Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
<i>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?</i>
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
And if the market doubles in the next 10 years, that $6.5 million will be $13 million. How did your predictions from 10 years ago work out?
I guess people like Warren Buffet and Charlie Munger don’t know how to invest either.
And if the market doubles in the next 10 years, that $6.5 million will be $13 million. How did your predictions from 10 years ago work out?
They did not work out well in the short-term. I believe (based on the last 40 years of peer-reviewed research in this field) that they will work out well in the long term. Please recall that, when I made those predictions, I cautioned that it us not possible to know what will happen in the short term and that the predictions might fail for that reason.
If you want to invest on a belief that the $6.5 million will become $13 million, you are certainly free to do that. Many investors have expressed a desire to be able to hear both sides of the story before deciding for themselves what to do. That’s why I believe that honest posting should be permitted.
Rob
“They did not work out well in the short-term.”
You have said 10 years is long term. Are you now changing that definition?
I guess people like Warren Buffet and Charlie Munger don’t know how to invest either.
Both Buffett and Munger have expressed skepticism about the Buy-and-Hold dogmas.
Rob
You have said 10 years is long term. Are you now changing that definition?
The ten-year number comes from Shiller. He put it forward in 1996. It was an estimate based on the historical return data that was available at the time.
We did not see a price crash until 2008. That’s 12 years. And then prices reached high levels again in late 2009 and we have not seen a another price crash for another 12 years. So the 10-year number has not worked perfectly. I still think that it serves as a reasonable estimate.
It is not possible to know precisely when a crash will come. There is no evidence that it is. Shiller doesn’t say it is and I do not say it is. It IS possible to say that a crash is coming once prices reached insanely dangerous levels. That’s the important thing. All investors need to take that reality into consideration when planning their retirements. When stocks are priced to crash, the investor needs to go with a lower withdrawal rate than what he would go with if stocks were not priced to crash.
Rob
“Both Buffett and Munger have expressed skepticism about the Buy-and-Hold dogmas.”
Wrong. They often have commented that their preferred holding period is “forever”. Further, they had advised the average investor to buy and hold the S&P 500.
“It is not possible to know precisely when a crash will come.”
Thus the problem with your timing scheme and it is also why Shiller has warned you not to time the market…..but you won’t listen and have financially suffered because of it.
Warren Buffet says to buy and hold.
https://www.cnbc.com/2016/03/04/warren-buffett-buy-hold-and-dont-watch-too-closely.html
Both Buffett and Munger have expressed skepticism about the Buy-and-Hold dogmas.”
Wrong. They often have commented that their preferred holding period is “forever”. Further, they had advised the average investor to buy and hold the S&P 500.
I am not wrong. Buffett has said: “There’s so much that’s failed and nutty in modern investing practice.” That’s hardly a vote of confidence in Buy-and-Hold. And Buffett has lowered how own stock allocation at times of sky-high valuation levels.
I agree that the average investor should invest in a broad U.S. index fund. The difference between you Goons and me is that I say that he should aim to “Stay the Course” in a meaningful way by adjusting his stock allocation in response to dramatic swings in valuations. I am personally highly confident that both Buffett and Munger would agree that that approach makes sense. But I don’t want to put words in his mouth. The way to find out for sure is to launch a national debate on these issues and have Buffett respond to questions from both Valuation-Informed Indexers and Buy-and-Holders. I have been urging since May 13, 2002, that we lift the Ban on Honest Posting imposed by you Goons and launch such a debate. That’s how we all could get about the business of enjoying a Learning Together experience.
Rob
“I am not wrong. Buffett has said: “There’s so much that’s failed and nutty in modern investing practice.” That’s hardly a vote of confidence in Buy-and-Hold. And Buffett has lowered how own stock allocation at times of sky-high valuation levels.”
Yes, you are wrong. If you look at those comments, he was referring to people trying to time the market.
“It is not possible to know precisely when a crash will come.”
Thus the problem with your timing scheme and it is also why Shiller has warned you not to time the market…..but you won’t listen and have financially suffered because of it.
It’s definitely not possible to know precisely when a crash will come.
Shiller has of course advocated market timing himself. He said in 1996 that investors who stuck with their high stock allocations despite the high valuations that applied at the time would live to regret it within 10 years. And of course in 12 years we saw the economic crisis of 2008.
