Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
No one claimed that Buffett doesn’t care about valuation or that he never sells, but he is a buy and holder. Do the Bogleheads never sell?
If he cares about valuation, then he is a Valuation-Informed Indexer. That’s the distinction between Buy-and-Hold and Valuatiion-Informed Indexing. Valuation-Informed Indexing is Buy-and-Hold updated to reflect the 41 years of peer-reviewed research showing that the market is not efficient, that valuations matter, that market timing (because of valuation shifts) is essential.
Am I a Buy-and-Holder? I believe that the Buy-and-Holders made lots of valuable contributions. I incorporated everything from Buy-and-Hold except the loony tunes “idea” that market timing/price discipline might not alwaus be 100 percent required into Valuation-Informed Indexing. So what am I? I am happy to be called a Buy-and-Holder if that means that I can then be friends with all the Buy-and-Holders. My first name for Valuation-Informed Indexing was Buy-and-Hold 2.0. There were Buy-and-Holders threatending to murder my loved ones if I kept pointing out the error in the Greaney retirement study. So I thought that maybe the prudent thing would be to come up with a diffeerent name. But I love Buy-and-Hold you know? I live it so much that I stuch with that core principle of Buy-and-Hold to follow the peer-reviewed research even when a lot of Buy-and-Holders were threatening to murder my loves ones for doing so. You decide what I am, I am a Buy-and-Holder who believes that we should be talking about the 41 years of peer-reviewed research that shows that market timing/price discipline is absolyely essential when buying stocks. Whatever that is, that’swhat I am.
Some Bogleheads are Valuation-Informed Indexers. But they hav e learned that it is best to keep it zipped re those beliefs, you know. Do something about the abusive and criminal behavior and they will be happy to speak up. I think that would be just great, We could all learn lots of great stuff from them.
The dogmatics? The Goons? I think that they would say to take somethinbg off the table at retirement. The idea there is that there is not as much time to recover from a loss. That makes a certain amount of sense. But the valuations issue is a much more important factor than whether one is in the accumulation stage or the distribution stage. I have never heard one of the dogmatics/Goons say that investors should lower their stock allocation in response to big price increases. That would be market timing, would it not? My understanding is that the Buy-and-Hold dogmatics OPPOSE market timing. My sense of things is that it is their opposition to market timing that is the entire cause of the friction we have been seeing for 20 years now. Take away the dogmatism about market timing and I thiink that all of the Buy-and-Holders would have been happy to discuss safe withdrawal rates in a realistic way back in May 2002.
The root isssue here is that the Buy-and-Hold dogmatics are very, very, very, very, very opposed to acknowledging the error that the Buy-and-Holders made back in the 1960s (before Shiller publushed his Nobel-prize-winning research showing that valuations affect long-term returns) when they claimed hat market timing/price discipline is not always 100 percent required. That reluctance is killing bus as a nation of people. We need to find some means to provide millions of middle-class people with accurate, honest, research-based investment advice. It cannot be done without permitting discussion of the last 41 years of peer-revieweded research because we just did not know everything that we needed to know about how stock investing works in the days before Shiller published his Nobel-prize-winning research, Buy-and-Hold is long, long, long, long overdu for an update.
My sincere take.
Rob
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