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:
That would be a market timer. A buy and hold person doesn’t sell when the stock drops. Therefore, looking at return rates of the life of the fund as well 10 years are showing actual results of buy and holders. As said before, you have been given this data.
What if the Buy-and-Holder doesn’t hold when he sees most of his life savings evaporate?
Most don’t.
If people who say they are Buy-and-Holders really held through dramatic price downturns, we wouldn’t see dramatic price downturns. It is the massive selling that CAUSES dramatic price downturns.
The reality is that Buy-and-Holders always lose confidence in their strategy when the numbers come to show that it doesn’t work. Stocks are now priced at two times fair value. So we should be expecting a 50 percent price drop. Do you really think that all Buy-and-Holders are going to hold when 50 percent of their life savings is washed away? Most will not. It is a very rare person who can avoid panic after losing 50 percent of his life savings. Buy-and-Hold was not designed with the realities of human nature in mind. And so it never works. Investing is done by humans. Humans SELL when they experience life-destroying losses.
The better way is to keep your risk profile constant over the years. Exercise price discipline as you go along and you will never feel pressured to sell when your excessive risk causes you to suffer unacceptable losses. Stocks are obviously a lot more risky when prices are at two times fair value than they are when they are at fair value, right? So lower your stock allocation a bit to bring it where you wanted it when you started out. With the proper risk profile, you will be able to hold. Then things really will work out long term. That’s Valuation-Informed Indexing.
Both Buy-and-Holders and Valuation-Informed Indexers are seeking to “Stay the Course.” The question is, is it more important to always have the same stock allocation or is it more important to always have the same risk profile? Bogle says that it is more important to always have the same stock allocation. I say that it is more important to always have the same risk profile. Shiller’s research shows that risk is not static but variable. So our stock allocations must be variable too if we are to have any hope of keeping our risk profiles roughly stable over time. It is the investor with the constant risk porfile who is able to stick with his plan for the long term because he doesn’t suffer the devastating hits that those who keep their stock allocation stable instead always suffer in secular bear markets.
Those are my sincere thoughts re these matters in any event.
I naturally wish you all the best that this life has to offer a person despite any differences we might have re stock investing, Sammy.
Rob
So your argument is that buy-and-hold doesn’t work because no one buys and holds.
This is the logical fallacy known as “begging the question”, attempting to prove a point by simply restating your premise. It is a form of circular reason. Most people incorrectly use “begs the question” when they mean “raises the question”.
Just wanted you to learn something new.
It’s true that investors are not capable of buying and holding and that the Buy-and-Hold strategy cannot work until investors become capable of following it in the real world. Do you know what would make investors capable? Permitting honest posting on the last 36 years of peer-reviewed research! Stocks prices are self-regulating if investors are capable of accessing the information they need to access to act in their self-interest. The problem for all of us is that darn Ban on Honest Posting, the death threats and all the rest of it.
If investors have access to honest and accurate reports on the last 36 years of peer-reviewed research, you are not going to see any more bull markets. Prices would just always remain near fair-value levels (a P/E10 of 15). So there would be no need to change your stock allocation. Sticking with the same stock allocation is Buy-and-Hold, no? Is that not the basic idea, learning from the peer-reviewed research and always sticking with the same stock allocation?
Valuation-Informed Indexing is just Buy-and-Hold more fully developed. We didn’t know all there was to know about how stock investing works back in the late 1960s, when Buy-and-Hold was developed. In 1981, we clicked that last oh-so-important piece into place. Now we know. Intellectually. But 90 percent of us do not know the realities emotionally. For the remaining 90 percent of us to catch up with the Valuation-Informed Indexers, we would need as a society to act to open every discussion board and blog on the internet to honest posting. That’s how we spread the word. It is only by spreading the word re the last 36 years of peer-reviewed research that we can bring the 90 percent of investors still living in the world of 1980 up to speed.
We are not on different sides, Anonymous. Your first mistake was to assume that, because I was telling you something new, I was your enemy. Science is a quest for truth. When Bogle made it a cardinal principle of Buy-and-Hold that investing should be rooted in realities revealed through the peer-reviewed research, he made it a cardinal principle of Buy-and-Hold that Buy-and-Hold would CHANGE over the years as new realities were revealed.
