Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
f I am showing you a strategy and it has a poor track record over 24 years, you would still be open to this strategy? Just a simple yes or no answer.
Yes.
The point you are making is the biggest reason why Buy-and-Hold remains dominant today. It is human nature to look at recent history, to go five years back or something like that rather than 150 years back. But that’s not science. Science goes 150 years back if there is 150 years of data to examine. Then science tries to explain to people why it is a mistake only to go five years back.
Does your doctor only go five years back when telling you whether you are at risk for a heart attack? A person could be overweight for 24 years and not have suffered a heart attack in that time. Should the doctor just conclude, “oh, everything is fine then.” Or should he encourage you try to lose weight on grounds that you are at great risk for a heart attack even though you have not had one for the 24 years since you first became overweight.
I was drawn to Buy-and-Hold once upon a time because of claims that it was rooted in science. If Buy-and-Holders are not willing to look at data that is more than 24 years old, then Buy-and-Hold is not science and Buy-and-Hold is not for me.
Yes, I am open to a strategy that has scientific backing and that has a poor track record for 24 years. I understand that that puts me at a marketing disadvantage. But I am not the only one looking for a strategy backed by science. It’s about 10 percent of all investors who are seeking that. That’s millions of people. Those millions of people have every right in the world to engage in whatever discussions they want to have re Valuation-Informed Indexing at whatever sites they want to have them. The Buy-and-Holders have every right to take a pass. But they do not have the right to disrupt the discussions that non-Buy-and-Holders are seeking to participate in.
That’s where I’m coming from, Anonymous.
Rob
A person in retirement cannot withstand 24 years of failure. Maximum threshold would be closer to 10 years.
It’s up to the person involved to decide what is right for him, Anonymous, You have no right to decide that for others (which is what you are doing when you engage in criminal behavior to block discussions re the last 39 years of peer-reviewed research in this field).
If we opened the entire internet to honest posting, as I believe we should, I am certain that there would still be lots and lots of people who would decide to follow a Buy-and-Hold strategy. I would never object in even the tiniest way. I would say that I do not personally advise that. But that’s as far as it would go. I am not willing to cover any losses that people might suffer in the event that my advice does not work out. So I cannot insist that they follow the advice or deny them the opportunity to play it a different way.
That’s how I think you should handle things. If it turns out that your advice does not work, you are on the hook for trillions of dollars in losses because of the manner in which you blocked people from exploring the implications of Shiller’s research. If I were in your shoes, I would permit people to talk about whatever they want while sharing with them whatever my personal beliefs happened to be.
Your rule that prices have to fall within 10 years doesn’t stand up to scrutiny. Each situation is different. There cannot be one rule, But there certainly are cases where a price drop of 70 percent (which is what we will see if stocks continue to perform in the future somewhat as they always have performed in the past) would be absolutely devastating. People have a right to know that and to prepare for the possibility in whatever way makes sense to them, Some would elect to lower their stock allocations a bit. They have a right to do that. You do not have a right to deny them the information they need to make an informed choice.
My sincere take.
Rob
“It’s up to the person involved to decide what is right for him, Anonymous, You have no right to decide that for others (which is what you are doing when you engage in criminal behavior to block discussions re the last 39 years of peer-reviewed research in this field).”
No, if a person has had 10 years of failure when in retirement, that is hard to make up for, let alone 24 years. The decision has been taken out of their hands. They will need to either get a job and/or greatly change their lifestyle. They don’t have a choice. Michael Kitces has made this point many times.
Shiller put out his paper recommending market timing in July 1996. From July 1996 through today, the S&P 500 has provided an annualized real return of 6.9 percent real. A real return of 4 percent real was available from non-stock asset classes from 1996 through 1999 and then that return could be locked in for as long as 30 years in 2000. So the difference in return has been about 3 percent real per year. That’s significant. But it is not devastating. It is not “failure.” It is a shortfall that will be made up for during the next price crash and in the many years following it, when the research-based investor will be earning outsized returns on the stocks that he will be able to invest in because he did not lose everything in the next Buy-and-Hold crash.
This is why Michael Kitces has had many positive things to say about the idea of taking the last 39 years of peer-reviewed research into consideration when buying stocks. Michael has said: “There are time-periods where stocks are a terrible addition to a portfolio. Yet, inexplicably, we as planners STILL tend to suggest that it is ‘risky’ to not own stocks when in reality the only risk is to our business.” That’s the real story. Investors need to be reminded of that on a daily basis. We are all born with a Get Rich Quick/Buy-and-Hold impulse that undermines our hopes of achieving our financial freedom dreams. If we are to resist Buy-and-Hold, we need to be reminded of its dangers on a daily basis.
That’s why we do research. That’s the point. We want to do better than we could by just letting our Get Rich Quick impulse run wild.
Rob
VII has not worked out for anyone that would be retiring today. Sorry, but I don’t want to spend the rest of my days eating dog food.
It has worked for every investor who has followed it going back to the day the market opened for business. The research that I co-authored with Wade Pfau shows that.
There are obviously going to be times when the numbers are up or down for a time. That’s the entire point of a Buy-and-Hold/Get Rich Quick approach — to temporarily push the numbers up. It’s what happens in the long run that matters. In the event that the stock market continues to perform in the future anything at all as if has always performed in the past, we will be seeing a big price drop in the next year or two or three. I hope and believe that as a society we will be able to make more forward progress at that time.
My best and warmest wishes to you.
Rob
Then you can give us just one name of a person that followed VII and has had a successful retirement portfolio.
That’s like asking for the name of one person who had a more successful driving experience by driving sober rather than drunk. The answer is — every single one.
There has never been an investor who couldn’t reduce risk and increase return by switching from a Get Rich Quick approach to a research-based approach.
Rob
Just one name, Rob. That is all you have to do. Try REALLY hard this time. We will wait anxiously for your answer.
What’s your name, Anonymous?
Whatever it is, the person holding that name would have benefited from taking into consideration the last 39 years of peer-reviewed research in this field before making any stock investing decisions. Research is a positive. Research teaches us things that we would not know without it. Learning stuff is a plus.
My sincere take.
Rob
If VII was successful and Buy and Hold failed, you would have had the most popular website years ago. Instead, you lie about it and your left here sitting by yourself.
That’s like saying that the accountant who revealed the fraud in the Bernie Madoff fund years before it was generally exposed was wrong because, if the fund was really fraudulent, no one would have invested in it.
That’s not the way it works, Anonymous. Fraud can work temporarily because it makes people feel good. It’s when prices drop that the Buy-and-Hold Con will become widespread public knowledge. The fraud will not be making people feel good then. It will be making people feel bad. Do you appreciate the difference that that will make?
Rob