I’ve posted Entry #620 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Stock Investors Don’t Like Thinking About How Emotional They Are.
Juicy Excerpt: Getting the Buy-and-Holders to acknowledge that they are human and that therefore they are capable of acting on emotion is really, really, really hard. But once we get past that step, there are all sorts of wonderful, constructive things that we can do to make ourselves less emotional (and therefore more successful) stock investors.
You told us you were the one with emotional issues and that’s why you couldn’t finish the book.
All humans have emotions, Anonymous. There are no exceptions.
The Buy-and-Holders and the Valuation-Informed Indexers share a desire to minimize emotion in stock investing, Their approach to doing so is different. The Buy-and-Holders disdain emotion, They don’t talk about it. They act as if it doesn’t exist. The Valuation-Informed Indexers tackle it. The reason why we engage in market timing is that market timing is the tool available to us to overcome the effect of investor emotion. The CAPE value revreals how much emotion there is in the market at a given point in time and by engaging in the appropriate amount of market timing investors are able to pull the CAPE value back to where it should be. We respond to emotion and thereby overcome it.
Rob
What’s different about your emotions? It seems to keep you from finishing the book and then getting a job. If the emotions were as you say, why do I still have $6 million+?
If everyone has emotions, than that is not the issue. The difference comes down to decisions. Market timers think they can beat the market. Buy and holders know that the market is unpredictable in the short term, but grows in the long term. Buy and holders know that market timing has never had a successful outcome. Buy and holders know that the market has always gone up the the long run and if they don’t do anything based on emotions, they will have a successful retirement. I have $6 million+ as my proof. Your outcome is a depleted savings account. Results matter.
What’s different about your emotions? It seems to keep you from finishing the book and then getting a job. If the emotions were as you say, why do I still have $6 million+?
If you think you have $6 million and you are a Buy-and-Holder, you don;t have $6 million. It is impossible for a Buy-and-Holder ever to get the numbers right. Buy-and-Holders do not adjust the numbers to reflect the effect of irratonal exuberance, which is a real thing (according to the last 41 years of peer-reviewed research).
All of us have somewhat different emotional reactions to life events as a result of having had different life experiences. My life experiences have led me to believe that it is important for millions of middle-class investors to have access to honest and accurate and resarch-based reports on how stock investing works. The intense hostility direted at my from the Goon segment of the Buy-and-Hold community (about 10 percent of the overall population of Buy-and-Holders) has caused me anguis because it has affected my ability to earn a living for 20 years now.
I don’t think that that’s at all unusual. I think that just about anyone would feel those same feelings of anguish. The thing that is different with me is the strong conviction that someone has to do something to see that the entire internet is opened to honest posting re the last 41 years of peer-reviewed research. There are a good number of others who think that that would be a good thing, But I don’t know of anyone else who feels strongly enough about it to endure the sorts of personal abusse that I have taken on. I think that just goes to my personal life experiences. I chose journalism as a career because I see value in people coming to understand the world around them. My belief that honest posting on the research should be permitted in the investing advice realm is just a paticular manifestation of that general perspective that coming to an understanding of the world around one is a positive.
My best wishes to you.
Rob
If everyone has emotions, than that is not the issue. The difference comes down to decisions. Market timers think they can beat the market. Buy and holders know that the market is unpredictable in the short term, but grows in the long term. Buy and holders know that market timing has never had a successful outcome. Buy and holders know that the market has always gone up the the long run and if they don’t do anything based on emotions, they will have a successful retirement. I have $6 million+ as my proof. Your outcome is a depleted savings account. Results matter.
Yes, market timers believe that they can beat the market. They beat it by maintaining their rationality in the face of insane emotionaliism in the market, which is always temporary. If you were looking to buy a car that had a market value of $20,000 and you happened to stop in to a particular dealer who said that he would sell you the car for $60,000, you would be wise to engage in timing of your purchase. The smart thing would be to wait for the dealer to realize that he is not going to be able to sell the car for that price and to go with a more reasonable price. When he agrees to sell for a sensible price, your smart move would be to buy. By timing your purchase, you get a far better deal for your money.
Market timing has of course had ONLY successful outcomes. The entire point of the Bennett/Pfau research was to show that. For the entire history of the market, market timing (price discipline!) has dramatically diminished risk while also dramatically increasing return. Investor heaven! Common sense tells us that market timing/price discipline must always work. And the past 41 years of peer-reviewed research CONFIRMS that what common sense tells us must be so in fact really always has been so. Refusing to practice price discipline (that is, following a Buy-and-Hold “strategy”) always subtracts, it can never add.