This is why I call those who post in “defense” of Mel Linduaer “Lindauerheads” rather than “Bogleheads.” If they were truly Bogleheads, they would be in favor of permitting honest posting on the last 36 years of peer-reviewed research. I am 10 times more of a Boglehead than Mel Linduaer is. Lindauer is a Lindaurhead, not a Boglehead. Now, the sad reality is that Jack Bogle himself is today more of a Lindaurhead than a Boglehead. That one is a strange twist. But in fairness to Lindauer, I think I have to acknowledge that that is the reality today. But I am still a proud Boglehead. I love the Jack Bogle who argued in his books that investors should root their investing strategies in the peer-reviewed research, not the one who allows his name to be used at a board at which the sorts of individuals who have put up posts in “defense” of Mel Lindauer are permitted to post.
It makes no sense to encourage investors to adopt Buy-and-Hold strategies while denying them access to the discussions of the last 36 years of peer-reviewed research that they need access to to be able to follow Buy-and-Hold strategies effectively for the long term.
That’s my sincere take re these terribly important matters, in any event.
Rob
“If people who say they are Buy-and-Holders really held through dramatic price downturns, we wouldn’t see dramatic price downturns. It is the massive selling that CAUSES dramatic price downturns.”
Large amounts of ignorance on display here. As you can see from the threads there, most bogleheads held on during the 2009 downturn, with many adding to their stock allocations.
And, individual buy and holders don’t set market prices, institutional investors do. When an event occurs that makes a stock less valuable, more institutions will sell than buy, until the price adjusts.
“What if the Buy-and-Holder doesn’t hold when he sees most of his life savings evaporate?”
First of all, with a diversified portfolio, this investor outdated not have lost most of his savings. Secondly, if he doesn’t hold, then he really isn’t a buy and holder. He is a market timer.
Thank you for making the case of buy and hold.
Large amounts of ignorance on display here. As you can see from the threads there, most bogleheads held on during the 2009 downturn, with many adding to their stock allocations.
And, individual buy and holders don’t set market prices, institutional investors do. When an event occurs that makes a stock less valuable, more institutions will sell than buy, until the price adjusts.
I agree that most Bogleheads held on during the 2009 downturn. I do NOT agree that most added to their stock allocations. Most Buy-and-Holders were going with stock allocations far too high to permit much adding. There are some who added. But most of the investors in that group were not Buy-and-Hold purist. Most of the investors in that group had lowered their stock allocations because of the high valuations that applied before the crash and then added to their allocations in response to the lowering of prices. That’s Valuation-Informed Indexing, not Buy-and-Hold.
And a good percentage of that board community was giving thought to abandoning Buy-and-Hold altogether at that time. Taylor Larimore is the co-author of a book on Buy-and-Hold, If there is one person on this planet who should know that Buy-and-Hold requires holding through a price drop, it would be Taylor. And indeed there was a community member who asked Taylor about a month prior to the crash whether there were any circumstances in which he would consider lowering his stock allocation in response to a crash. He said that there was zero chance that that would ever happen, that he would never even consider such a thing.
But after the crash Taylor said that he was giving serious consideration to selling stocks at the bottom and lowering his stock allocation just at the time when the long-term value proposition had tuned from very, very, very bad to very, very, very good. If’s been playing out that way with Buy-and-Hold ever since the “strategy” was dreamed up by our Wall Street Con Man friends as the most powerful marketing gimmick ever concocted by the human mind.
Taylor was in the minority in those days. But he would not have been in the minority if prices had not started going up again after a few months. If prices remain down for a number of years following the next crash, all of the “Diehards” will abandon Buy-and-Hold just as they have in every secular bear market experienced in the history of the U.S. market. All secular bear markers end with the P/E10 level at 8 or lower. That’s insane. We could never get to a P/E10 of 8 without the Buy-and-Holders all selling most of their stocks.
The stuff about the institutional investors doesn’t make sense. Institutional investors are humans, just like individual investors. If institutional investors controlled the market and always acted rationally, we could never see insanely high P/E10 levels or insanely low P/E10 levels. Yet we see both. Huh?
Rob
“I do NOT agree that most added to their stock allocations. Most Buy-and-Holders were going with stock allocations.”
Once again, they would not be a buy and holder. Also, I see no data that supports your assertion.
