“I Don’t Agree With You That Buy-and-Holders Did Well Following the Crash. I Agree That Most BELIEVE That They Did Well. They Believe That Because They Count the Numbers on Their Portfolio Statement As Real. They Do Not Divide By Two to Adjust for the Effect That Irrational Exuberance Has on Those Numbers At a Time When Stocks Are Priced at Two Times Their Real Value. Make That Adjustment and You Come to a Very Different Conclusion.”

Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:

Buy and holders did great with the 2008 crash. Take a look as to how they have been rewarded with the market rise since that time. Buy and holders, by definition, held their position and kept on buying when stock were low and continued to buy thereafter. Market timers, like Rob Bennett, have not done well. Robert Shiller tried to warn them by telling them to not use CAPE for timing the market, yet some are not willing to listen.

Shiller said in the days following the 2008 crash that investors should not get back into stocks until the CAPE level dropped below 10. That’s market timing, Sammy.

I don’t agree with you that Buy-and-Holders did well following the crash. I agree that most BELIEVE that they did well. They believe that because they count the numbers on their portfolio statement as real. They do not divide by two to adjust for the effect that irrational exuberance has on those numbers at a time when stocks are priced at two times their real value. Make that adjustment and you come to a very different conclusion.

That’s the dispute. Does irrational exuberance produce real. lasting value? Or is it just a temporary thing that fools investors into thinking for a time that they are richer than they are and to make poor financial planning decisions as a result.

This is a critical question. We all need to know the true value of our portfolio. Do we need to adjust for the effect of irrational exuberance or do we not? That’s the entire different between Buy-and-Hold and Valuation-Informed Indexing. Buy-and-Holders say that there is no need to make an adjustment. Valuation-Informed Indexers say that adjustments are needed.

My best wishes to you.

Rob