Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
So what good is your timing scheme when it never drops to a level that you like? Meanwhile, buy and hold has always worked for every 30 year period.
Bringing on a Great Depression wasn’t working. Bringing on the stagflation of the 1970s wasn’t working. Bringing on the economic crisis of 2008 wasn’t working. We would all be better off if we did everything in our power to rein in irrational exuberance when it appears on the scene. That requires valuation-based market timing. There is no other way.
That’s my sincere take re this terribly important matter, in any event.
Rob
There has never been a buy and hold crisis. In fact, buy and hold has always worked. We have a market timing crisis where people get in and out of the market and cause chaos. Further, we have never seen a successful outcome from any market timer and you, yourself, have had a complete retirement failure while pushing a timing scheme.
Okay, Anonymous.
I don’t agree. But I do wish you well.
Rob
I have had a few days to think about this one and I have a second reaction.
You say: “There Has never been a Buy-and-Hold Crisis.” If Shiller is right that there is a thing called “irrational exuberance,” then a Buy-and-Hold Crisis is inevitable. All that a Buy-and-Hold Crisis is is a moment in time when irrational exuberance gets so out of control that investors panic and sell their stocks and that causes prices to collapse.
Is there any way that a moment like that would not eventually not arrive? The only thing that I am able to imagine is that we could remind investors daily to always, always, always practice valuation-based market timing. If they did that, irrational exuberance could never get too out of control and thus prices would never collapse. But of course the relentless promotion of Buy-and-Hold (no market timing now!) rules that out.
Shiller could be wrong. That’s a possibility. I don’t think it’s so. But it is certainly a theoretical possibility. But the killer there is that the Buy-and-Holders don’t argue that he is wrong. I’ve been doing this for 22 years and I have never heard a Buy-and-Holder make the case that Shiller is wrong. They ignore him. They have not changed their investing practices in any way as a result of the publication of his amazing research. So they act as if they believe he is wrong. But they have never made that case. Not once. In some section of their brain, they are convinced he is wrong. But they are not able to articulate why that is, even to themselves.
If he is not wrong, if irrational exuberance is a real thing, then Buy-and-Hold Crises are inevitable. There is no other way to get irrational exuberance under control than to practice valuation-based market timing and Buy-and-Hold rules that out. If I were a Buy-and-Holder, I would be arguing that Shiller is wrong. The problem there is — the research shows what the research shows. So the Buy-and-Holders are stuck in this crazy place where they implicitly acknowledge that Shiller’s research is legitimate (by not finding fault with it) but still investing as if it did not exist (by failing to practice valuation-based market timing).
That seems like an unstable reality to me. It’s been going on that way for a long, long time. But my brain tells me that things cannot go on that way indefinitely. If irrational exuberance is real, then our collective failure to practice valuation-based market timing is sooner or later (there is no way to know when because psychology plays such a big role in all of this) going to cause a Buy-and-Hold Crisis. Then it seems to me that the pain we all suffer will cause us to reflect on whether we should have been taking what this Shiller fellow taught us with his research into consideration all along.
That’s where I’m coming from re this one, in any event.
Rob
Are you now changing your mind? You keep telling us that we should look at the historical stock market. Now you are saying that we should consider something that YOU think is inevitable, and acknowledging that it has happened yet………only that you think it will happen.
What we know right now is that buy and hold has never failed and we have never seen a successful outcome with market timing, including your experience with VII.
You and I are both over 60. It is too late for both of us. We are at a point where we are fully funded or not. There are no do-overs.
Buy-and-Hold has failed every single time it has been tried. That’s going back 150 years, as far back as we have good records of stock prices. It’s not possible for the rational human mind even to imagine how Buy-and-Hold could ever provide good long-term results for a single long-term stock investor (I am assuming here that Shiller’s Nobel-prize-winning research showing that valuations affect long-term returns is legitimate research).
Valuation-based market timing is price discipline. The exercise of price discipline is always a plus. The only way in which valuation-based market timing would not be required is if the market were efficient, which was widely believed to be the case in the days prior to publication of Shiller’s amazing research discrediting the Efficient Market Theory and Buy-and-Hold. If the market were efficient, there would be no overvaluation. So valuation-based market timing would not be required. But those who follow the peer-reviewed research have known for 43 years now that that’s not the world we live in.
It’s time to open every internet site to honest posting re the peer-reviewed research.That’s my sincere take re this one, in any event.
My best wishes to you and yours, Anonymous.
Rob
It has always worked. You can’t even point to one failure. Go ahead. Give a link and show us all who failed. Meanwhile, you have the same result of all the other market timers. You are broke. Fix your own problems. We are not helping you out anymore. We have wasted too much time trying to help you because we feel bad for your family.
Anytime that an investor fails to lower his stock allocation when the CAPE value goes significantly above the fair-value CAPE value of 17, that’s a failure for Buy-and-Hold. That investor has failed to Stay the Course in a meaningful way. Stocks are riskier at high valuation levels and an investor who sticks with the same stock allocation when stock risk has increased is permitting his risk profile to get out of whack.
Today’s CAPE value is 33. So LOTS of investors have been pulled in by the smelly Buy-and-Hold garbage promoted so relentlessly by our Wall Street Con Men friends. I am highly confident that, once we open every site to honest posting re the last 43 years of peer-reviewed research in this field, we will be able to work together to keep the CAPE value always somewhere in the neighborhood of 17. At that point, we will all be able to live richer and fuller and freer and happier loves than we ever imagined possible during the Buy-and-Hold Era.
That’s where I’m coming from re this one, in any event.
Rob
Anytime that an investor fails to lower his stock allocation when the CAPE value goes significantly above the fair-value CAPE value of 17, that’s a failure for Buy-and-Hold. “
Show one person that failed, Rob. All you are saying is that you expect it someday. Someday a man from mars might land on my roof.
Failing to take valuations into consideration when setting your stock allocation has been failing for 150 years now. Yes, I believe that there’s every chance in the world that it will continue to fail in the future. Why wouldn’t it? Do you have some reason to believe that it’s all going to be different this time?
Rob