First of all, with a diversified portfolio, this investor outdated not have lost most of his savings. Secondly, if he doesn’t hold, then he really isn’t a buy and holder. He is a market timer.
A lot of the Buy-and-Holders who posted at Bogleheads were going with stock allocations of 80 percent or more. To get to a P/E10 level of 8, which is where every secular bear market in history has ended up, from where we are today, we would need to see a price drop of 70 percent. If someone loses 70 percent of the value of an asset class that makes up 80 percent of his portfolio, he has indeed lost most of his life savings.
All Buy-and-Holders sell in secular bear markets. Do you understand that secular bear markets bring us to P/E10 levels of 8 or lower. Do you realize how insane it is for us to as a country price out stock market at one-half of its fair value? It’s as crazy to do that as it is to price it at two times its fair value. How do you think we get there without the Buy-and-Holder selling? Most investors are Buy-and-Holders. If the Buy-and-Holders didn’t sell, we could never get to such price levels. Yet we always do. Something here does not add up.
When you say that these people are not true Buy-and-Holders, I agree. But then all that you are saying is that the entire Buy-and-Hold “strategy” is a myth. It is something that the Wall Street Con Men push on millions of middle-class investors to turn a quick buck. But there is no “there” there.
Price matters with every thing that can be bought or sold. No exceptions. That includes stocks.
There is a mountain of money to be made saying otherwise. But curiously there has never been a sliver of peer-reviewed research supporting the pure Get Rich Quick approach. Gee, I wonder why.
Buy-and-Hold!
Rob
Once again, they would not be a buy and holder. Also, I see no data that supports your assertion.
Why wouldn’t people who stuck with the same stock allocations be Buy-and-Holders? It seems to me that that is the very definition of Buy-and-Holder. It is Valuation-Informed Indexers who add to their stock allocations when prices fall (in an effort to keep their risk profiles roughly stable over time). Buy-and-Holders are supposed to stick with the same stock allocations regardless of price, according to every description of Buy-and-Hold that I have ever read. If you are changing your stock allocation in response to price shifts, you have joined the other team.
There’s two kinds of support for the assertion.
One, there is the lower P/E10 level that applies following crashes. What the heck do you think it is that pulls the P/E10 level down? It is the selling of the Buy-and-Holders. Buy-and-Holders comprise 90 percent of investors. If the Buy-and-Holders didn’t sell, prices could never drop as much as they do in bear markets. I mean. come on.
The other support for the assertion is the Post Archives of Bogleheads Forum and all other discussion boards populated by Buy-and-Holders. It was very rare to hear anyone talk about lowering his or her stock allocation prior to the crash. After prices dropped dramatically, the guy who wrote the friggin’ book on Buy-and-Hold was talking about selling! I mean, come on.
Investors should be aiming to keep their risk profiles roughly stable over time. To do that, they MUST lower their stock allocations when prices rise to insanely dangerous levels. Those who fail to do so end up selling when prices are low because adopting risk profiles wildly out of whack with the ones that they earlier determined were right for them FORCES them to sell. In the days before the crash Taylor Larimore was every bit as confident that he would never sell as you are today. He changed his mind when he saw what following the pure Get Rich Quick approach was doing to his hopes for achieving financial freedom sometime in this life. You have no way of knowing that you will not do the same until you face the sorts of pressures that Taylor was facing when he has his change of heart.
The “I’ll never sell” stuff is fantasyland stuff. It’s like a guy who smokes four packs of cigarettes a day saying “I’ll never get cancer.” Making those sorts of claims makes him feel good right up until the day he is diagnosed with cancer. Taylor wasn’t lying to the rest of us any more than he was lying to himself when he swore that he would never sell. He had to tell those lies to himself to keep the fantasy going. He changed his mind only when he got the cancer diagnosis and came to see the downside of going with a pure Get Rich Quick approach.
The question on the table is – Is it the job on investing experts to tell any old lie it takes to turn a quick buck. Or should we be taking the last 36 years of peer-reviewed research into consideration when offering advice or how people should plan their financial futures? You know what I think.
Rob
“Buy-and-Holders comprise 90 percent of investors.”
And that statistic is based on – let me guess – your version of “common sense”.
You’re always good for a chuckle.
The biggest thing that it is based on is the P/E10 level that applies today. How do you think things reached a point at which investors have collectively priced stocks at two times their real value without 90 percent of the population of investors coming to believe in Buy-and-Hold/Get Rich Quick?
