Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“ Your retirement is not “fully funded” if more than half of the money in your account consists of irrational exuberance, Anonymous,”
That’s what you said 10 years ago and look at how that worked out for you. Meanwhile, you are banking on a windfall with odds that are worse than playing the lottery.
I say the same thing today that I said 10 years ago, Anonymous. I think it has worked out very well. I abandoned Buy-and-Hold and started working on Valuation-Informed Indexing on the evening of August 27, 2002, when Greaney advanced his first death threat and over 200 of my Buy-and-Hold friends at the old Motley Fool board endorsed it. I write a weekly column on Valuation-Informed Indexing at the Value Walk site. In 10 years, that’s over 500 columns. I have learned at lot over the past 10 years. I would be 10 years behind where I am today if I spent those 10 years pretending to believe that there might be some mystical, magical alternate universe where a pure Get Rich Quick/Buy-and-Hold “strategy” might work f0r one or two long-term investors.
Somehow, I think that the odds of me collecting a $500 million settlement payment are a lot better than your odds of avoiding a long-term prison term. I’ll take those odds!
Rob
“ I have learned at lot over the past 10 years.”
A lot? What have you learned?
Read the 500-plus columns that I have written for the Value Walk site. There’s not a week that goes by in which I do not develop some new angle to the Valuation-Informed Indexing story.
On the morning of May 13, 2002, I was still a Buy-and-Holder. Today, I say that it is the Buy-and-Hold “idea” that market timing is not always 100 percent required for all investors that is the primary cause of economic crises. It is so easy to see once you see it. But, when you are viewing things from the Buy-and-Hold mindset, it is not obvious at all.
If irrational exuberance is a real thing, as Shiller showed with his Nobel-prize-winning research, then the portion of all of our portfolios made up of irrational exuberance represents economic value that is just waiting to disappear in the wind once investors lose confidence in it. Discourage market timing and that portion of the total market value eventually grows to trillions and trillions of dollars of pretend money. When trillions and trillions of dollars of pretend money suddenly disappears, the entire economic system obviously contracts. Market timing could prevent that. Market timing could keep the irrational exuberance from getting out of hand. But of course “time” is a four-letter word to the Buy-and-Holders.
I didn’t always know that. Today I do. I think that’s a very big deal. I think we all need to know that if we are to keep our economic and political systems from collapsing. The idea that market timing is not required was a mistake. We need to correct that mistake to make our futures better than what we imagined they could be in the days before Shiller published his amazing and “revolutionary” (his word) research findings. We should be encouraging market timing (price discipline!), not discouraging it. Price discipline is the magic that makes all markets work.
My sincere take.
Rob