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 don’t believe in the efficient market (and neither do Buffett, Munger, etc) but I also don’t believe in market timing. Buy and hold is the best way for most investors. If a smart trader like Jim Cramer can make so many bad calls what more an ordinary person working at Walmart? You can avoid entire sectors during times of irrational exuberance but even Buffett and Munger have made mistakes. If the brightest investing minds in the planet screw up what makes you thi k the Walmart employees who get their news from memes on Facebook will do better?
That’s my sincere and honest take re: these matters.
Thanks for offering your sincere and honest take, Anonymous. That’s always a plus.
I believe that market timing is absolutely essential. I believe that Buy-and-Hold is a catastrophe.
I love what Buy-and-Hold was INTENDED to be. I designed Valuation-Informed Indexing to be what Buy-and-Hold was intended to be. Everything in Buy-and-Hold except for the thing about market timing not always being required has checked out. So I just incorporated everything in Buy-and-Hold into Valuation-Informed Indexing with the exception of the one big thing that has been discredited by 41 years of peer-reviewed research that was not available to the people who put together the Buy-and-Hold strategy at the time they were putting it together.
If Buy-and-Hold is so great, why do we today have a CAPE value of 30? I think that CAPE value tells the story of what the relentless promotion of a pure Get Rich Quick strategy (no market timing now!) does to all of us. Many of the people working at Walmart are not engaging in market timing today. I cannot guranty that they will if we open every site to honest posting. But I sincerely believe that we can get the percentage who do up a bit. It’s 10 percent now. I believe that we can get that up to 20 percent within six months with every site opened to honest posting re the last 21 years of peer-reviewed research. It will take much longer to get it up to 40 percent and then 80 percent. But all we can do is all we can do, you know? It certainly seems more likely that we will be able to persaude more people to practice market timing (price discipline!) by permitting honest posting than we will be keeping the ban on honest posting (which has yielded a CAPE value of 30!) in place. Call me madcap.
The brightest minds in investing can certainly screw up, That’s why so many of them have endorsed Buy-and-Hold! The Bennett/Pfau research shows that the biggest difficulty in stock investing is not lacking a sufficient amount of intellect, the biggest problem is becoming so emotional that you come to believe that market timing/price discipline might not be 100 percent required at all times. People who work at Walmart are just as much capable of falling into the Buy-and-Hold traps as the experts. This is why I say that we should open every site to honest posting. We can all works together to help each other to tune out the Buy-and-Hold noise and come over time to live richer and fuller and better lives than we ever imagined possible in the Buy-and-Hold Era. The 41 years of peer-reviewed research is there for us. All that we need to do as a nation of people is to give ourselves permission to talk about it so that we can obtain the benefits it promises.
My best wishes.
Rob
Those of us that hold stock are happy to own our share of Home Depot, Microsoft, Apple, JP Morgan Chase, etc. You are free to avoid buying stocks, but we have no interest in being broke like you.
If you own those companies, you should want them to be successful. If you care about their success, you should want stocks to be priced properly. When the CAPE value gets to where it is today, there are trillions of dollars of irrational exuberance sloshing around in the economy. That means that there are consumers buying the products of those companies who would not be able to afford them if stocks were priced properly. So those companies get a false idea of the popularity of their product offerings. All of those companies would achieve greater long-term success if stock prices were more stable (that is, if we all knew how important it is to practice market timing/price discipline).
My sincere take.
Rob
The companies are successful. Consumers are not making purchasing decisions based on stock prices because most of the stock is held by the top 10%. Your comments lack any factual basis.
Much of the marketing efforts of the companies you named are aimed at the top 10 percent as well. And people who own less stock because they have less money are all the more price-sensitive as a result. So putting pretend money (irrational exuberance) in their hands causes them to spend even more and taking it away causes them to cut back on spending even more.
Irrational exuberance is a cancer on our society. We should all be working together to eliminate it. All that we would need to do to eliminate it is to permit honest posting re the last 43 years of peer-reviewed research. Most people want to invest effectively. It’s the ban on honest posting re the peer-reviewed research that hold them back.
Rob
Wrong again. Niche products are marketed to the top 10%. You cannot make money by avoiding 90% of the market. The top 10% control the majority of wealth, but only represent a small percentage of actual consumer spending.
Which means that they are hit very, very hard by price crashes. Which means that they cut back on consumer spending more than they would if the hit was not so hard.
There is no way that we can suffer a loss of trillions of dollars of wealth in a Buy-and-Hold Crisis and not have it effect the overall economy. If Buy-and-Hold/Get Rich Quick were a real thing, you wouldn’t even try to make such silly arguments.
SOMEONE owns those stocks. And whover that someone is would be better off if we permitted honest posting re the peer-reviewed research and thus had greater price stability and did not have to endure the horrible Buy-and-Hold Crises that always follow when as a nation of people we permit the CAPE value rise to the sort of level where it resides today.
I naturally wish you all good things, regardless of what investment strategy you elect to follow.
Rob
“ Which means that they are hit very, very hard by price crashes. Which means that they cut back on consumer spending more than they would if the hit was not so hard
What? The 90% don’t own much, if any stock. It means they are not hit, nor are they helped, by any movement in stock.
You need to read “Grapes of Wrath.” The entire nation is affected in a very serious way when we are hit by one of the Buy-and-Hold Crises that always appear when our Wall Street Con Men friends push the Get Rich Quick./Buy-and-Hold stuff too hard.
It was in the wake of the 2008 Buy-and-Hold Crisis that we saw both the Occupy Wall Street movement on the left and the Tea Party movement on the right. Anything that causes trillions of dollars of losses affect lots of people.
