I’ve posted Entry #370 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Biggest Problem With Buy-and-Hold Is the Questions It Takes Off the Table — Part Two.
Juicy Excerpt: When I was developing the retirement calculator, it occurred to me that it would be helpful for investors using it for me to include some features not included in the Buy-and-Hold calculators. My calculator permits investors to examine how the safe withdrawal rate changes in response to a lowering of the stock allocation. It permits investors to compare the safe withdrawal rate obtained by investing in stocks with the safe withdrawal rate obtained by investing in super-safe asset classes like Treasury Inflation-Protected Securities (TIPS). It permits investors to examine how much of a difference it makes to plan a retirement that is sure to have at least one dollar remaining in the portfolio at the end of 30 years (this is the assumption used in the Buy-and-Hold studies and calculators) versus one that is sure to have 50 percent (or some other percentage) of the starting-point portfolio amount remaining.
The questions examined in my calculator but ignored in the Buy-and-Hold calculators are important strategic questions. It amazes me that they have not been studied in depth for years. I have come to the conclusion that the reason why we have as a society held back for many years examining many important strategic investing questions is that our belief in the core tenets of Buy-and-Hold has put us in a frame of mind in which examining these questions seems pointless or even troubling.
Rob,
Every month, Dave Ramsey features a segment called the “Millionaire Theme Hour”.
During this segment, people that have a net worth of a million or more call in to say how they built their net worth. In almost all cases, they follow the typical path of buy and hold. To date, I have yet to hear anyone that built their net worth following VII. I thought you said no one has ever been successful with buy and hold? Why are we not hearing anyone call in with stories of VII?
Once we open every site on the internet to honest posting on the last 36 years of peer-reviewed research, we will have thousands of people calling in to tell their success stories with Valuation-Informed Indexing.
How many people do you think shared stories of how travel was so much easier with cars in the days before cars were available for sale? If we had allowed the people who profited from horses and buggies to threaten to destroy the careers of people who tried to tell people about cars, we would all be getting around in horses and buggies today. Our standard of living depends on us achieving new advances all the time. The last 36 years of peer-reviewed research points us to the biggest financial advance in our nation’s history. We need to enforce our laws against financial fraud and move forward together.
My sincere take.
Rob
“Why are we not hearing anyone call in with stories of VII?”
That is a question for you as you claim that a number of people follow VII. Why haven’t we seen a track record of successful people with VII? Why would anyone else want to go with VII without seeing a track record?
The track record is the entire history of the stock market. VII has been far superior to Buy-and-Hold for 150 years running. And of course it makes sense. That’s a comfort to the people who follow it because it is their retirement money that is at risk if they go with a strategy NOT supported by the entire historical record.
Please note that no Valuation-Informed Indexer has ever put forward a death threat or engaged in any other insanely abusive activity. We don’t see any need to. Following a research-based strategy greatly adds to one’s confidence.
After your prison sentence is announced, no one will be afraid to post honestly. You will be hearing thousands of VII success stories. Those stories benefit all of us. That’s why I say that the laws against financial fraud are good and necessary laws and should be enforced.
Rob
“The track record is the entire history of the stock market. ”
Uhm…..that would be buy and hold.
No.
That’s the proposition that Wade Pfau and I examined in the peer-reviewed research we produced a few years back. We found that Valuation-Informed Indexing has produced far superior results for the entire historical record. Buy-and-Hold produced somewhat better nominal results in about 10 percent of the 30-year time-periods we examined. But at far great risk (because the odds of getting better results were only one in ten). On a risk-adjusted basis, Valuation-Informed Indexing has been superior for the entire historical record.
Our fellow community members reacted with great excitement to our publication of that research. That’s why you Goons threatened (with Jack Bogle’s implicit support) to destroy Wade’s career if he continued doing honest work in this field. Wade and I had planned to get our research published on the front page of the New York Times. Once the research had been published on the front page of the New York Times, thousands of people would have felt safe to post honestly and there would be no more Buy-and-Hold from that day forward. The massive act of financial fraud would come to a full and complete stop and we would all be living richer (in every sense of the word) lives from that day forward.
Wade is going to flip back in the days following the next crash, Anonymous. He won’t exactly have any choice, will he? And we will get our study published on the front page of the New York Times at that time. And the thousands who have doubts about the Get Rich Quick element of Buy-and-Hold will come forward at that time. And you Goons will be sent off to prison cells at that time. And we will all begin living richer lives at that time. Presuming that we can get the word out fast enough to avoid falling into the Second Great Depression.
I will be on the side of the people of the United States at that time. As I am today. As I was on the morning of May 13, 2002. As I even was in my heart from May 1999 through May 2002 when I held serious doubts about Buy-and-Hold but was too afraid to express them given my fears of what Greaney’s Goon Squad would do to me if I posted my sincere views. We are as a society in the process of going from a terrible, terrible, terrible place, where the only investing strategy that can be discussed publicly is the purest and most dangerous strategy ever concocted by the human mind to a place where we will all be openly celebrating our discovery 36 years ago of the first true research-based strategy. We are working our way through a difficult process and we are close to arriving at a very good place indeed.
100 percent of the evidence available to us today supports Valuation-Informed Indexing. 0 percent of the evidence available to us today supports Buy-and-Hold. That’s why Buy-and-Holders feel compelled to rely on death threats, demands for unjustified board bannings, thousands of acts of defamation and threats to get academic researchers fired from their jobs. There has never been a sliver of evidence supporting the pure Get Rich Quick approach and it is not possible for the rational human mind to imagine how there ever could be a sliver. Our laws against financial fraud will be enforced in days to come and we will all move forward together in days to come. I am 100 percent sure.
And I naturally wish all you Goons good things (while loving my country as much as I did on the day when all this ugly stuff got started because I dared to note at the old Motley Fool board that the retirement study posted at John Greaney’s web site lacks an adjustment for the valuation level that applies on the day the retirement begins).
My best wishes,.
Rob