Buy-and-Hold Goon to Rob: “The Biggest Problem With VII Is That There Is No Long-Term Track Record With Implementation. You Have Spent Too Much Time Trying to Tell People That Their Investment Strategy Is a Failure, When They Have Actually Had Superior Results. You Would Have Been Better Off Saying That You See a Number of Successful Strategies and You Want People to Consider Your Option.”

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

The biggest problem with VII is that there is no long term track record with implementation. To the opposite, there is a very long and solid track record with actual outcomes from people that have implemented buy, hold and rebalance. You have spent too much time trying to tell people that their investment strategy is a failure, when they have actually had superior results. They can look at their own numbers and see that what you have said is a flat out lie.

You would have been better off saying that you see a number of successful strategies and you want people to consider your option. You then show them how to implement it and show actual real world results as time goes on. What further hurts your position is that you haven’t even followed it yourself, nor have you made changes to improve your situation.

Valuation-Informed Indexing has been far, far superior to Buy-and-Hold for as far back as we have records of stock prices. The Bennett/Pfau research paper shows that beyond any reasonable doubt whatsoever. That’s why you Goons threatened to get him fired from his job if he continued doing honest work. You never would have put yourself at grave risk of ending up in a prison cell if you didn’t see that our research has great power to persuade millions to shift to a more sensible strategy. I mean, please give me a freakin’ break.

The only way that anyone can claim that Buy-and-Hold has ever had superior results is by failing to adjust the numbers on their portfolio statements for the effects of overvaluation. Gee, I wonder why that makes things look different. Shiller’s Nobel-prize-winning research shows that you have to adjust for valuations. Do that, and you will see clearly which strategy is superior. Fail to do that and you may or may not fool others but always at the risk that you may fool yourself as well. To what good purpose?

I don’t have any problem with telling people that there are two schools of academic thought as to what works. Fama was awarded a Nobel prize on the same day that Shiller was. There are millions of good and smart people who swear by Buy-and-Hold. I used to be one of them. So I certainly have no problem with any of that.

But where does that leave us on the safe withdrawal rate question? If Fama is right, the SWR is always 4 percent, just as Greaney’s study indicates. If Shiller is right, the SWR is a number that can drop to as low as 1.6 percent and rise to a number as high as 9 percent, depending on the valuation level that applies on the day the retirement begins. Should I lie about the matter and tell my friends on the various boards and blogs that I believe that there might be a valuation adjustment buried so deep in the Greaney study that no one has been able to find it in 17 years? If I do that, I am guilty of financial fraud too and I go to prison as well. Thanks, but no thanks, you know?

My best and warmest wishes you you, my dear Goon friend.

Prison-Free (Both Now and After the Crash!) Rob