The Get Rich Quick urge resides with 100 percent of us, not just 90 percent. My experiences on the various boards and blogs where discussions have been held over the past 15 years tells me that about 10 percent of us have been able to learn to fight off our Buy-and-Hold/Get Rich Quick urges with the help of the last 36 years of peer-reviewed research. Even for us it is a fight. Investing is like a lot of things in life. It’s pretty darn easy to figure out the right way to proceed, it’s pretty darn hard to go beyond just talking the talk and actually walk the walk.
My sincere take.
Rob
“Why wouldn’t people who stuck with the same stock allocations be Buy-and-Holders? ”
You are not following the conversation. You made the comment that the buy and holders would not be adding to their positions. Buy and holders continue to buy, regardless of the market as they cannot predict the ups and downs. That is the meaning of “Buy” from “Buy” and Holders.
Okay. I agree that Buy-and-Holders add to their portfolios as they bring in more money. But they don’t increase their stock allocations when prices return to more reasonable levels. A Valuation-Informed Indexer would have increased his stock allocation following the crash because the long-term value proposition for stocks improved dramatically. A Buy-and-Holder would just keep buying at the same rate as he did when the long-term value proposition was poor. There would be no increase or decrease in his stock allocation despite the dramatic price drop.
This makes no sense to me. It seems to me that the smarter way to go about things would be to buy more stocks when prices are good and to buy fewer stocks when prices are bad. And of course there is now 36 years of peer-reviewed research (rooted in examinations of the 147 years of historical return data available to us) showing that this is indeed the far better way to proceed. Buying stocks in the same way that is universally recognized as the best way to buy everything else DRAMATICALLY increases return while also DRAMATICALLY diminishing risk. I’ve never been able to figure out why the Buy-and-Holders think it is a good idea to ignore price (or why they get so emotional when someone points out the huge benefits of taking price into consideration). It’s touchy subject for them, to be sure.
Rob
“But they don’t increase their stock allocations when prices return to more reasonable levels. ”
Actually, they do. They have set an allocation. When stocks rise or fall by a certain amount, they would be moving between stocks and bonds so that they return to the desired ratio. That is referred to as rebalancing.
That’s indeed rebalancing and Buy-and-Holders do indeed believe in rebalancing. Why don’t they believe in increasing their stock allocation when prices are better? Risk is obviously higher when prices are through the roof, right? Why not increase your stock allocation to the extent needed to keep your risk profile roughly constant?
That’s the one that I don’t get. Buy-and-Holders don’t exercise price discipline. They don’t engage in long-term timing. Why the heck not, given how much sooner they could retire if they did so?
Rob
I’ll answer my own question.
I think that Buy-and-Hold is a marketing gimmick designed to make the Wall Street Con Men rich.
If they told people how much better stocks perform starting from low prices, people would be able to easily figure out how poorly stocks perform from high prices. So they wouldn’t be able to get away with denying that investors need to divide their portfolio balance numbers by two when prices reach the insane highs that apply today. People don’t like hearing that they need to divide by two. The first step to making a sale is to get people to like you. So the Wall Street Con Men tell people what they think will help them to make the sale rather than what they need to know to plan their financial affairs effectively.
My sincere take.
Rob
Buy and holders understand that we cannot predict the rise and falls of the market. That is why they set an allocation and rebalance accordingly. You ask why they don’t buy more stock when it is cheap or don’t sell when it is expensive, yet you can’t determine either case. You thought stock was expense in 2010, 2011, etc, telling us it was going to crash, yet we see now that you were wrong. What we do know from history is that if and when there is a drop, prices will recover.
Okay, Anonymous.
Thanks for responding.
Rob
“The stuff about the institutional investors doesn’t make sense. Institutional investors are humans, just like individual investors.”
No, Goldman Sachs is not an easily frightened financial newbie. It doesn’t get scared and make hasty, irrational decisions that cost it billions of dollars. It has teams of analysis that evaluate stocks and value them based on market conditions.
“If institutional investors controlled the market and always acted rationally, we could never see insanely high P/E10 levels or insanely low P/E10 levels.”
Nonsense. Bond interest rates, and stock P/Es are based on a variety of factors, from inflation to earnings to risk adjustments to demand for capital. There’s nothing “irrational” about how the market prices them.
