Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Rob, calling the long-term investment strategy known as buy-hold-rebalance may make your little troll heart flutter but normal people quickly see through the nonsense and see that you’re a nutjob. Making nonsensical statements such as that is Catastrophically Unproductive. Of course, Catastrophically Unproductive is the story of Bat$hit Crazy Hocomania.
I believe that you left something out of this one, John. I believe that you meant to say “calling the long-term investment strategy known as buy-hold-rebalance a Get Rich Quick scheme…” or “calling the long-term investment strategy known as buy-hold-rebalance an emotion-based strategy….” or something along those lines.
I like the comment because it succinctly explains the reason why we have seen so much friction over the first 15 years of our discussions. If it is true that valuations affect long-term returns (we have 15 years of peer-reviewed research showing this to be so), then there is precisely zero chance that a Buy-and-Hold strategy could ever work for a single long-term investor. This is ABC logic. If valuations affect long-term returns, then stock investing risk is variable, not static and, if stock investing risk is variable, then investors MUST adjust their stock allocations in response to big price swings to have any hope of keeping their risk profiles roughly constant. In an ideal world, Bogle would have given a speech acknowledging this within a week or so of publication of Shiller’s “revolutionary” (Shiller’s word) 1981 research and we all would have been off to the races. Everyone who works in this field would have been working hard to develop the Valuation-Informed Indexing concept from that day forward and we would have made huge progress by today without ever having experienced any nastiness at all.
Of course it did not play out that way. I believe that Bogle was suffering from cognitive dissonance when he learned about Shiller’s findings. He of course understood them in an intellectual sense. But he truly believed in Buy-and-Hold and he was not able to process what he learned because the emotional pain of doing so was just too much. So he ignored Shiller’s work and just continued promoting the Buy-and-Hold concept as if Shiller’s work did not exist. There were already lots of powerful and influential people promoting Buy-and-Hold at that time who also were alarmed by what they heard about Shiller’s research who also suffered cognitive dissonance and who followed Bogle’s lead. Since there were no terrible results that quickly followed from this terrible “choice” (it was not a true choice given the cognitive dissonance behind it), it became the accepted thing to do.
The longer the “cover-up” (again, it was not a true cover-up in an important sense because of the cognitive dissonance) continued, the harder it became to reverse course and come clean re what Shiller’s revolutionary research signified. Levels of overvaluation became truly dangerous in 1996. But by that time the cover-up had been continuing for 15 years. What were people going to do at that time, say “hey. remember all that Buy-and-Hold stuff that we’ve been telling you about for years now, that was all a mistake, everyone who follows the research in this field has known this for years, some funny joke, huh?” These people need to be recognized as experts to make a living in their chosen field. It does not look good for an expert to reveal that he has been ignoring 15 years of peer-reviewed research in all of his public statements about a matter of great importance. So, even though valuations had now reached a point where the cover-up was exceedingly dangerous, it continued.
Eventually, the cover-up caused an economic crisis. That made it ever more dangerous to permit the cover-up to continue. And it also made it even more difficult to reverse course and come clean. The cover-up of the obvious meaning of Shiller’s revolutionary research findings has over time become more and more and more dangerous to every last one of us while also becoming harder and harder and harder for us all to acknowledge. And here we are.
“Buy-and-Hold” and “Get Rich Quick” are synonymous terms. We didn’t know that before 1981. I don’t believe that the Buy-and-Holders started out aiming to do any harm. But we did learn that in 1981 and we should have promptly gotten to work spreading the word far and wide and working together to build the first true research-based investing strategy, Jack Bogle’s dream from his younger years. If valuations affect long-term returns, then Buy-and-Hold is the purest and most dangerous investing strategy ever concocted by the human mind and every investor alive needs to be aware of the dangers he is facing when he falls for this garbage strategy.
But you are absolutely right that the vast majority of today’s investors find the claim that Buy-and-Hold is dangerous a preposterous claim. So, yes, you are right that most people tune out those of us who make such claims. 90 percent of investors think that Buy-and-Hold is perhaps the safest strategy and that it works just fine or at the very bare minimum that it works well enough. That’s where we are today.
We all deep in our hearts want to be in a better place. I think it would be fair to say that I have been elected to lead us to a better place. We don’t get there by being afraid to stand up to the relentless abuse dished out by you Goons. We have to insist on our right to post honestly. There is no other way. When one of us insists on his right to post honestly, it helps all the rest of us work up the courage to do the same. Had those who had doubts about Buy-and-Hold before I came along expressed those doubts in stronger and more honest terms, I would not have faced the wall of opposition that I faced when I pointed out that the retirement study posted at your site lacks a valuations adjustment, John. I don’t want anyone who comes after me to have to face what I had to face. So I am going to continue to post with complete honesty
With complete charity as well, to be sure. That’s the other side of the story. The Buy-and-Holders are our friends. They have made many hugely important contributions. There would be no Valuation-Informed Indexing today were it not for the amazing work done over the years by our Buy-and-Hold friends. Posting in a fully honest way requires telling that side of the story as well as the cover-up side of the story.
But the cover-up side does need to be told. People have a hard time understanding how there could be 36 years of peer-reviewed research showing that there is precisely zero chance that a Buy-and-Hold strategy could ever work for even a single long-term investor and yet this never became generally known. The story of the cover-up tells the tale. So that needs to get out there if we ever are as a society going to get things back on a good track.
Lots of people do indeed think that I am a nutjob, John. Most would not be so rude as to say so in those words. But lots of people really do think something along those lines.
But I intend to continue posting honestly. The reality here is that your study does not contain a valuations adjustment. It gets the numbers wildly wrong. The safe withdrawal rate was not 4 percent in 2000, it was 1.6 percent. You have hurt millions of people in very serious ways with your criminally abusive posting tactics. You hurt thousands of people who read your stuff on the internet and believed that your claims were rooted in legitimate research. You hurt millions more when you stopped those of us who wanted to launch a national debate on these matters from doing so.
I cannot be a part of this massive act of financial fraud. In part because I don’t want to go to prison. And in part because it is just not what I am about. A good number of those people had become friends of mine over the years. I care about them. I cannot sell them out. I will never do so.
I wish you the best of luck in all your future endeavors. But that is as far as it goes for this boy.
It will be interesting to see how it all plays out.
My best and warmest wishes to you.