I have posted Entry#557 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Is Only Popular At Times When It Is Dangerous.
Juicy Excerpt: Few investors are shy about acknowledging that they follow a Buy-and-Hold strategy today. It makes them feel smart to say that they have been following the strategy that pushed stock prices up to one of the highest levels ever achieved. Not so many will acknowledge following the strategy when prices have fallen hard. Investors are much more inclined to brag about their successes than to bemoan their mistakes. When the flaws of Buy-and-Hold become evident to all, few will own up to once having followed the strategy.
I now have about $6.5 million thanks to Buy and Hold. You have almost depleted your savings and need to go back to work. Which one of us is in danger?
More money is lost or given up in preparing or waiting for the proverbial crash then actually has been lost in them – Peter lynch
I now have about $6.5 million thanks to Buy and Hold. You have almost depleted your savings and need to go back to work. Which one of us is in danger?
The entire country is in danger in the event that stocks continue to perform in the future at least somewhat as they always have in the past. If it turns out that Shiller’s Nobel-prize-winning research is legitimate research, we will be seeing millions of failed retirement and hundreds of thousands of businesses going under and millions of people thrown out of their jobs. Another Buy-and-Hold crisis helps no one. It hurts us all.
If you adjust that $6.5 million number for the effect of irrational exuberance, it would be about $3 million. You would be a lot better off with $3 million living in a nation that is not going through its Second Great Depression than you will be with 1.5 million (stock valuations usually fall to one-half of fair value at the end of a bull/bear cycle) in a nation going through its Second Great Depression. Going full Get Rich Quick/Buy-and-Hold helps no one.
Rob
More money is lost or given up in preparing or waiting for the proverbial crash then actually has been lost in them – Peter lynch
This is the sort of statement that causes all the trouble. Pros and cons have to be weighed in any purchase decision and that’s how we do it for all the things that we buy other than stocks. When the idea that it is not necessary to weight pros and cons (to engage in market timing!) when purchasing stocks becomes popular, the brakes are ripped out of the car and that generally amazing asset class become extremely dangerous indeed. I believe that we should be permitting honest posting re the last 40 years of peer-reviewed research in this field.
My best and warmest wishes to you and yours.
Rob
“ If you adjust that $6.5 million number for the effect of irrational exuberance, it would be about $3 million.”
You have said the same thing for the last 10 years, yet my portfolio has grown substantially. Just think if I was stupid enough to take your adVice. I would be broke like you.
How much of the growth was real and how much was irrational exuberance? Shiller’s huge contribution was to show that you need to make that calculation to know where you stand.
The only difference between us is that I believe in always taking irrational exuberance into consideration and you do not. That one difference affects every decision you make as a stock investor. If Shiller is right and you fail to take irrational exuberance into consideration, you cannot get anything about stock investing right. It’s a logical impossibility.
Fair enough?
Rob
“ How much of the growth was real and how much was irrational exuberance? ”
It is obviously very real. I can do whatever I want with the $6.5 million. For example, I can go buy a $6.5 million house. How real is your $500 million? Can you buy a house with it?
I don’t think that irrational exuberance is real, Anonymous. It TEMPORARILY has the appearance of being real. I’ll give you that. That’s what makes it so dangerous. If you fall into the trap of thinking that irrational exuberance is real, you will not be able to plan effectively because you will not know how much real and lasting money you have.
I can’t buy a house today with the $500 million settlement payment that I expect to receive in the days following the next price crash. But I will be able to buy lots of houses then. And I will have the satisfaction of knowing that I helped millions of people live richer and betters lives than they ever imagined was possible in the Buy-and-Hold Era. That ain’t nothing.
If you were confident that the irrational-exuberance money was real, you wouldn’t get so angry when I bring up Shiller’s Nobel-prize-winning research. If you were confident, you would be calm and happy to invite questions and to engage in friendly and respectful conversations with those holding other points of view.
My best wishes.
Rob
“I can’t buy a house today with the $500 million settlement payment that I expect to receive in the days following the next price crash. But I will be able to buy lots of houses then. And I will have the satisfaction of knowing that I helped millions of people live richer and betters lives than they ever imagined was possible in the Buy-and-Hold Era. That ain’t nothing.”
It is a BIG nothing and you haven’t help one single person. All you have done is wasting very valuable time that you can never get back.
Okay, Anonymous.
I do wish you all the best that this life has to offer a person regardless of what investment strategy you elect to follow, in any event.
Rob