Set forth below is the text of a comment that I recently posted to another blog entry at this site:
From Shiller,
“It is dangerous to assume that historical relations are necessarily applicable to the future. There could be fundamental structural changes occurring now that mean that the past of the stock market is no longer a guide to the future.”
I am grateful to you for putting forward that statement, Anonymous. It is responsive to the challenge that I presented in the blog entry.
I will use your comment as a separate blog entry. When the blog entry appears (the next available spot is August 10, 2015), I will add a link to it in the slider that appears at the top of every page of the site. Every investor (both Buy-and-Holders and Valuation-Informed Indexers) needs to know about this comment from Shiller.
Please understand that I do not disagree with what Shiller is saying. He is saying that it would be dangerous to assume that the correlation between valuation levels and long-term returns that we have seen over the 140 years of stock-market history available to us necessarily will apply in the future. It is possible that that correlation will NOT apply. No one can look into the future. So no one can say with 100 percent certainty. As Shiller notes, there COULD be structural changes occurring now that mean that the past will not be a good guide to the future.
That’s a sound, responsible statement. If you want to add that statement to the bottom of every post that I put forward at every board and blog at which I post, I have zero problem with the idea. I think that an argument could be made that that would be a positive. People need to know about this caveat. I sure don’t want anyone changing how they invest based solely on what I say about what the historical data teaches us. I don’t want that sort of responsibility on my head.
Now –
Can you point us to a comment in which my good friend Jack Bogle says the same thing coming from the other direction? It would do my heart good to see a comment in which Jack says: “It is dangerous to assume that historical relations are not applicable to the future. It might be that the stock market will continue operating in the future much as it always has in the past. In that event, those following Buy-and-Hold strategies will be suffering devastating losses in days to come.”
That’s the other side of the story, is it not? It is possible that stocks will never again perform as they always have in the past. Point taken. It is ALSO possible that they will. Every investor on the planet needs to know this. We should all join in together to take actions to insure that every board and blog on the face of Planet Internet is opened for honest posting by the close of business today. It is not even possible to imagine any downside. Am I not right about that one?
There are two schools of thought in the academic community as to how stock investing works. There is the school rooted in Fama’s research and there is the school rooted in Shiller’s research. Both schools of thought need to be represented at every board and blog on the internet. There should be zero controversy over this. There should be a 100 percent consensus re this point.
There are millions of smart and good people who believe that Buy-and-Hold is the ideal strategy. There is a large but much smaller number who believe that Buy-and-Hold has been discredited by 33 years of peer-reviewed research and that Valuation-Informed Indexing is the first true research-based strategy. We all need to get about the business of exploring the merits of BOTH models for understanding how stock investing works.
That’s my sincere take re these terribly important matters, in any event.
Rob
Hey Rob. Sam, over at the Financial Samurai has a post today featuring Jack Bogle and his philosophy. Does this mean that Sam is going to prison? If you look at the pool, about half of the respondents follow Jack’s buy and hold philosophy of index funds.
http://www.financialsamurai.com/investment-philosophies-from-jack-bogle-founder-of-the-vanguard-group/
Millions of good and smart people believe in and follow Buy-and-Hold strategies.
There’s 34 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.
Both of those things are so.
I am the one who has been saying for 13 years now that we should open every board and blog on the internet to honest posting re what the last 34 years of peer-reviewed research shows.
I am not the one who will decide on the length of the prison sentences. I will testify honestly and the juries that will be called following the next crash will decide who will go to prison and for how long.
What I can say with zero risk of contradiction is that there is zero research supporting Buy-and-Hold. It is a con. It is a marketing gimmick. It is a Ponzi scheme. It is a Get Rich Quick scheme. It is a fraud. It is a felony. It is prison time.
If Buy-and-Hold were a legitimate strategy, we never would have seen a single death threat or a single unjustified board banning or a single act of defamation or a single threat to get a single academic researcher fired from a single job.
None of the people supporting Buy-and-Hold in that poll will support it 12 months from the day we open the entire internet to honest posting. Once people see through the con, they won’t be interested in putting their retirement money at risk by following it. Why would they?
You are describing the reality that applies in the days before the con is exposed. That’s like talking about how popular Bernie Madoff was in the days before he was sent to prison.
I don’t do financial fraud. I oppose the continued promotion of Buy-and-Hold strategies.