“Why don’t they believe in increasing their stock allocation when prices are better?”
Valuations, relatively speaking, have been high and low over the past 20+ years, but you haven’t changed your stock allocation once. Why not?
No, Goldman Sachs is not an easily frightened financial newbie. It doesn’t get scared and make hasty, irrational decisions that cost it billions of dollars. It has teams of analysis that evaluate stocks and value them based on market conditions.
We very much disagree on the Goldman Sachs thing. I don’t doubt that the people who work there are smart and work hard. But I don’t think that matters. Sometimes it can be a negative. Have you ever known a smart person who became an alcoholic? The smarter the person is, the better he is at rationalizing his alcoholism away. Intelligence can be a barrier to self-awareness.
Say that someone at Goldman Sachs is smart enough to see that Buy-and-Hold is what sells in the short term. Doesn’t that make it that much harder for him to give good advice or to make good decisions? No one wants to get fired from his job. No one wants to lose clients. No one wants his clients to get mad at him because he avoided a Get Rich Quick investing outcome that his clients feel that they “missed out” on. The smarter you are, the more aware you are of the price that is paid for going with the peer-reviewed research rather than just pushing the same Get Rich Quick garbage that your competitors are pushing.
We would be helping the smart people at Goldman Sachs make better decisions if we backed them up when they pointed out the dangers of Buy-and-Hold strategies. Do you do that, Anonymous? You can’t expect some fellow at Goldman Sachs to be Superman just because he graduated from a good school. Give him some support and encouragement when he stands up to the crowd and he will be more likely to do so again the next time he finds himself in a tough spot.
We of course also disagree re your “nonsense” paragraph. Any mispricing of stocks is an act of irrationality. The best thing for investors is to price stocks properly. We hurt ourselves both when we overprice them and when we underprice them. Its irrational not to assign to stocks their fair and proper value. It’s fantasy thinking when we overprice and its depressive thinking (which is the inevitable long-term result of fantasy thinking) when we underprice.
Rob
Valuations, relatively speaking, have been high and low over the past 20+ years, but you haven’t changed your stock allocation once. Why not?
There’s only been one time when valuations changed enough to merit an allocation change. That was in early 2009. I initiated efforts at that time to change my allocation. But prices went back to crazy levels before I was able to complete the transaction.
As you know from the 30 earlier occasions on which I have answered this question for you.
Rob
“Say that someone at Goldman Sachs is smart enough to see that Buy-and-Hold is what sells in the short term”
But GS isn’t a buy-and-hold retail investor. Quite the opposite. It’s a dealer/broker that causes prices to move in response to new information.
And if you’re suggesting the folks there, most of whom are orders of magnitude smarter than you are, are gripped by some irrational mania that’s costing them costing them billions of dollars, the burden is on you to prove such an outlandish claim.
Today’s P/E10 value proves it, Anonymous. Stocks are priced at two times fair value. What’s your explanation of that?
Rob
“Today’s P/E10 value proves it, Anonymous. Stocks are priced at two times fair value. What’s your explanation of that?”
You said that back in 2011, 2012, etc and we see that you were wrong.
The only sense in which I was wrong is that the price crash hasn’t come yet.
Does it matter?
Are you somehow better off if you lose your pretend money in 2018 rather than in 2016?
It could turn out worse for you to lose it in 2018. That means that there will be two more years in which you will engage in ineffective financial planning because you don’t aren’t able to calculate accurately how much wealth you have.
I was right about the points that matter — I said that stocks were priced insanely high and that you were going to lose your pretend wealth in days to come.
If I could give you the precise date when the crash will come, I would. I cannot do it and of course I told you at the time that I couldn’t do it. I agreed to share my personal guess with you but I noted that it was nothing more than a personal guess. My claim that stocks are priced at two times fair value and that stock investors always give back their pretend wealth is not a personal guess — that’s a statement backed by 36 years of peer-reviewed research.
I don’t apologize for getting the precise year wrong. I told you at the time that there was no good reason to believe that I could get it right. I am proud that I had the courage to tell you what you needed to know to plan effectively for the future. I’d like to see more people do that. Each time someone works up the courage to give voice to the research-proven realities, it makes it easier for all the rest of us to do the same.
My sincere take.
