I’ve posted Entry #252 to my Valuation-Informed Indexing column at the Value Walk site. It’s called Our Beliefs About How the Stock Market Works Will Change Following the Next Crash.
Juicy Excerpt: I read a bit more about the Ashe study on the internet and came across an aspect of it that I overlooked in my earlier article that I find highly encouraging. The power of the false responses to pressure real study participants to give wrong answers was greatly reduced when even one of the fake study participants gave an answer at odds with the answers given by the other fake study participants.
We give in to peer pressure only when it appears sure of itself. When all of the fake study participants are saying the same wrong thing, we find it very hard to stick to our guns and report accurately what our eyes tell us to be the truth. But if just one of our peers offers a different take, we gain the confidence we need to stand up to the peer pressure ourselves.
The suggestion of the Ashe research s that we only need a small percentage of us to work up the courage to challenge the Buy-and-Hold dogmas and the rest of us will feel emboldened to express our doubts too. Peer pressure is a powerful force in stock investing. But it is a power that can be overcome quickly once a stock crash wipes out much of the life savings of millions of investors.
Anonymous says
If there is a big crash, how will people conclude it was a result of buy and hold and how does that drive people to marketing timing like VII?
Rob says
You’re asking the wrong question, Anonymous.
ALL of the existing evidence shows that Buy-and-Hold/Get Rich Quick can never work for a single long-term investor. Common sense tells us this. 34 Years of peer-reviewed research (based on 145 years of historical return data) confirm that this is so. The behavior of you Goons show us this. The language used by the Wall Street Con Men (in which they mix in little bits of honesty with the smelly Buy-and-Hold garbage because they possess consciences) show us this. The behavior of every other market known to humankind (in which price discipline is ALWAYS critical) show us this. There is NOTHING supporting Buy-and-Hold except intimidation tactics. 100 percent of the evidence supports VII and 0 percent support BH.
So the proper question is — How did people (including me — I was a Buy-and-Holder in earlier days!) ever come to believe in Buy-and-Hold?
We came to believe in Buy-and-Hold because we all possess a Get Rich Quick urge within us. It is that GRQ urge that had made stocks a risky investing class in the past. The peer-reviewed research that I co-authored with Wade Pfau shows that we all can reduce the risk of stock investing by 70 percent just by burying the smelly Buy-and-Hold garbage 30 feet in the ground, where it can do no further harm to humans and other living things. The last 34 years of peer-reviewed research shows that, not only is pure Get Rich Quick not the answer, pure Get Rich Quick is actually the problem.
Millions of us came to believe this crazy stuff for the same reason that thousands came to believe that the Madoff fund was a sustainable enterprise. Sometimes we come to believe things not because good arguments can be made for them but just because we so much WANT to believe in fairy tales. Buy-and-Hold is a fairy tale, a con, a Get Rich Quick scheme, a Ponzi scheme, a fraud, a lie, a felony.
Now —
Do you think that we are going to want to CONTINUE to believe in the fraud following the day when we lose most of our life savings?
I sure don’t.
Who still believes in the wonders of the Madoff Fund today? Anybody?
Once the fantasy fails, it offers little appeal to anyone. I mean, come freakin’ on.
After the fantasy fails, we are all going to make the switch to the first true research-backed strategy.
Or so Rob Bennett sincerely believes, in any event.
I am not God. I could be wrong. We are going to have to wait to see how things play out before us to know for sure.
I hope that works for you. If it doesn’t, it doesn’t. That’s all I got.
My best and warmest wishes to you and yours in any event.
Long-term market timing is price discipline. Price discipline is the key to all markets. Give up price discipline and nothing else you do matters. Give up price discipline and you are guaranteed to end up losers.
But we’ll see, you know? One of us is right and one of us is wrong. We’re going to have to exercise some patience with this thing, whether we like the idea or not.
Hang in there, man.
Rob
Anonymous says
What if I can show you specific evidence that buy and hold works?
Rob says
Show me peer-reviewed research and I will do everything in my power to get the word out to every investor alive on Planet Earth today.
If you don’t have peer-reviewed research, I’m not buying, Anonymous.
It takes a tough man to make a tender chicken.
Rob