I love my country. That goes deep.
Sue me.
Rob
Warren Buffett tells Rob that he is wrong and confirms that buy and hold is the way to go:
http://finance.yahoo.com/news/warren-buffett-stocks-going-lot-114608792.html
No death threats or get rick quick schemes from Warren and he laughs at your comments about fraud and prison.
Buffett is playing word games. Word games are killing us.
He says that stock prices will be higher in 10 or 20 years. I agree. But we have to survive those 10 or 20 years for that to become a good thing. A 65 percent crash is going to cause millions of failed retirements. A 65 percent price crash is going to cause hundreds of thousands of businesses to fail. A 65 percent price crash is going to cause millions of people to lose their jobs. A 65 percent price crash is going to cause more people on both the left and the right to lose confidence in our political system.
Buffett does not believe in Buy-and-Hold. His investing philosophy is called “Value Investing.” The greatest investor who ever lived knows how important it is to take price into account in every investing decision.
Buffett has said that the Efficient Market Theory (the foundation stone of Buy-and-Hold) is nonsense and that Buy-and-Hold will pass away when the academics who got it wrong get old and die. We cannot wait for that. There are millions of people suffering today. We have laws to protect us from the sorts of individuals who employ the tactics we have seen practiced by the Buy-and-Holders and we should enforce those laws.
We’ll see what Buffett says following the next crash, Anonymous. I have a funny hunch that he will acknowledge then that the Ban on Honest Posting was a very bad idea. But we’ll see how it all plays out.
That’s my sincere take re these terribly important matters, in any event.
Rob
If Buffett lost 99.999% of his net worth, he’d still be worth way more than you. Primarily because he invests based on company balance sheets, whereas you rely on funny feelings.
Valuation-Informed Indexing is what you get when you combine Bogle’s idea with Buffett’s ideas. All that Valuation-Informed Indexing does is make the huge profits that those following Buffett’s ideas have been making for many years available to the millions of investors who do not have the time to do the research needed for Value Investing to work and want to get there using index funds.
We are hurting ourselves as a nation by denying those millions of middle-class people access to honest and accurate reports re the implications of the last 34 years of peer-reviewed research in this field.
My take.
Rob
No, Buffett doesn’t believe in VII. His company operates as a business buying other businesses and he can improve the value through synergies, new management teams, etc. as for investing, he is putting money into a Vanguard index fund for his wife.
Buffett aims to get value for his money. That’s all that VII is. Buy-and-Hold ignores price. VII focuses on price. That’s the only difference between the two.
Had Shiller published his “revolutiionary”(his word) research in 1964 instead of in 1981, there wouldn’t be one Buy-and-Holder alive today. Buffett would be a Valuation-Informed Indexer. So would Bogle. So would Lindauer. So would Greaney.
The “defense” of Buy-and-Hold is a turf war. That’s all it has ever been. We didn’t know everything in 1965 and so we made a mistake. The mistake was discovered in 1981 but lots of powerful and wealthy people didn’t want to acknowledge having made a mistake. So they went into cover-up mode and thereby caused an economic crisis.
Most of those people will flip following the next price crash. And then we will all live far better lives from that point forward. Get Rich Quick is not the answer. Get Rich Quick is actually the problem.
My take.
Rob
Just curious….how far out do you schedule your blog postings?
There’s now a four-month backlog.
At the high point, it was seven months.
I don’t aim for any particular time-perod for the backlog. I add the Value Walk column each week and I add whatever comments from my Conversations with Goons that I think should be highlighted as blog entries. There have been a lot more of those than I anticipated. A LOT more. But I believe that the backlog is now being reduced because neither side has too many more fresh points to make.
After I am caught up with the Goon Conversations, I have about four months of blog entries reporting on various types of e-mails that I have either sent or received. For example, I was never able to post a lot of the responses that I received in response to my 30,000 e-mails to academics working on investing research. I hope to be able to get to those in the first half of next year.
When I get caught up, I would like to start up another column at another site. It might be one that would report each week on runs from the various VII calculators. That would give me two steady blog entries each week to be supplemented with new Goon Conversations or perhaps comments on articles posted elsewhere on the internet.
Anyway, the latest entry takes me about four months out from today.
I hope that helps a bit.
My best wishes.
Rob