Timing is exercising price discipline. Exercising price discipline is not a scheme. It is going pure Get Rich Quick/Buy-and-Hold (refusing to engage in market timing/price discipline) that is a scheme. The peer-reviewed research that I co-authored with Wade Phau shows that going pure Get Rich Quick has never worked for 150 years running now. It is impossible for the rational human mind to imagine how it ever could work. Please mark me down as 100 percent in favor of market timing.price discipline.
Rob
Warren Buffet says to buy and hold.
https://www.cnbc.com/2016/03/04/warren-buffett-buy-hold-and-dont-watch-too-closely.html
I certainly agree with Buffett that it is not a good idea to follow market movements too closely. Checking the CAPE value once per year to see if there is a need to make an allocation adjustment should be plenty.
I will send Buffett a copy of my book. I would love to hear what he has to say about it. I would love to debate these matters with him. I am personally confident that he does not believe that the safe withdrawal rate is the same number at all valuation levels. But I would like to hear him say things in his own words.
What do you think Buffett thinks of the idea of engaging in acts of extortion against academic researchers who have “crossed” the Buy-and-Holders by doing honest research on safe withdrawal rates and by publicly stating that “Yes, Virginia, Valuation-Informed Indexing works!”
Rob
“I am not wrong. Buffett has said: “There’s so much that’s failed and nutty in modern investing practice.” That’s hardly a vote of confidence in Buy-and-Hold. And Buffett has lowered how own stock allocation at times of sky-high valuation levels.”
Yes, you are wrong. If you look at those comments, he was referring to people trying to time the market.
That’s not so. He was referring to a lot of the dogmatic stuff put forward by the Buy-and-Holders.
Bogle of course does not support short-term timing. Neither does Shiller. Neither do I.
But then you knew that all along, didn’t you?
Rob
“That’s not so. He was referring to a lot of the dogmatic stuff put forward by the Buy-and-Holders.”
Show a link.
You show a link supporting your claim that he was referring to people engaged in market timing.
The easy way to solve this is to open the entire internet to honest posting and ASK HIM. Buffett would be happy to respond to questions, just as Shiller would be, if it is made clear that the discussions were going to be civil and reasoned. That means no death threats, no demands for unjustified board bannings, no acts of defamation, no acts of extortion. Lot of people are willing to help if you show that you genuinely want to know the answers to the questions, not just to bully people into pretending that everything you have ever said on the subject of stock investing is correct.
Greaney hasn’t corrected the error in the retirement study posted at his web site to this day. What does that tell us about Buy-and-Hold? An investment expert who does not correct errors is an investment expert that you do not want to be paying attention to. My sincere take. Making errors is fine. The only people who never make mistakes are people who never do anything. But not correcting errors after they are brought to your attention is not even a tiny bit fine.
Dial the Goon stuff back about 4,000 notches and Buffett (and lots and lots of others) will he happy to answer any questions you have. We should have started engaging in productive discussions re these matters back on the afternoon of May 13, 2002. That is why I proposed it at the time.
Rob
He has said it many times. Here is just one of many:
https://www.cnbc.com/2018/05/08/warren-buffett-says-he-never-tries-to-time-stocks-i-never-have-an-opinion-about-the-market.html
Now, let’s see you back up your claim that Buffet was referring to buy and hold
“The best thing that can happen from Berkshire’s standpoint … over time is to have markets that go down a tremendous amount,” he said. “We are going to be buyers of things over time. And if you’re going to be buyers of groceries over time, you like grocery prices to go down. … What we fear is an irrational bull market that’s sustained for some long period of time.”
That’s Valuation-Informed Indexing. That’s the concept in a nutshell.
Rob
“I will send Buffett a copy of my book.”
Buffett is 91 years old. At your rate of progress on that book, you’ll have to send that copy to his great-grandson.
Ha!
Rob
Where did he say to get out of the market?Also, note that he NEVER times the market. Another Rob failure.
I don’t believe that he ever got entirely out of the market. But of course I have said on thousands of occasions that I do not believe that the typical investor should ever get entirely out of the market.
He has lowered his allocation to stocks when prices got too high. That’s market timing.
Of course Bogle did the same. Lots of people who SAY they are against market timing engage in it themselves because they are too intelligent not to see the benefits. If you would ease up on the abusive stuff, they would be willing to speak clearly about what they truly believe and we all would benefit. The Goon stuff hurts us all and has been hurting us all for a long time now.
Rob