I’ve posted Entry #697 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Claim That Buy-and-Hold Is Research-Based Is a Marketing Gimmick.
Juicy Excerpt: I believe that the vast majority of Buy-and-Holders possess a sincere belief that their strategy is research-based. I have engaged in thousands of interactions with Buy-and-Holders over the years and my assessment is that their confidence in their strategy is strong and deep. Unfortunately, I also believe that it is misplaced. In the event that Buy-and-Hold is not truly a research-based strategy, the fact that it is promoted as research-based is actually a bad thing. The belief that it is causes people to have confidence in bad strategy in which they otherwise would not possess confidence.
We need proof of concept. First we must have successful Valuation Informed Indexers to be able to use their own success as examples. It seems that the success of Valuation Informed Indexing hinges on widespread adoption of the “strategy”. I personally prefer to follow a strategy that doesn’t require millions of others to join me like a herd animal. Indeed, I prefer betting against the crowd from time to time.
Engaging in valuation-based market timing is just practicing price discipline. That practicing price discipline would enhance one’s long-term results is just common sense. And of course the Bennett/Pfau research confirms that what common sense tells us must be so really has been so for as far back as we have good records of stock prices.
You can bet against the crowd or you can bet with the crowd, that’s up to you. The research doesn’t care how you bet. The research reveals the realities, that’s the point of doing research. The reality is that stock investors do themselves no favor when they bid stock prices up beyond the levels supported by the economic realities. Once stock prices go higher than their fair-value levels, further price increases are a negative, not a positive. The first aim of sound investment advice is to encourage stock investors to distinguish real gains from irrational exuberance gains, to never count irrational exuberance gains as real when engaging in financial planning.
Buy-and-Hold is the OPPOSITE of what works. What works is to always, always, always practice valuation-based market timing. Buy-and-Holders say that market timing might not always be 100 percent necessary. Huh? What the f? Those sorts of claims are a marketing gimmick, nothing more and nothing less. If there were any research supporting the “idea” that valuation-based market timing is not always 100 percent required for every investor, we never would have seen a single abusive post or a single criminal act. We see that stuff because the Buy-and-Holders are addicted to a Get Rich Quick investment strategy and for 43 years now they have not been able to come up with any legitimate means by which to “defend” the strategy that they developed in the days before the most important research was available to us and they had to take a wild shot in the dark re the most important question.
I do wish you all the best that this life has to offer a person regardless of what investment strategy you elect to follow, Sensible. My best wishes to you.
Rob
You are like the 600 lb guy telling the skinny people that you are the only one to successfully lose weight while the rest of them have failed. Outcomes matter, Rob.
The outcome of the relentless promotion of Buy-and-Hold strategies is that today’s CAPE value is 35, Anonymous.
Rob
Someday when you can show an actual successful outcome with market timing, then a discussion could be had. Similarly, someday when you can finally show an outcome that failed with buy and hold, then we can have a discussion on that as well. At this point, the only thing we have seen is just the opposite. Since you have a failed retirement outcome, your focus should be on fixing your own problems and you should stop telling successful people what to do.
Okay, Anonymous.
I do wish you all good things, in any event.
Rob
I went to the grocery store today. When I went to check out, the cashier asked me for my peer-reviewed research papers to pay for the groceries. I tried to use some money from my almost $8 million in savings, but she said that due to the current CAPE ratio, she would only accept a market timing opinion of Robert Shiller’s work. Woe is me. How will I ever survive this financial nightmare.
Should we shut down all the peer-reviewed journals, Anonymous?
Rob
Should we say that only Rob Bennett decides what the peer-reviewed research says?
I say that it says that valuations affect long-term returns. Do you say that it says something different?
Rob
The research shows that buy and hold has always worked and Rob Bennett’s VII has never worked.
Um….
Rob
Out of the three of us two are millionaires and one is not.
22 years ago, you posted your retirement plan and you believed that you would have a successful retirement. John Greaney (and a host of others) warned you that you would likely fail? When we look at the outcomes, who was right?
This is just like statements on research. You make claims and others make claims. When looking at the long term outcomes, who was right?
Out of the three of us two are millionaires and one is not.
The other of the three worked up the courage to post honestly about safe withdrawal rates on the morning of May 13, 2002, and has stuck to that path ever since. I don’t regret the choice. That’s my path, millionaire or not. I like the idea of being a millionaire. Nothing against it. But not at the price of lying to my friends about safe withdrawal rates. Not my particular cup of tea.
Rob
22 years ago, you posted your retirement plan and you believed that you would have a successful retirement. John Greaney (and a host of others) warned you that you would likely fail? When we look at the outcomes, who was right?
This is just like statements on research. You make claims and others make claims. When looking at the long term outcomes, who was right?
I was wrong about the level of opposition to honest posting re safe withdrawal rates and other critically important investment-related topics and about the staying power of that opposition in the face of the reality that the majority of investors would like to see every site opened to honest posting re the research.
I think that I was right in my claim that the Greaney retirement study lacks a valuation adjustment. Nothing I have seen in the first 22 years of our discussions has caused me to experience doubts re that one. I am more confident re that claim today than I was on the morning of May 13, 2002.
