Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
The question, which you ignored with that babbling, was “What support, if any, have you had in the last 5 years?”
Obviously the correct answer is “None.”
Every day that the Greaney retirement study goes uncorrected is more support for Valuation-Informed Indexing. If Buy-and-Hold were a real thing, every Buy-and-Holder would want to know about any errors that they made and they would want to correct them within 24 hours of learning about them. The fact that the Greaney study was not corrected yesterday is highly significant evidence of the dangers of going with a pure Get Rich Quick approach. If it is not corrected again today, that will be even more evidence.
It was 19 years ago when I pointed out the error in the study. That’s a LOT of support. Holy moly!
My best wishes.
Rob
Investment experts will always gravitate towards what is proven to be successful. Buy and Hold has had a strong track record of success. On the other hand, we have yet to see even one successful outcome with VII. It is just as simple as that. There is no mass conspiracy against you. Just focus on the facts.
Buy-and-Hold does not have a strong track record of success. It has a horrible, horrible track record. Wade Pfau and I showed this beyond any reasonable doubt in our peer-reviewed research. It is the stock market that has a strong record of success. If that is your point, then we are in complete agreement. Investing in the stock market is such a wonderful thing that it is hard to imagine anyone coming up with a way to do it that produced poor results. But that’s what the Buy-and-Holders did.
Market timing is price discipline. Every market that has ever existed depended on price discipline to work. The Buy-and-Holders take price discipline (market timing!) out of stock investing. Doing that transforms it in this horrible thing that causes millions of failed retirements and that causes hundreds of thousands of businesses to go under and that causes millions of people to lose their jobs and that causes a worsening of political frictions. They didn’t intend to do that. But at the time that the Buy-and-Hold strategy was developed, they did not have available to them the research that shows that that is what always happens when market timing is taken out of the picture.
Robert Shiller merited his Nobel prize He showed us all how stock investing really works, He showed us that the ocean of human misery that always follows when large numbers of people are persuaded to follow a Buy-and-Hold strategy is 100 percent optional, that there is a better way (Valuation-Informed Indexing) available to all of us. I recommend the better way, the first true-research-based investment strategy, Valuation-Informed Indexing.
That’s where I am coming from, Anonymous. The conspiracy is a conspiracy of ignorance. We all want to live better lives. The problem is that, for the Buy-and-Holders, the price of admission to a better future is learning how to pronounce the words “I” and “Was” and “Wrong.” They will feel better forever more after they learn how to pronounce those words, But the thought that everything that they once believed about how stock investing works was in error terrifies them, That’s been the hold-up for 19 years now. The Buy-and-Holders don’t want to suffer and they don’t want to cause suffering for others. As a society our job is to help them get from the horrible place where their minds reside today to the wonderful place where we all hope they will reside tomorrow.
How do we do that? We open every discussion board and blog on the internet to honest posting re the past 40 years of peer-reviewed research in this field. It’s the only way forward.
My sincere take.
Rob
“Buy-and-Hold does not have a strong track record of success. ”
Wrong again. You are ignoring the data. When asked for more detail, you contend that the buy and holder actually gets scared and sells on market drops. That is not the definition of a buy and holder. That is a definition of a market timer. You have yet to show one example of a market timer that has been successful.
It’s the definition of a human being, Anonymous. Believing in Buy-and-Hold doesn’t change human nature. We are priced today for a 60 percent price drop. Human beings cannot lose that amount of wealth and not lose confidence in the market. It has never happened and it never will happen. In every earlier secular bear market, the CAPE has dropped to 8. That cannot happen unless pretty much all investors (including the vast majority of Buy-and-Holders) lose confidence in the market. Buy-and-Holders are not supernatural beings. They are humans. If they were thinking clearly, the would take human nature into account when deciding on their investment strategy.
Panic selling is the mark of a Buy-and-Holder, You say “no” only because you want to defend Buy-and-Hold. But you can take a look at what has happened on every earlier occasion on which irrational exuberance has gotten out of control. It’s not a pretty sight to contemplate. Irrational exuberance is the enemy of stock investors. Do away with irrational exuberance and you do away with stock investing risk. And there is only one means that we know of to do away with irrational exuberance — market timing! When the Buy-and-Holders discourage market timing, they are pushing stock investing risk to the highest level that it has ever been pushed. I do not approve.
My best and warmest wishes to you and yours.
Rob
“Panic selling is the mark of a Buy-and-Holder, You say “no” only because you want to defend Buy-and-Hold. ”
Wrong again. Panic selling is not buying and it is not holding. It is market timing. We have yet to see one successful case of market timing.
