.
Rob
Anonymous says
Of course, you are welcome to show proof otherwise.
Rob says
All I’ve got to give you is 36 years of peer-reviewed research, based on 147 years of historical return data.
If that’s not enough for you, nothing could ever be enough for you.
There were people who questioned the Madoff fund in the days before Madoff was sent to prison. Those who were invested in the fund told them to just look at the results for the fund. They were amazing.
It’s not for me, Anonymous. But I do wish you the best of luck with it
It will be interesting to see how things play out.
Rob