I’ve posted Entry #428 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Does Jack Bogle Believe in the Efficient Market Theory?
Juicy Excerpt: The tricky word in that quote is “readily.” If Bogle is saying that investors who change their stock allocation in response to big valuation shifts may not see benefits for doing so for 10 years or perhaps in some cases even a bit longer, I certainly agree. Perhaps we agree! But I don’t want to jump to that happy conclusion. He also says that: “The stock market itself is a demanding taskmaster. It sets a high hurdle that few investors can leap.” The historical stock return data shows that an investor who went with a stock allocation of 60 percent when prices were at moderate levels, a stock allocation of 30 percent when prices were insanely high and a stock allocation of 90 percent when prices were insanely low would obtain higher returns at less risk than an investor who stuck with a 60 percent stock allocation at all times. Would making that sort of change be such a “high hurdle” for an investor to leap?
If only Jack was still around so that you could set him straight.
Those of us who love Jack for the scores of powerful investment insights that he offered that have stood the test of time can still honor him by setting him straight re the one that he got terribly wrong (the idea that it is not necessary to practice price discipline when buying stocks). Do you think that Jack would have preferred that we cover up the error? Not if he was one-tenth of the man that I have always believed him to have been.
Bogle-Loving and Bogle-Respecting Rob
Maybe you can replace his tombstone with a “I was wrong” script.
That would indeed help his spirit to shine all the longer and all the stronger, Anonymous. Being able to admit one’s mistakes is a virtue.
It could well be that years from now people will look back and observe that Bogle’s finest moments were the moments in which he expressed doubts re Buy-and-Hold. It was his statement in his book that Reversion to the Mean is an “Iron Law” of stock investing that helped me to understand that there is precisely zero chance that the safe withdrawal rate is the same number at all valuation levels. My famous post of the morning of May 13, 2002, owed more to Bogle than it did to Shiller, believe it or not.
True Boglehead Rob
If you pass on without getting your New York Tomes article, or the $500 million windfall, can we put the “I was wrong” script on your tombstone?
Not unless someone is able to produce some peer-reviewed research supporting the Buy-and-Hold strategy.
The peer-reviewed research is the referee. Producing peer-reviewed research is part of a scientific investigation. Science is a quest for truth. The fact that a strategy does a good job of turning a quick buck for a few years doesn’t make it true. The real stuff has peer-reviewed research behind it. The real stuff is science. The real stuff is perceived as true not just for the length of a bull market, but forever.
Get some peer-reviewed research published showing that there is more than a zero chance that a Buy-and-Hold strategy could work for one or two long-term investors and you won’t have to wait to put”I Was Wrong” on my tombstone, I will announce it here and at every investing site on the internet that will have me on to announce it. But I need to see peer-reviewed research supporting a pure a Get Rich Quick approach before I am going to endorse it.
I learned from Jack Bogle that all investors should use the peer-reviewed research for guidance on hos to invest. I believed him. I think he was right. He’s a nice guy. Smart as the dickens too. You should check out his stuff some time.
We don’t have to wait for a New York Times article to know what the last 38 years of peer-reviewed research says. The Times ran an article on its front page reporting on the awarding of a Nobel prize to Shiller for his “revolutionary” research findings showing that valuations affect long-term returns. The question of which strategy is superior was settled many, many years ago. Not in a practical sense. In the practical realm, we have the massive act of financial fraud to overcome. But in the intellectual realm this one was put to bed many, many years ago.
But of course you knew that.
Tombstone Rob