Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Postings like this is why people don’t believe you. You haven’t worked in over 20 years and blame it on the time it takes to write a book. It doesn’t take all that look and providing for the family always comes first. Secondly, we all know buy and hold works. Just look at the 30 year returns on the S&P 500 as an example. In fact, you can’t even name one buy and hold failure despite being asked many times. Third, you highlight your real issue for acting the way you do by mentioning emotional issues.
In the event that Shiller’s Nobel-prize-winning research is legitimate research (I believe it is), every Buy-and-Hold portfolio that was ever constructed was a failure. If stock investing risk is not constant but variable, then any investor who failed to engage in market timing (the Buy-and-Holders advise against this) is going to see his risk profile jump all over the place. It’s impossible to imagine how that could ever be a good thing.
Stocks are an amazing asset class. So there are some circumstances in which an investor could go with a Buy-and-Hold “strategy” and still end up with less-than-terrible result. But of course there are other circumstances in which the investor gets wiped out. And it is never a good idea to put yourself at risk of getting wiped out. The smart thing would be just to engage in whatever amount of market timing is needed to keep your risk profile roughly constant over time.
That puts the percentages in your favor. As is always the case with probabilities, the more rolls of the dice there are, the more likely it is that the person playing the percentages will end up on top in the end. It is entirely possible for a Buy-and-Holder to do well for a number of years. But the longer an investor elects to continue with a pure Get Rich Quick strategy, the greater are the odds that he will come to experience the awful downsides of electing to do so. Not this boy, you know?
I naturally wish you all the best that this life has to offer a person regardless of what investment strategy you elect to follow, Anonymous.
Rob
Buy and Hold = Investing
Investors (as a whole) practice buy and hold, there may be trading between investors but as a whole they own 100% of available stocks at all time.
If buy and whole doesn’t work then investing doesn’t work.
There is no way a market timing scheme can improve returns for all investors.
Investors as a whole determine the price for stocks. They can price stocks at their true value (x) or they can price stocks at 2x or they can price stocks at 1/2 x. When the price gets too high or too low, the only way to get it back to where it should be is through market timing. Market timing (price discipline!) is the magic by which the market goes about the business of getting prices right, which is its core function.
If large numbers of investors come to believe that it might be possible to pass up on the market timing thing just this once, prices eventually get so out of whack that the market collapses, causing a huge economic contraction, which hurts us all in a very serious way. I would rather just permit honest posting on the critical role served by market timing. Living through a Buy-and-Hold Crisis possesses just about zero appeal to me.
Rob
We have never seen even one successful outcome with market timing. That has zero appeal to any normal person that doesn’t want to have a depleted bank account like you.
You haven’t been looking very hard, Anonymous. The Bennett/Pfau peer-reviewed research shows that market timing has worked every single time it has been tried for over 150 years now. As Wade put it after devoting his Ph.D. talents in Economics to studying the matter for 16 months, “Yes, Virginia, Valuation-Informed Indexing works!” The rational human mind is not even able ti imagine any circumstances in which exercising price discipline when buying something could be a bad thing.
Rob
“their true value (x)”
there is no such thing as the “true value” of a stock
We disagree.
It’s hard to identify the true value of an individual stock. Warren Buffett does a good job of it. But I would not feel comfortable trying to do it.
It’s very different when you are talking about the value of the market as a whole. That can be identified with a high (but not perfect) level of accuracy. U.S. stocks have been generating a return of 6.5 percent real for as long as there has been a market. That’s a CAPE value of 17. We all should be working together to be sure that the CAPE value never rises too much above that.
Today’s CAPE value of 35 is a national scandal. In the event that stocks continue to perform in the future anything at all as they have always performed in the past, our collective decision to tolerate a CAPE value that high is going to destroy millions of lives. I stand by the statement that I have been making consistently since the afternoon of May 13, 2002 — we need to open every discussion board and blog on the internet to honest posting re the last 41 years of peer-reviewed research in this field, without a single exception.
My best wishes to you.
Rob
You keep repeating the same old lines, but no one is buying it.
Few want to hear the truth about stock investing at a time when the CAPE value is 37. Surprise! Surprise!
Rob
Your portfolio balance tells you what has been the truth. Remember your failed crash predictions?
My predictions fails. That’s a fact. Does that mean that Shiller’s Nobel-prize-winning research is not legitimate research? I don’t see it that way at all. The predictions failed because stock prices have remained at insanely high levels for a longer time than they have ever remained at insanely high levels in the past. That doesn’t suggest to me that it was a good thing that we have banned honest posting re the last 41 years of peer-reviewed research, It suggests to me that by banning honest posting we have made the current era the worst time to own stocks in U.S. history.
