“Most Investors Are Fine With Being Misled. That Doesn’t Make It Okay. But It Does Make It a Viable Marketing Strategy to Mislead Investors About the True and Lasting Value of Their Portfolios.”

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

So, what you are saying is that buy and holders did well after those drops, but VII investors missed out yet again.

Obviously I am not saying anything even remotely like that.

I am saying that stock price increases of 6.5 percent real per year are rooted in economic realities and that investors may count on them to finance their retirements but that price increases of more than that are rooted in irrational exuberance and investors should NOT count on those amounts to finance their retirements. I am also saying that everyone who works in this field should be telling investors that every day.

Investors have not been told that. Investors have been terribly misled. This is a national tragedy.

The biggest reason why The Great Buy-and-Hold Con has continued for so long is that all investors possess a Get Rich Quick urge and Buy-and-Hold appeals to it. The vast majority of investors like thinking that the amounts on their portfolio statements are real and that they do not need to divide those amounts by two at times when stocks are priced at two times their fair value. Most investors are fine with being misled. That doesn’t make it okay. But it does make it a viable marketing strategy to mislead investors about the true and lasting value of their portfolios.

When nominal portfolio values are lower than their real values, the psychology changes. When stocks are priced at one-half of their true value, I will be telling investors that they need to multiply the nominal value by two rather than divide it by two. That’s a much more appealing message. I believe that enough investors will listen to that message for us to open every site on the internet to honest posting re the last 38 years of peer-reviewed research. Then we are home free.

There’s no reason for anyone to go back to Buy-and-Hold once they have discovered Valuation-Informed Indexing. One is research-based, one is not. One is real, one is not. One works, one does not, We are all going to be Valuation-Informed Indexers in the future. But for now, these high prices are an obstacle to progress. They appeal to our Get Rich Quick impulse, which is our weakness.

No one ever “misses out” by knowing what the peer-reviewed research says, Anonymous. That’s like saying that people who didn’t invest in the Madoff fund “missed out” on a great opportunity to get rich quick. Huh? The peer-reviewed research is our friend. It is the marketing slogans of the Buy-and-Holders that hurt us and cause us to miss out on better investment strategies and the many benefits that flow from them. It is absurd to think that someone could miss out by giving up a Get Rich Quick strategy for a research-based strategy. Perhaps in the short-term, when irrationality can prevail, but never in the long-term, when rationality always reasserts itself.

My sincere take.

Rob