I believe that we need to open every site to honest posting re the peer-reviewed research. I am not able to imagine any downside.
Rob
Gee. The stock market is up today. I guess the 90% of Americans that own little to no stock will be out buying up a bunch of merchandise today, based on your analysis of how the market works.
There’s no question whatsoever but that, when people are not taught to distinguish irrational exuberance from real economic gains, higher stock prices cause them to spend more. You should ask yourself why you are so hotly oppoed to the idea of permitting honest posting re the last 42 years of peer-reviewed research. It is because illusory wealth makes you feel good in 20 different ways. This comes through in just about all of your posts. When you feel good in 20 different ways, you spend more. That’s just human nature.
I think we should permit honest posting. I want people to feel good. But I don’t want them to feel good because they have placed their confidence in an illusion. When it’s done that way, they spend less when the illusion disappears. Then we’re all in the soup. I believe that honest posting re the peer-reviewed research is the way to go.
Rob
What gains do they have when they own little to no stock?
My view is that the typical investor should keep to a 30 percent stock allocation even when stock prices are at crazy highs (like they are today). Then, when prices go to crazy lows (as they usually do during a Buy-and-Hold Crisis), they should increase their stock allocation to 90 percent. The Bennett/Pfau research shows that that approach has been producing far higher long-term returns for the entire history of the stock market. It permits the investor to retire many years sooner.
What’s the downside? The only thing that anyone has ever come up with is, that if you once were a Buy-and-Holder, you would need to learn how to pronounce the words “I” and “Was” and “Wrong” to be able to make the transition to the superior strategy, I can live with that (I do live with it — I was once a Buy-and-Holder myself). I would rather have higher long-term returns at less risk. In my eyes, that’s investor heaven.
Rob
But most people have little to no stock, yet you keep avoiding that fact.
It doesn’t matter. Everyone is affected by a Buy-and-Hold Crisis, whether they hold stock or not. My parents lived through the Buy-and-Hold Crisis of 1929. They told me stories.
I sincerely believe that we should be permitting honest posting re the last 42 years of peer-reviewed research at every site, without a single exception.
My best and warmest wishes to you and yours, regardless of what investment strategy you elect to follow.
Rob
Rob,
Is is simple to understand. Plot out the stock market changes for each year. Next to it, plot out the changes in consumer spending. Notice there is no correlation.
Get it now?
There’s a strong correlation. It happens in every Buy-and-Hold Crisis. Consumer spending declined with the 1929 Buy-and-Hold Crisis and in the stagflation we saw in the 1970s Buy-and-Hold Crisis and during the 2008 Buy-and-Hold Crisis. It’s absurd to even discuss such a thing. When trillions and trillions of phony wealth (irrational exuberance) disappears into thin air, people have less money to spend. So they naturally spend less.
Some of this investing stuff is so darn hard to figure out!
We should be permitting honest posting.
Rob
It really isn’t that hard to look up, Rob.
Try this:
https://www.macrotrends.net/countries/USA/united-states/consumer-spending
Notice how your comments about the 1970’s stagflation go out the window when you look at the bar chart.
Consumer spending generally goes up over time for the same reason that stock prices generally go up over time — the economy is growing over time. But the loss of trillions of dollars of irrational exuberance is obviously going to cause the growth in consumer spending to be less than what it would be if we permitted honest posting re the peer-reviewed research and both stock market prices and the economic system (of which the stock market is a part) were stabilzed.
Here is a graphic showing consumer spending over a long period of time:
https://fred.stlouisfed.org/series/DPCERE1Q156NBEA
There’s a drop in the 1960s and 1970s, when we were recovering from the high stock prices of the early 1960s. Look at the years after the early 1980s, when the bull market that we are currently in was beginning. Consumer spending is a rocket ship. When stock prices drop 70 percent (we usually drop to a CAPE of 8 when a bull market comes to an end), you are going to see that rocket ship reverse course. How could it be otherwise?
The question on the table is — Should we just accept the 6.5 percent annual gain that is the product of real economic growth? Or should we be pumping the market up for a time with the Get Rich Quick/Buy-and-Hold stuff, thereby bringing on economic crises that cause an ocean of human misery. I am fine with 6.5 percent annual gains without all of the human misery that we cause when we tell people that there is no need to practice market timing/price discipline when buying stocks.
Rob
I already gave you the consumer spending statistics. You can see how you are wrong. It does not swing in correlation to the market. Also, consumer spending grew in the 60’s and 70’s.
You keep telling us how the stock market drops hit the consumer spending, but it doesn’t. Like I said, run both side by side.
Your problem is you make these comments without actually looking at the numbers. You then see how you walked into a mistake, yet you can’t walk it back and you can’t admit you are wrong. Instead, you just spin another story and just sink deeper into a hole to the point you can’t dig yourself out.
I showed you with my link that consumer spending increases more when stock prices are soaring than it does when stock prices are crashing. That’s just common sense. It’s a logical impossibility that we could suffer trillions and trillions of dollars of wealth destruction and not see any effect on consumer spending.
Real economic gains and irrational exuberance are just not the same thing. Real economic gains are ACTUAL gains. Irrational exuberance produces only fake, temporary gains. We should be distinguishing the two at every investing site. We should be encouraging people to invest in stocks to be able to participate in real economic gains. But we should be warning them that investors are often irrational and produced fake, temporary gains and that they need to lower their stock allocations at such times to keep their risk profile where they want it to be. Believing that the fake stuff is real hurts investors in very serious ways. When the irrational exuberance gets completely out of control, it eventually causes a collapse of the entire economic system (and sometimes causes the political system to get shaky as well). Not my particuar cup of tea.
Rob