Rob
Your answer makes no sense. How did your decision to “post honestly” lead to you being broke and divorced?
It makes sense. It’s irrational exuberance that doesn’t make sense (the first word in the term is an important clue).
If Buy-and-Hold were a real thing, we never would have seen a single abusive post. If as a nation of people we want to keep the CAPE value where it is today, we are going to have to dish out heavy penalties to those who post honestly re the last 43 years of peer-reviewed research. I don’t like it. But that’s the core reality. You can’t have insane levels of overvaluation and also honest posting re the peer-reviewed research. It’s one of the other. I vote for honest posting re the research. You Goons vote for irrational exuberance.
Buy-and-Hold rules! No market timing! A CAPE of 35! Millionaires everywhere you turn! What’s the downside?
Rob
It makes sense to go broke and get divorced? Really?
It seems you have much different goals than the rest of us. We prefer to have an intact marriage and have a fully funded retirement by the time we reach our 60’s.
Buy & Hold is “good stuff on top of good stuff”, as some might say. I can see some of my stocks are down today. BRB I’m gonna go buy more.
It makes sense to go broke and get divorced? Really?
It seems you have much different goals than the rest of us. We prefer to have an intact marriage and have a fully funded retirement by the time we reach our 60’s.
In these extremely unusual circumstances, yes, I think it makes sense.
I had come to form friendships with a number of the people who participated in discussions at the Motley Fool board during the three years in which I was working up the courage to post honestly re the error in the Greaney retirement study.
You don’t really prefer a fully funded retirement. If you did, you would be fine with permitting discussion of the research. You prefer never having to say the words “I” and “Was” and “Wrong.” That’s irrational. That’s the animating force behind irrational exuberance. That’s what Shiller’s Nobel-prize-winning research was all about.
Not this boy, you know?
Rob
Rob
Buy & Hold is “good stuff on top of good stuff”, as some might say. I can see some of my stocks are down today. BRB I’m gonna go buy more.
I certainly wish you the best of luck with it.
It defies common sense to believe that there is no price at which stocks are not worth buying. I view that claim as a marketing Gimmick. It can’t be true. So I personally very much doubt that it is true. And of course there’s the 43 years of peer-reviewed research showing us that what common sense tells us must be so really us so.
Rob
The stocks that I bought today are trading at cheap valuations, historically speaking.
I feel bad for your wife. It’s sad that you chose VII over her.
You are broke. You are divorced. You have no friendships from any of the discussions boards that we can see. All your predictions failed. No one will even comment here on this board in suppport of you. It has been a complete failure, yet here you are telling everyone else that you are right and they are wrong. You seem to live in an alternate reality.
The stocks that I bought today are trading at cheap valuations, historically speaking.
I feel bad for your wife. It’s sad that you chose VII over her.
Today’s CAPE value is 35.
I choice the people of the United States. My ex is a citizen of the United States. So I was choosing her on that day when I worked up the courage to point out the error in the Greaney retirement study.
Rob
You are broke. You are divorced. You have no friendships from any of the discussions boards that we can see. All your predictions failed. No one will even comment here on this board in suppport of you. It has been a complete failure, yet here you are telling everyone else that you are right and they are wrong. You seem to live in an alternate reality.
Let’s try opening every discussion board and blog on the internet to honest posting re the last 43 years of peer-reviewed research for six months and see how broke I am then. You and I both know that you wouldn’t consider doing that in 10 billion years. Gee, I wonder why.
Some of this investing stuff is so darn hard to figure out!
Rob
Today I bought shares of Clorox and Hershey, not an index fund. Both are excellent companies trading well below their historical P/E.
That might give you some protection. It’s probably better than buying shares of an index fund at these prices. But you can’t be sure that those companies are selling at low prices because of irrational depression, like you could if it was an index fund selling at a low price. In the case of an individual company, the low price could be justified by the economic realities.
I wish you the best of luck with it, in any event.
Rob
“ Let’s try opening every discussion board and blog on the internet to honest posting re the last 43 years of peer-reviewed research for six months and see how broke I am then. ”
The boards were open to you. Further, you have access to very large internet sites (Reddit, etc). You have had several decades to spread your message. Tens of thousands have heard it and you have been rejected. Further your own plan failed and every prediction failed. No one wants outcomes like you. Admit you were wrong and fix your own problems. We are not changing for you.
I buy my index funds systematically in both my 401K and my wife’s 401K. Every week I buy the S&P 500 and an “Extended Market” fund. Those two funds, or equivalent, plus a small bond holding is all you need. It’s stupid to not do these things.
Individual stocks are mostly purchased in Roth IRAs and a HSA. The exceptions are company stock, which are directly held, and my Nestle, which I hold in a taxable brokerage account.
I really don’t think you understand investing.
The boards were open to you. Further, you have access to very large internet sites (Reddit, etc). You have had several decades to spread your message. Tens of thousands have heard it and you have been rejected. Further your own plan failed and every prediction failed. No one wants outcomes like you. Admit you were wrong and fix your own problems. We are not changing for you.