We fundamentally disagree, Anonymous.
There’s one form of market timing that never works — what John Walter Russell referred to as “idiot switching.” But the kind of market timing that I recommend is adjusting your stock allocation in response to big price swings so that your risk profile remains constant over time. That’s price discipline. That always works, It always increases returns while diminishing risks. It is a logical impossibility that intelligent market timing would ever not work in the long run.
There is no panic selling among Valuation-Informed Indexers. They take irrational exuberance into consideration when determining the value of their holdings. So they are never surprised by price crashes and have no reason to panic. Buy-and-Hold (the strategy that says that market timing is not required) pushes risk up to the highest levels that it can ever be pushed. Insane levels of risk are what cause price crashes and panic selling. Take Buy-and-Hold out of the picture and there would be no bull markets. And thus no bear markets. And thus no panic selling. And thus no economic crises.
It is the emotional stuff that causes all of the negative of stock investing. And the “idea” that market timing (price discipline!) is not required is pure emotion. Buy stocks in the same manner that you buy everything else (always taking price into account when making purchasing decisions) and all the bad stuff goes away.
My sincere take.
Rob
Buy and hold is a strategy. Market timing is a strategy. Neither are human. We are comparing strategies. Look at what you are describing. You are actually making the case for buy and hold.
One of the two strategies is suited for use by humans. The other is not. That’s the difference.
There was a widespread academic belief at the time that the Buy-and-Hold strategy developed that the market is efficient. For the market to be efficient, investors would need to be engaged in a rational pursuit of their self-interest. If the market were efficient, Buy-and-Hold would be the ideal strategy.
Shiller discredited the Efficient Market Theory with his Nobel-prize-winning research. He showed that investors are NOT rational. They are self-destructive. They bid prices up to insane, unsustainable levels. They fool themselves into believing that the crazy nominal prices that apply during bull markets are real, that they can use that money to finance their retirements. Then they suffer the horrible consequences that follow from the inevitable price crash and economic crisis.
If irrational exuberance is a real thing, it is the #1 enemy of stock investors. We all should be doing everything in our power to rein it in. That means telling investors about the amazing wealth-protecting and wealth-enhancing power of market timing at every site on the internet. Once every site on the internet is opened to honest posting re the last 40 years of peer-reviewed research, there can never be another out-of-control bull market. Stock prices are self-regulating in a world in which Shiller’s research is available to investors and in which honest posting re the far-reaching implications of that research is permitted.
Humans are flawed creatures, not perfectly rational creature. We all have a Get Rich Quick impulse residing within us. The “idea” that market timing might not be 100 percent required at all times pushes that Get Rich Quick impulse to places it has never been pushed before. We should all back off the dangerous Buy-and-Hold stuff and get about the business of making the case for market timing/Valuation-Informed Indexing.
That’s where I am coming from, Anonymous.
Rob
“Buy-and-Hold does not have a strong track record of success. It has a horrible, horrible track record.”
The track record is that all buy-and-holders have more money than you. Game over, little buckaroo.
The game is not over, Anonymous. Adjust for the effect of irrational exuberance and you get a very, very different story. The benefit of using research as your guide and not just pure emotion is that you get a better fix on reality that way. The Get Rich Quick/Buy-and-Hold numbers are TEMPORARY numbers. They mislead you. The Valuation-Informed Indexing numbers are real numbers that reflect the underlying economic realities. That makes all the difference in the world.
I was a Buy-and-Holder once upon a time. The thing that attracted me to the strategy is that it was promoted as being a research-based strategy. It was when I learned that that is not so that I lost confidence in it and began development of the Valuation-Informed Indexing strategy. I want to be able to sleep at night. I want to know that the numbers that I am using to plan my retirement are rooted in something real. You lose me completely when you fail to adjust for the effect of irrationa exuberance.
Rob
“Shiller discredited the Efficient Market Theory with his Nobel-prize-winning research. He showed that investors are NOT rational. They are self-destructive. ”
Again, you are talking about people and not strategy. Shiller continues to tell people that we do not know what will happen in the market and to stay invested. He has yet to tell anyone to pull out of the market at any point in time. You take a few words from Shiller and then twist it to fit your narrative, yet you don’t follow what Shiller actually says.
Shiller has actually made a great case for buy and hold. As said above, you also make a great case for buy and hold.
Shiller said in 1996 that stock prices were so high that investors who stuck with their high stock allocations would come to regret it within 10 years. He did not say to go with a zero stock allocation. But of course I do not say that either. I say that the investor who was going with a 60 percent stock allocation when prices were reasonable should be going with a 30 percent stock allocation today.
Rob