Rob
“I was right about the points that matter — I said that stocks were priced insanely high and that you were going to lose your pretend wealth in days to come.”
Actually, the record shows you were wrong.
Okay, Anonymous.
It will be interesting to see how things play out.
Rob
“As you know from the 30 earlier occasions on which I have answered this question for you.”
…based on the 300 times you’ve criticized others as “buy and holders”, while admitting you haven’t changed on your allocations in over 20 years. Your actions show the kind of investor you really are.
I look for value propositions when I buy stocks just like I look for value propositions when I buy sweaters and bananas and movie tickets. The value proposition hasn’t been there for a long time. That’s hardly my fault. I am the one saying that people should lower their stock allocations — if they did that, the sales would pull prices back to reasonable levels and we would all be set.
It’s you Buy-and-Holders who have been telling people that there’s no need for them to lower their stock allocations. You are the ones who have messed things up so bad. And the Ban on Honest Posting hasn’t helped! If we had lots of people feeling free to express their doubts about Buy-and-Hold at every board and blog, more people would lower their allocations.
Your complaint is circular. You know perfectly well that I am only willing to buy stocks when they offer a strong long-term value proposition. And you engage in behavior aimed at keeping that value proposition poor. And then you complain that I don’t buy stocks. Huh?
I love stocks, Anonymous. That’s why I would like to see that average long-term return of 6.5 percent become available again. Could you cut back your allocation a bit? Could you try to persuade some of your friends to do the same? That’s what it takes to pull the darn price down, my friend. You’re just not doing your part!
If you want to say that I buy and hold strong long-term value propositions, fine. Just don’t say that I buy and hold stocks. I buy and hold whatever asset class offers the best long-term value proposition. I invest to serve MY best interests, not to serve the best interests of my Wall Street Con Men friends. They seem pretty well-skilled at taking care of themselves, you know? I figure that they do not need my help.
Rob
“It will be interesting to see how things play out.”
We have already seen it play out. We are doing fine and have no interest in following your path.
Okay, Anonymous.
I certainly think that you should go with the investing strategy that you think best. And I certainly wish you all the best that this life has to offer a person.
Take care, man.
Rob
“I certainly think that you should go with the investing strategy that you think best. ”
Already have. It has worked out great. Now is the time to just enjoy.
Sounds good.
Rob
It’s interesting that you say there are no buy and holders even though there are plenty and the bogleheads has evidence. I increased my stock allocation moderately and bought plenty of stocks during the crisis.
The ironic thing is that the one ‘VII’ guy failed to make adjustments. I don’t understand how you can be so dense.
What happened in 2008 was a test of Buy-and-Hold but not a big test. All Buy-and-Holders say that they will hold through anything and we saw that that is not the case. Some — including the author of a book on Buy-and-Hold! — failed when they were put to the test.
Most did not fail. That’s fair to say. But how big was the test? It lasted a few months. You say that you would have held no matter how low prices fell and no matter how long low prices remained in effect. But you just don’t know what you would have done in such circumstances until you have lived through them, Taylor was 100 percent certain that he would never falter too. It’s all just words until you are actually living through the pressures that come with a loss of most of your life savings. So nothing you say about this is really persuasive.
I find the historical return data persuasive. Most Buy-and-Holders sell when prices drop. Prices couldn’t drop as low as they do in bear markets if that were not so. All Buy-and-Holders swear that they will never sell no matter what but most Buy-and-Holders sell at the lows because that’s human nature and human nature counts for more than the Buy-and-Holders’ swearing at a time when prices are high that they will never sell. Anyone can justify violating an oath he took at an earlier time by pointing out that circumstances have changed. They ALWAYS change when prices reach levels as high as they are today. It’s important to take note of that at a time when something constructive can be done about it rather than waiting until all that is left to you are the sorts of rationalizations that we saw Taylor Larimore engage in back in 2009.
We can prove that one too. The proof is that the Buy-and-Holders who swear that they will never sell demand that those pointing to the last 36 years of peer-reviewed research be banned from “their” discussion boards. They cannot bear to hear the history of stock investing discussed in their presence. Why the heck not? If they are no darn confident that their strategy is going to work out, why does it bother them to hear another point of view discussed? That’s not a sign of confidence, Laugh. That’s not a sign of a good strategy.