Some of the tend of thousands rejected me and some of the tens of thousands loved my stuff. If the same ten percent that loves my stuff continued to apply and we opened every site to honest posting re the research, that’s millions of followers, Anonymous. That translates into big bucks. There’s a reason why you can’t bear the thought of people gaining access to discussions of what the research.
I am obviously not expecting you Goons to change. But everyone who lives in the United States is affected by this matter. If the next Buy-and-Hold Crisis is anything like all of the other ones, we are going to see an ocean of human misery resulting from this massive act of financial fraud. I believe that we will see some site owners working up the courage to stand up to you Goons in those days.
I can’t guaranty it. But I believe that we are fundamentally a good people. If we were fundamentally a corrupt people, Shiller never would have gotten his amazing research published in a peer-reviewed journal. So I think that this story has more good to say about us than bad. We’ll see, you know?
Rob
I read some of your blog posts from almost 20 years ago the other day. You were much more coherent. Here you’re posting all sorts of errors. Even if you intentionally spelled “guarantee” in an old timey/1800s way you spelled other things incorrectly.
I’m still buying index funds in the 401Ks every week. Only an idiot wouldn’t.
I buy my index funds systematically in both my 401K and my wife’s 401K. Every week I buy the S&P 500 and an “Extended Market” fund. Those two funds, or equivalent, plus a small bond holding is all you need. It’s stupid to not do these things.
Individual stocks are mostly purchased in Roth IRAs and a HSA. The exceptions are company stock, which are directly held, and my Nestle, which I hold in a taxable brokerage account.
I really don’t think you understand investing.
Whatever.
Please mark me down as saying that we all need to consider the price of anything we buy before putting money on the table and that that very, very, very much includes stocks. Otherwise, you run the risk of falling for the sort of marketing Gimmick that our Wall Street Con Men friends use on us when they tell us that they have a funny feeling that there might be an alternate universe 50 billions light years away in which everything works completely the opposite of how things work here on good old Planet Earth and there is no need for us to always, always, always practice valuation-based market timing.
Not this boy, you know?
Rob
I read some of your blog posts from almost 20 years ago the other day. You were much more coherent. Here you’re posting all sorts of errors. Even if you intentionally spelled “guarantee” in an old timey/1800s way you spelled other things incorrectly.
I’m still buying index funds in the 401Ks every week. Only an idiot wouldn’t.
I can go along with continuing to buy stocks even when they are as insanely overpriced as they are today. I can;t go along with sticking with the same stock allocation as what you had when prices were more reasonable. I think you should be aiming to keep your risk profile constant over time, to Stay the Course in a meaningful way.
That’s the future of investment analysis, I guaranty it!
Rob
No need to reinvent the wheel. Traditional approaches to investing have been proven to work. Look at how the Bogleheads have performed vs the world’s only living Valuation Informed Indexer.
Many Bogleheads expressed a desire that honest posting re the peer-reviewed research be permitted. That included John Bogle himself. When he put forward his famous post saying that he could imagine circumstances in which valuation-based market timing could work, I think it would be fair to say that he was trying to achieve a compromise that would put an end to all the nastiness. I think it would make sense for the Lindauerheads to go along.
I don’t know if I would call it reinventing wheel to permit honest posting re the last 43 years of peer-reviewed research. It’s certainly a big advance. That’s just something that happens when new research is published. Research teaches you things. If you permit discussion of the research, you are going to learn things. Please remember that it was a core principle of Buy-and-Hold in the early days that investors should look to the peer-reviewed research for guidance. So I feel that Valuation-Informed Indexing is much more in tune with the original vision of Buy-and-Hold than all this garbage about banning discussion of any research published after 1980. It’s going back to what the original wheel was all about. It was the idea of banning research-based posting that was a dramatic step away from what made Buy-and-Hold great in the early days.
Rob
Here is an interesting discussion at the Bogleheads site that was started by the great Taylor Larimore.
https://www.bogleheads.org/forum/viewtopic.php?t=413574
Thanks for the link, Sensible.
Please mark me down as saying that valuation-bssed market timing always works and is always required for investors who want to Stay the Course in a meaningful way. If valuations affect long-term returns (they do, according to Shiller’s Nobel-prize-winning research), stock investment risk is not constant but variable. An investor who wants to keep his risk profile constant MUST engage in valuation-based market timing. There is no other way to pull it off.
Rob
Please mark me down as saying that we have never seen even one successful outcome with market timing and, at the same time, have never seen one buy and hold failure. To be successful, people MUST avoid con-men pushing timing schemes. If you don’t, you will end up broke and divorced.
Okay, Anonymous.
My best and warmest wishes to you and yours.
Rob
If you follow Taylor’s link it shows what happened to the guy who never invested. The results were not pretty for Larry Linger, who kind of reminds me of Rob Bennett!
How about the guy who never worked up the courage to point out the error in a retirement study that some fellow was pushing at a discussion board at which the guy participated? I stood a good chance of becoming that guy until a post that I advanced on the morning of May 13, 2002, spared me that fate.
No apologies, you know?
Rob