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:
Like you frequently do, you make a long winded response hoping to distract from my post. No one if afraid to post. That is just plain silly.
I don’t think it is silly, Sammy.
Here are some words by Brett Arends that appeared in an article in the Wall Street Journal on October 14, 2010 titled “The Market Timing Myth”: “For years the investment industry has tried to scare clients into staying fully invested in the stock market at all times, no matter how high stocks go. It’s hooey. They’re leaving out more than half the story. Anyone who followed the numbers would have avoided the disaster of the 1929 crash, the 1970s or the past lost decade on Wall Street…. I wonder how many stayed fully invested because their brokers warned them ‘you can’t time the market’.”
That’s shocking stuff, deeply scary stuff. If Arends is right that 90 percent of what we hear from the experts in this field about how stock investing works is “hooey,” we are in a bad situation. How did we get to this place? The academics once thought that the market is efficient. If that were so, market timing would be a bad thing. But Shiller showed in 1981 that the market is NOT efficient, that valuations affect long-term returns (and that risk is thus not constant but variable).
Had everybody switched to Valuation-Informed Indexing back when Shiller showed how essential it is to practice market timing, everything would be good today. But that’s not what happened. Shiller’s advance was so huge that it caused lots of good and smart people to suffer cognitive dissonance. So they just kept on promoting Buy-and-Hold and acted as if Shiller’s work didn’t matter. Now we are 39 years down the line and it makes the Buy-and-Holders look very bad for anyone to speak frankly about what the peer-reviewed research in this field teaches us about how stock investing works.
So, yes, people are afraid to say what works. Anyone who speaks clearly and honestly makes most of the experts look bad. That’s not a good plan for career growth, Sammy. We’re stuck. To get unstuck, we all need to be trying to understand how we got to this place and what we need to do to begin moving forward. The very first step is to recognize that we are afraid to say what we truly believe about how stock investing works. Nothing else happens until we work up the courage to do that much.
I was once afraid. I am still. I just work very hard to overcome my fears. Because I feel that it is the only way that I can do good work in this field.
Rob
Anonymous says
Uh oh. They are blaming the coronavirus for the stock drop.
https://www.cnbc.com/2020/02/26/dow-futures-fall-after-microsoft-issues-coronavirus-warning.html
If not the virus, something else always gets the blame for the drop. Doesn’t look like anyone will blame buy and hold and that $500 million payday will have to remain a dream.
Rob says
I think that will change with time. So long as price remain high, lots of people feel complacent about the errors in the Buy-and-Hold Model that Shiller brought to light 39 years ago. If stocks continue to perform in the future anything at all as they always have in the past, we will be seeing millions of people suffer failed retirements and hundreds of thousands of businesses going under and millions of people being thrown out of their jobs. I think that a larger percentage of the population will overcome its complacency and then we will all be off to the races.
But we will just have to wait a bit to find out for sure.
Rob
Anonymous says
No one will blame buy and hold, nor should they. With all economic cycles, we will see a recession and then those people that have been waiting for a windfall will be further disappointed by the lack of job openings.
Rob says
We disagree.
Promoting a pure Get Rich Quick approach to stock investing causes the economic cycles to be far more dangerous than they would be if honest posting re the past 39 years of peer-reviewed research were permitted. Buy-and-Hold pushes stock prices up to crazy highs (because it tells investors that there is no need to exercise price discipline when buying stocks) and then the shock that investors feel to see 50 percent or more of their life savings disappear pushes stock prices down to crazy lows. And the big gains and then losses of consumer buying power cause the economy to roar ahead and then slam on the brakes.
All unnecessary. Stocks prices are self-regulating in a world in which we can talk about the 39 years of peer-reviewed research showing that market timing (price discipline!) is 100 percent required for all.
My sincere take, Anonymous.
Rob
Anonymous says
You can disagree, it you are still wrong. After 2 decades of failure, it is time to open your eyes.
Rob says
Buy-and-Hold has been failing people since the day the stock market opened for business. There have been four bull/bear cycle and at the end of each of them we experienced an economic crisis that caused a world of pain for millions of people. The Great Depression almost put us out of business altogether.
I am happy that Shiller’s Nobel-prize-winning research promises to bring all that to an end. And all that we need to do is to open every site on the internet to honest posting re the last 39 years of peer-reviewed research in this field. Such a deal!
Rob
Anonymous says
Show me the returns on a buy and hold portfolio that did not work.
Rob says
Wade Pfau and I spent 16 months studying the matter together. He concluded that “Yes, Valuation-Informed Indexing works!” He was amazed that other researchers had not looked at the question before he did because the case that market timing always works is so strong.
Buy-and-Hold does not call for market timing, Anonymous. It does not. Yes, Jack Bogle at one point acknowledged that Valuation-Informed Indexing works. But there are also hundreds of cases in which Bogle advanced suggestions that market timing might not be required for long-term success. Anyone who cares to do a Google search on this question can check this out for himself.
I think it would be fair to say that Bogle was afraid of what Mel Linduaer would do to him if he offered a clear endorsement of Valuation-Informed Indexing instead of the hedged and reluctant endorsement that he put forward instead. A man of Bogle’s accomplshments should not have to live in fear of an internet goon like Mel Linduar. I mean, come on. But that’s the state of the investment advice realm today.
It’s the 39-year cover-up that has caused the problem. If Shiller had published his Nobel-prize-winning research showing how important it is for all investors to practice market timing last week, we all would be talking about it on every site on the internet and we all would be enjoying an amazing learning experience and living richer lives from this point forward. But that’s not how things plated out. Back in the real world, Shiller published that research 39 years ago. So it makes the Buy-and-Holders look bad for anyone to post honestly on any investment-related matter. Why the 39-year cover-up?
It won’t look better for the Buy-and-Holders to make it a 40-year cover-up. The best thing for every single person involved is to open every investing discussion board and blog on the internet to honest posting and just let the U.S. system for handling such matters — a system which PERMITS honest posting in every field of human endeavors other than the investment advice realm — play out.
That’s my sincere take, Anonymous.
Market timing rules!
Research-Oriented Rob
Anonymous says
Again, show just one portfolio in which buy and hold didn’t work.
Rob says
Again, show just one portfolio in which buy and hold didn’t work.
Show me one portfolio in which Buy-and-Hold was employed and I’ll show you one in which it didn’t work.
Asking me to show you one portfolio in which Buy-and-Hold didn’t work is like asking me to show you one case in which someone driving drunk didn’t work.
Driving drunk is always a bad idea. Going with a pure Get Rich Quick investment strategy is always a bad idea.
The aim of investment advice should be to lower risk and increase long-term returns, not the opposite.
My sincere take.
Madcap Rob