We agree that the market is unpredictable in the short term and we agreed that it always goes up in the long term. Where we don’t agree is that I say that an investor should aim to keep his risk profile stable over time. In a world in which valuations affect long-term returns (the world we live in!, it is not possible to do that without being willing to engage in market timing. Keeping one’s risk profile constant over time always produced better long-term results. It is not even possible for the rational human mind to imagine how it could be different.
Markets set prices properly. That’s their core purpose. When millions of investors become unwilling to practice market timing/price discipline, it becomes impossible for the market to set prices properly. It becomes dysfunctional and we see price crashes and economic crises and an increase in political frictions. Not good. We should permit honest posting re the last 41 years of peer-reviewed research at every site on the internet, without a single exception.
My sincere take.
Rob
“ If you think you have $6 million and you are a Buy-and-Holder, you don;t have $6 million.”.
That is what you said when I has $3 million. I guess my $6 million should be considered to be $12 million as the entire stock market history says that it will hit that.
“ Market timing has of course had ONLY successful outcomes. ”
Yet there has never been even one successful outcome and you, as the self-proclaimed expert of timing has a failed retirement.
When you invest in the stock market, you are investing in something that grows over time. So, yes, $3 million will in time become $6 million and $6 million will in time become $12 million. There’s no getting around it.
There’s also no getting around the fact that, if we live in a world in which valuations affect long-term returns (Shiller showed that we do), stocks offer more or less appeal depending on the TIME at which you invest in them. Every investor should invest in stocks to benefit from their growth feature. And every investor should engage in market timing in an effort to keep hie or her risk profile stable over the course of his or her investing lifetime. When too many become persuaded that it is not always 100 percent necessary to do that, we as an entire society inevitably experience another Buy-and-Hold Crisis. Which helps presisely no one
That’s my sincere take re these terribly important matters, in any event.
My best and warmest wishes to you and yours.
Rob
“ When you invest in the stock market, you are investing in something that grows over time. So, yes, $3 million will in time become $6 million and $6 million will in time become $12 million. There’s no getting around it.”
Thanks for proving the case for Buy and Hold.
There’s a lot that I like about Buy-and-Hold. I was once a Buy-and-Holder myself. I incorporated all of the principles of the Buy-and-Hold Model into the Valuation-Informed Indexintg Model with only one exception — the idea that market timing/price discipline is not required.
The Bennett/Pfau research shows that that one item — market timing/price discipline — is 70 percent of what it takes to achieve long-term investing success. So it’s no small thing to get that one right. But outside of that one huge mistake, Buy-and-Hold is aces, in my assessment.
My best wishes to you.
Rob
If you had kept your job and stuck with buy and hold, you would have several million in your retirement account right now. Instead, it is depleted. Outcomes matter.
And I would have sold out my friends. Does that outcome matter?
And I would have played a part in bringing on the next Buy-and-Hold Crisis and all the human misery that will come with it. Does that outcome matter?
If Buy-and-Hold/Get Rich Quick were a real thing, we wouldn’t have seen any abusive posting, much less than any of the criminal stuff. There are things other than turning a quick buck that matter in this world.
The full truth is that our Wall Street Con Men friends could make tons of money promoting research-based strategies. In the end, they could make a lot more that way. The one thing that people don’t like about stocks is the risk association with them. Permit discussion of the past 41 years of peer-reviewed research and most of the risk goes away. So we could get more people interested in stocks and feeling more comfortable investing in them by playing it straight.
I believe that it’s worth a try.
Rob
“ And I would have sold out my friends. Does that outcome matter?”
What a strange response. It is merely how someone buys stock. Your comment makes no sense.
It makes sense. There were people at the Retire Early board at the Motley Fool site who believed that the Greaney retirement study was a legitimate piece of research. I was there.
Rob
Wrong again. Buy and hold is the accumulation phase. Greaney’s work is focused on the withdrawal phase.
If people promoting Buy-and-Hold hadn’t put the idea in people’s heads that market timing is not always 100 percent required for every investor, every person on the board would have insisted that Greaney correct the error in the study within 24 hours of the moment that he became aware. of it.
Rob
Wow, you really don’t have a clue as to what you are talking about. No wonder you are broke.
Okay, Anonymous.
Please take good care.
Rob