“If Buy-and-Hold Was Real, the Buy-and-Holders Would Welcome Questioning and Challenges.”

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

Is this part of your vast research into what constitutes peer reviewed research?

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3525096

The link goes to a paper titled “The Value Premium,” by Eugene Fama and Kenneth French. Here is the abstract:

“Value premiums, which we define as value portfolio returns in excess of market portfolio returns, are on average much lower in the second half of the July 1963-June 2019 period. But the high volatility of monthly premiums prevents us from rejecting the hypothesis that expected premiums are the same in both halves of the sample. Regressions that forecast value premiums with book-to-market ratios in excess of market (BM-BM_M) produce more reliable evidence of second-half declines in expected value premiums, but only if we assume the regression coefficients are constant during the sample period.”

Yes, that is one paper. It is part of the universe of research papers available to us.

The claim that I frequently make is that: “there is now 39 years of peer-reviewed research showing that there is precisely zero chance that a strategy that rules out market timing could ever work for a single long-term investor.” I obviously do not believe that every paper published during that time makes that point. The vast majority of papers don’t even look at that question. And there are of course many good and smart people who believe that market timing is a bad idea and who believe that that view is research-based.

However, the reality remains that there is 39 years of peer-reviewed research showing that market timing is required. If valuations affect long-term returns, as Shiller’s Nobel-prize-winning research shows, then stock investment risk is not constant but variable and any investor seeking to keep his risk profile constant over time MUST engage in market timing. It is a logical impossibility that any investor could keep his risk profile constant without engaging in market timing in a world in which valuations affect long-term returns.

There is not a consensus today re how stock investing works. There are two schools of academic thought and the primary researchers for both schools have been awarded Nobel prizes. What we need to do to advance knowledge is to explore the merits of the case for each school of thought at every discussion board and blog on the internet. That’s the scientific process. You learn new things over time and you explore the implications of the new things that you have learned and then you incorporate the new knowledge into your old understanding of the subject.

The problem in the investment advice field is that we have not been doing this for 39 years now. There is a mountain of money to be made promoting Buy-and-Hold strategies during an out-of-control bull market. So the idea has taken hold that discussion of the implications of the last 39 years of peer-reviewed research must be suppressed at all costs, even if it takes criminal acts to get the job done. I don’t buy it, Anonymous. Engaging in criminal behavior is not science. It is intimidation. It is the OPPOSITE of science. Science is about learning and intimidation blocks learning.

90 percent of the population today believes in Buy-and-Hold. What percentage would believe in Buy-and-Hold had we been permitting honest posting for the past 39 years? We don’t know. We didn’t play it that way, so we have no way of knowing. It could be that the percentage would be 0 percent. We just do not know.

Buy-and-Hold started out as science. Today it is a scam. Any strategy that can only be “defended” with death threats and demands for unjustified board bannings and thousands of acts of defamation and threats to get academic researchers fired from their jobs is a scam. I obviously don’t say that every Buy-and-Holder has engaged in criminal acts. But a small percentage had done so at a good number of places and on a good number of different occasions. And how many of the Buy-and-Holders who have not engaged in criminal acts have spoken out in opposition to those who have? Some have done this. Most have not. And even those who did it on one or two occasions stopped doing it when the Goons turned their attention to them. That doesn’t inspire confidence in the strategy in the minds of reasonable people.

If Buy-and-Hold was real, we never would have seen a single abusive (much less criminal) act. If Buy-and-Hold was real, the Buy-and-Holders would welcome questioning and challenges. They would see challenges as potential learning experiences, not as deadly threats that must be suppressed at all costs.

Please mark me down as saying that Buy-and-Hold was a wonderful thing when it was developed and has become a scam in the days since the Buy-and-Holders gave up hope that the strategy could be defended in civil and reasoned discussions and concluded that the only way it could survive is with the ugly abusive and even criminal stuff. Not this boy, you know? Your own behavior shows how weak the case is for this “strategy.” I put the word “strategy” in quotes because the idea that market timing (price discipline!) is not required is not the product of human reason. It is the product of the Get Rich Quick impulse that resides within all of us. There is no thought associated with it.

Market timing is price discipline. It is required always and everywhere. The claim that there might be an exception to that rule on some alternate universe is preposterous on its face. That’s why it gets the Buy-and-Holders so angry to hear the claim questioned There is no research-based case for ANY Get Rich Quick strategy. Get Rich Quick strategies are supported by emotion, not reason.

This is why Wade Pfau was not able to find a single piece of peer-reviewed research supporting the Buy-and-Hold claim that market timing does not work. The claim that market timing is not required is a marketing gimmick, a money-making thing. It is not reasonable to expect peer-reviewed research to support marketing gimmicks. Research is aimed at getting at the truth, marketing gimmicks are aimed at turning a quick buck.

My sincere take.

Marketing Gimmick Challenger Rob