“When Prices Are Insanely High, Buy-and-Holders Tell Themselves That “Oh, Price Doesn’t Really Signify Anything of Importance, the Value Proposition of Stocks Is Always the Same.” And When Prices Are Moderate or Low, They Say “Wow, Look at Those Prices — Stocks Are Really a Good Buy Now!”

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

“Over time, I’ve become more comfortable with the idea of making more allocation changes. I still don’t make them at all frequently. But I permit myself an allocation change whenever a significant valuation change takes place.”

What allocation changes? You got out of stocks in 1996, according to your posts and you never got back in, including the buy if a lifetime in 2009.

Part One of the article explains that it is about what I have learned about the how-to aspects of stock investing through use of the five VII calculators posted at this site. I have not made any allocation changes in my personal account since the Summer of 1996 (I have been at zero stocks during that time). But I make allocation changes in the portfolios I create with the Scenario Surfer. I am comfortable today making more allocation changes in the runs I do with the calculator that I made in the old days. However, I still do not make many changes. There is no need to do so.

If you truly think that stocks provided the “buy of a lifetime” in 2009, you do not possess a strong understanding of the past 35 years of peer-reviewed research, Anonymous. The fair-value P/E10 value is 15. The lowest we ever got in early 2009 was 13. Stocks represent a very strong long-term value proposition when they are priced at fair-value levels or a bit below, to be sure. But it is silliness to suggest that investors are being offered the “buy of a lifetime” when stocks are offered at fair prices. There has never once in the history of stock investing been an extended time-period in which investors were not able to purchases stocks at prices well below fair-value levels. I have a funny feeling that it’s not all going to turn out different this time than how it has ever turned out before. Just one of those crazy hunches that I have been known to experience from time to time.

I also find it worth noting that a long-time Buy-and-Hold Goon feels okay with using the phrase “buy of a lifetime.” If you truly believed in Buy-and-Hold, you would believe that stocks offer the same value proposition at all times (that’s the only possible rationalization for staying at the same stock allocation at all times).

You’re not the only Buy-and-Holder who does this sort of thing, Anonymous. I see it all the time among Buy-and-Holders. When prices are insanely high, they tell themselves that “oh, price doesn’t really signify anything of importance, the value proposition of stocks is always the same.” And when prices are moderate or low, they say “wow, look at those prices — stocks are really a good buy now!”

It’s marketing garbage planted in their heads through the relentless promotion of Buy-and-Hold “strategies” by the Wall Street Con Men. The come on is: “Come buy our product because it is always a good buy regardless of how insanely overpriced it is!” Then, when overpriced stocks wipe out their marks, the new push is: “Oh, don’t let that bother you, just because we lied about stocks being a good buy before doesn’t mean that we are lying about it today — stocks really ARE a good buy after all you marks have been wiped out and the only people with the money to buy them are us Wall Street Con Men!”

Heads the Wall Street Con Men win, tails the millions of middle-class investors whom they view as their marks lose. Funny how it works out that way with the pure Get Rich Quick approach. And people said Bernie Madoff was dishonest!

Buy-and-Hold! Buy-and-Hold! Buy-and-Hold!

The New Science!

Rob