“There’s Not a Switch That You Can Flip to Have Everyone Drop Buy-and-Hold and Adopt Valuation-Informed Indexing on the Day That Buy-and-Hold Is Discredited by New Research. People Have To Be Educated As To What the New Research Says and Then They Need To Ask Questions About It and Ponder the Answers They Hear and Gradually Become Persuaded of the Merit of the Findings of the New Research.”

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

Someone has to be selling for someone else to buy. I guess you just think you have a better timing scheme vs the rest.

No one is forcing anyone else to buy stocks. If you think stocks (companies they represent) are too expensive for you, then don’t buy. Simple as that. If a buy and holder wants to keep buying, that is their right. Meanwhile , don’t expect the rest of us to sell us stocks to you at a cheap price just to make you happy.

What I have is a price discipline scheme. I am inn complete agreement with the Buy-and-Holders that it is not possible to identify when price shifts will take place. So there’s no dispute there. The problem is that the Buy-and-Holders, after making a highly convincing case that short-term timng never works, got sloppy in their thinking and their speaking and slipped into thinking that perhaps long-term timing is not always 100 percent necessary either.

That’s preposterous. Price discipline is the thing that makes all markets work. All that Shiller really did is to show that the stock market works in the same way that every other market that has ever existed. It’s a huge advance only because the Buy-and-Holders got it so wrong and because their upside-down approach fits in so perfectly with the human impulse to want something for nothing. Investors were failing to exercise privc discipline and we were experiencing out-of-control bull markets and out-of-control bear markets long before the Buy-and-Holders ever came on the scene. We want to believe that Get Rich Quick strategies can work. The Buy-and-Holders made Get Rich Quick stock investing respectable with their crazy claim that they have a funny feeling that there might be some secret peer-reviewed research somewhere that supports this nonsense approach. Um — sure there is.

I don’t want to force anyone to do anything. I want to inform people aboutb what the last 42 years of peer-reviewed research shows us about how stock investing works in the real world. So, when some con man comes along with a “study” showing that the safe withdrawal rate is the same number at all valuation levels, people can educate themselves as to the dangers of such a claim.

I believe in research-based strategies. Buy-and-Hold is not a research-based strategy. I believe that it was intended to be one. But, with a true research-based strategy, you have to make adjustments as new research is publshed. Shiller’s Nobel-prize-winning research brought about a huge advance in our understsanding of how stock investing works. That advance should have been incorpoated into the Buy-and-Hold Model. When you incorporate it, you get Valuation-Informed Indexing. VII is Buy-and-Hold with market timing added..

There’s not a switch that you can flip to have everyone drop Buy-and-Hold and adopt Valuation-Informed Indexing on the day that Buy-and-Hold is discredited by new research. People have to be educated as to what the new research says and then they need to ask questions about it and ponder the answers they hear and gradually become persuaded of the merit of the findings of the new research. That process should have begun in 1981. The abusive and in some cases crininal behavior of the Buy-and-Holders has been holding us all back for 43 years now. This is why I say all the time that we need to open every site to honest posting. That’s how we get the transition process started.

If Buy-and-Hold were a real thing, the Buy-and-Holders would be thrilled with the idea of discussing the new research. Their extreme defensiveness shows that they have doubts themselves about whether a pure Get Rich Quick approach can work out well in the lonf run. They want to believe in Buy-and-Hold. Their lives reputations and their fianncial futures are riding on it. But they possess no confidence that the strategy can survive informed debate. So they desperatel oppose the idea of opening even a single large site to honest discussion of the new research. Not good.

Rob