If Shiller’s Nobel-prize-winning research is legitimate research, we are likely going to see the fifth Buy-and-Hold Crisis in our nation’s history within the next year or two. Millions of failed retirements. Hundreds of thousands of businesses going under. Millions of people losing their jobs. Increased political frictions. I could live with all that. The wonderful thing is that for the past 41 years those who follow the peer-reviewed research have known how to avoid all that human misery. Tell people how much the long-term value proposition of stocks diminishes at times of insanely high prices and you will never again see insanely high prices. People will lower their stock allocations when the value proposition of stocks falls (market timing!) and that will bring stock prices back to reasonable levels, levels that don’t bring on a Buy-and-Hold Crisis and all the human misery that comes with one.
Please mark me down as the world’s #1 advocate of market timing (the long-term variety). I’ll wear the crown proudly.
My best wishes to you and yours.
Rob
You talk about Shiller but yet you ignore what he says. In the end, we know who is right when comparing our portfolio balances.
You talk relentlessly about this one unclear comment that Shiller made and ignore the fact that his entire life’s work cuts the other way. The title of his book is Irrational Exuberance. If irrational exuberance is a real thing, the market timing is obviously required for an investor seeking to Stay the Course. When irrational exuberance gets high, stocks are more risky than they are when irrational exuberance is low. So the investor who wants to keep his risk profile constant (to stay the course in a meaningful way) MUST change his stock allocation in response to big valuation shifts to do so.
95 percent of what we know about Shiller tells us that he believes in market timing. There is one unclear off-the-cuff comment cutting in the other direction. Do we need to find out for sure what he thinks? I sure think so. Buy you sure don’t seem interested in finding that out. If you would drop tje criminal stuff for one day and invite him over to Bogleheads for questioning, you could find out exactly how he feels about every angle. But that’s just what you don’t want people to hear. The Buy-and-Holders got there first. So, as long as honest posting is prohibited, Buy-and-Hold will remain popular. If you thought Buy-and-Hold could withstand scrutiny, you would invite scrutiny.
I invite scrutiny. That’s why I say that we should open every site to honest posting, without a single exception. People should be able to hear both sides and make up their own minds of what to do with their retirement money. Anyone who engaged in criminal or abusive behavior to block people from hearing both sides if liable for any losses suffered. In the event that stocks continue to perform in the future anything at all as they have always performed in the past, we are talking about trillions and trillions of dollars of losses in the next Buy-and-Hold Crisis.
I don’t want to get involved in this cover-up for any amount of money. I mean, please give me a freakin’ break. I feel that I am doing you Goons a big favor by trying to bring this cover-up to an end. I know that you don’t see it that way. But that’s sure how I see it. If more people had reacted when Greaney advanced his first death threat, he wouldn’t be looking forward to a long prison sentence today. The worst thing that you can do when you learn that you got an important number wrong in a retirement study is to cover up the error. I consider myself Greaney’s friend. So I have been telling him to knock off the funny business for 20 years running now. What have you done to help out, Anonymous.
My best wishes, etc.
Rob
It was not unclear what Shiller said. You even acknowledged that in other posts saying that Shiller was wrong. Same goes with comments about Wade.
In the end, we measure outcomes to know the truth. You just don’t like the outcomes, so you have to keep spinning stories.
If Shiller believes that long-term market timing doesn’t always work or isn’t always 100 percent required, then I think that Shiller is wrong. He did not say that even a tiny bit clearly. He put forward some words on one occasions that could be interpreted that way. His entire life’s work points toward a finding that long-term timing is always required. And there have been several occasions on which he advocated market timing directly and clearly. So I think he believes in it.
The same is so of Wade Pfau. He has put forward many statements showing that he thinks market timing works and is required. He made one statement cutting the other way when you Goons threatened to get him fired from his job if he continue doing honest work in this field. I believe that all the things that Wade said when he was not being threatened reflect his sincere views.
The solution to every problem is to bury all the intimidation stuff 30 feet in the ground and permit everyone who wants to help us out by expressing his sincere views re how stock investing works to do so. That’s to everyone;s benefit. It is not even possible for the rational human mind to imagine any downside (except for Buy-and-Holders having to say “I” and “Was” and “Wrong” re the position they took on market timing 16 years before Shiller published his Nobel-prize-winning research discrediting the Efficient Market Theory by showing that valuations affect long-term timing.
Rob
Just watched Shiller over the weekend. He repeated the same line again about not timing the market and to stay in stocks.
If you have a link to that, I would like to see it.
Rob