I’ve posted Entry #687 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Investor Irrationality Is Scary — That’s Why We Are So Reluctant to Talk About It.
Juicy Excerpt: But this idea that the number on the portfolio statement isn’t real – that’s weird, scary weird. You want to be able to count on some things in this life. The portfolio statement is produced by a big company that hires lots of well-credentialed people and it is presented in a formal and official way; it’s a no-nonsense document. And this Shiller fellow wants us to believe that the numbers are wildly off the mark? What else are we going to discover to make us feel that our society is not as stable as we have been led to believe?
The person that owns stock has more than just a piece of paper with numbers. They are OWNERS of companies and those companies generate profits for their owners and have done so very reliably. Those that don’t own companies are merely the customers. Which would you rather be, an owner or a customer? You decided to merely be a customer for well over 25 years and it didn’t work out for you. Meanwhile, the owners have made out very well.
What you are saying here is so. Stocks are an amazing investment class. You certainly get no argument from me.
The question on the table is — Is it better to price stocks at their real value or to at times let one’s Get Rich Quick urge get out of control and price stocks at far more than their real value, causing a price crash and an economic collapse in days to come? I say that it’s better to always price stocks at their real value. That permits investors to plan their financial affairs effectively and avoids all of the dysfunction associated with price crashes and economic collapses. When we make our economy stronger, we make everyone in it richer.
We can all enjoy returns of 6.5 percent real without ever creating any irrational exuberance. Why isn’t that enough? Why do you feel its necessary to create mountains of irrational exuberance and thereby brings on the oceans of human misery we have seen in every Buy-and-Hold Crisis. I would encourage whatever amount of valuation-based market timing was needed to keep stock prices at reasonable levels. We could all retire years sooner and invest with far less risk. That sounds like investor heaven to me. I see all upside and zero downside.
Rob
It is simple. I go with what works and that is buy and hold. It has never failed over ANY 30 year period. I have never seen one successful outcome with market timing and it did not work for you.
I get it. You want to have everyone else sell you cheap shares. That is not our problem. You made your decisions and now you have to live with those decisions. Don’t blame us.
You need to watch the movie “Grapes of Wrath,” Anonymous.
Ignoring price when buying stocks is a big deal. It hurts people in very serious ways.
My sincere take.
Rob
Movies are not real life. I live in the real world and suggest that you do the same.
Movies are not real life. I live in the real world and suggest that you do the same.
Believing that it is possible to buy something and not pay attention to the price you are paying and not suffer consequence for doing that is not real life, Anonymous. Buy-and-Hold is a fantasy approach to stock investing. The movie “Grapes of Wrath” shows where persuading millions of people to follow that fantasy approach led in the worst Buy-and-Hold Crisis that we have seen thus far in our nation’s history.
Rob