Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
You are wrong. This is not a ‘point of view issue’. Making things a ‘matter of opinion’ when they are logically false/true is the type of ignorant relativism that makes ‘anything’ possible to be right or wrong.
It is ALWAYS possible to find a back-tested strategy that beats buy-and-hold, hence it is ALWAYS possible to say that some kind of scheme ‘beat the market’. Therefore, it is IMPOSSIBLE to say that timing doesn’t work. Trying to find a paper that argues against an impossibility is a reductive waste of time.
Simply put, all timing can work. If you get the timing right!
It is just that almost no one has got it right so its best not to try. Your horrific long term returns, for example.
If Buy-and-Hold cannot be discredited, then Buy-and-Hold is not the product of science. For something to be the product of science, it has to be falsifiable. If 150 years of stock market history isn’t enough to discredit Buy-and-Hold, nothing is. The reality is that the only thing that has supported Buy-and-Hold for 37 years now is the naked assertion that the market is efficient.
There is simply no evidence for this assertion. For the market to be efficient, investors would need to be rational — they would need to be willing to act in their self-interest. This is the ASSUMPTION on which Buy-and-Hold is based. But why assume this? People do not always act rationally (in their self-interest) when it comes to drinking. Some people become alcoholics. That’s not rational. People do not act rationally when it comes to smoking. People do not act rationally when it comes to gambling. People are not fully rational creatures. The reasonable thing is to believe that people will be only partly rational and also partly emotional when it comes to investing in stocks too.
If the level of collective investor emotionalism waxes and wanes, then stock investing risk is not constant but variable. If the level of stock investing risk is variable, then investors must be willing to adjust their stock allocations in response to dramatic changes in valuations to have any hope whatsoever of keeping their risk profiles roughly stable over time.
A strategy that is rooted in a common-sense observation as to how humans are constructed (they are emotional creatures) is not a “scheme.” It is an approach to investing rooted in reality rather than in a long-discredited assumption that has been doing great harm to both investors and to the society in which it is advocated for as long as stock markets have been in existence. When someone is trying to make a decision as to whether to hand in a resignation from a corporate job, he needs accurate information as to the lasting value of his stock portfolio. The Buy-and-Holders are not able to provide it because they are not willing to look at what the 150 years of stock-market history available to us for review tells us about how stocks perform differently in the long run starting from different price levels (because some reflect a greater level of emotionalism than others).
I do not believe in Buy-and-Hold. So I am not going to recommend it to others. I have no problem with you recommending it. I believe that you believe in it. So I believe that you should recommend it to others. But not me. I should be saying what I believe re these matters when I advance posts with my name on them. I believe that the last 37 years of peer-reviewed research in this field is legitimate research. I believe that Shiller deserved his Nobel prize. I believe that valuations affect long-term returns. I believe that the safe withdrawal rate is a number that varies given the valuation level that applies at a given point in time.
I wish you the best of luck with the strategy that you have decided is right for you, Laugh. Does that help at all?
Horrific Long-Term Returns Rob
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