I didn’t increase my stock allocation when prices were at fair-value levels. But there’s a way to check whether I lost confidence in my beliefs at that time or not. Go to the RobCasts that I recorded when prices were at moderate levels. I started every one off saying that stocks offered a strong long-term value proposition at those prices. Why did I say that if I didn’t possess confidence in the research? I possessed confidence and I demonstrated it with behavior that can be examined in a record that was created in real time.
And of course I did not just tell others that the value proposition for stocks was strong at the time, I took action to take advantage of that opportunity myself. I didn’t run around like a crazy person making sure to buy within 48 hours. I went about a process of making a reasoned buy that everyone in the family agreed to so that everyone in the family would be comfortable sticking with it for the long term. I played it just the way a Valuation-Informed Indexer should play it. We don’t believe in making emotion-based decisions. If I has been running around like a crazy person seeking to make the buy before time ran out on the amazing offer, that would have been emotional. I handled things in an emotionally healthy way. That is 100 percent in tune with the strategy and 100 percent in tune with what the last 36 years of peer-reviewed research in this field shows is what always works in the long term.
And why are you engaging in deception re this point today? You know what I did. Why don’t you come here and say: “Rob, I don’t agree with some of your other posts but I am impressed that, when the time came when prices were where you said they need to be for you to buy, you really did tell others to buy and begin taking steps to buy yourself. The real test of a strategy is not words but actions and you showed during that brief time-period when prices were at fair-value levels that you don’t just talk the Valuation-Informed Indexing talk, you actually walk the Valuation-Informed Indexing walk. As someone who is personally persuaded by advocates of a different strategy, I find that very cool and I am going to continue to ponder it as time goes on to see if there is something for me to learn in the contrast between your behavior and the behavior of Taylor Latrimore, one of my Buy-and-Hold friends who did not show the same courage of his convictions that you showed when the pressure was on.”
You cannot say those words, Laugh. It’s not in you. I mean no personal offence but it’s not in you because you are too scared to let in what happened in those months. You saw your Buy-and-Hold friends lose their confidence in their strategy at the very worst time to lose confidence in it. There is a part of your brain that you have silenced but that is still functioning in the background that tells you that that is something you should examine in some depth before Buy-and-Hold is put to its next test. The part of you that you silence wants to participate in civil and reasoned discussions at every discussion board and blog on the internet so that he learns as much as he possibly can by listening to as many different perspectives as possible. But the soul-crushing side of you, the Get Rich Quick side of you, the financially incompetent side of you, the Goon side of you, says: “No, keep on pumping out more dishonest and abusive garbage, it’s been working so great so far.”
I don’t think it has been working so great so far, Laugh. If it had been working, you wouldn’t be today walking a path that leads to a prison sentence in the days following the next price crash. You don’t possess confidence in your strategy and every post that you advance here shows it. You cannot discuss the last 36 years of peer-reviewed research in a civil and reasoned manner. You can’t even tolerate others discussing it while you sit off to the side a bit in silence. You feel compelled to crush such discussions when you hear them spring up. Not because you truly believe that the peer-reviewed research in this field is on your side. Because you WANT to believe that the peer-reviewed research is on your side and you cannot think of any other means to keep that fading belief alive other than to engage in insanely abusive and, yes, even criminal behavior to keep it from flickering out.
Not this boy, Laugh. I am your friend. You cannot bear to acknowledge it, but that small, remaining, rational voice in your head sees it. That’s why you get so ugly. That voice is telling you what is real and the stronger, irrational voice that controls you cannot bear to hear what the small voice says. I speak up in tune with the small voice and you feel hate for me because you feel threatened by the small voice. The small voice comes from a good place within you. Taylor Larimore wished in the early months of 2009 that he had listened to his small voice on all those occasions when some kind person had suggested to him that he might want to give it a try. You have that chance today. You have that chance every day until the day comes when the money is gone and cannot be called back. It’s your friends who are telling you to at least give that small voice a listen before shutting the door on your future.
These are my sincere thoughts re these matters, Laugh. Hate me as much as you want. I cannot control that. But I really do believe deep in my heart that the very fact that you hate so much is evidence that the last 36 years of peer-reviewed research in this field is telling us all something very, very, very important.
It will be interesting to see how things play out. I naturally wish you all the best that this life has to offer a person regardless of what investing strategy you elect to follow today or at any time in the future.
Rob