Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
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
You love taking things out of context. There are undervalued stocks available today. You can seek those out, or just buy the index. Timing the market is a fool’s errand.
Trying to guess when prices will shift is a fool’s errand. We agree re that one. But adjusting your stock allocation to maintain the proper risk profile that you determined was right for you has been working since 1870, which is as far back as we have good records of stock prices. That’s price discipline. Its impossible for the rational human mind to imagine any circumstance in which that would stop working.
I’m skeptical of the idea of picking undervalued stocks. i think it’s possible. But I think it’s harder to pull off that most people realize. I think it’s better for the typical investor to go with a broad index fund. If you do that, higher valuations translate into greater risk and you need to lower your stock allocation as prices risk to keep your risk profile constant over time. If there were any research suggesting that valuation-based market timing is not always 100 percent required, you Goons would have put it forward years ago. I mean, give me a freakin’ break. Buy-and-Hold is a marketing gimmick.
Rob
“Trying to guess when prices will shift is a fool’s errand.”
Some people have been waiting since the mid 90s for stocks to be cheap enough (in their opinion) to buy.
If I was a lawyer who had been hired to make the case for Buy-and-Hold, that’s the point that I would be focusing on. Prices have remained high for a very long time. That’s a reason for not being extreme in one’s approach. I recommend that people never go below 30 percent stocks. That way you always participate at least to a small extent in crazy bull markets.
The other side of the story is that, if we had been permitting honest posting re the peer-reviewed research all along, we never could see prices remain so high for so long. That would be a far-better works than the one we have been living in during the Buy-and-Hold Era. We wouldn’t have the crazy roller coaster ride of bull markets followed by bear markets. But we would see a steady return of 6.5 percent real. Reasonable people should be able to agree that that’s plenty good enough. There’s no need for the irrational exuberance garbage except for the greed-based desire to turn a few extra bucks while destroying millions of lives.
There’s no justification for not permitting honest posting re safe withdrawal rates. People who believe in the loony tunes Buy-and-Hold retirement studies and hand in their resignations based on what they come to believe is “100 percent safe” can’t go back in time and reverse those decisions. We all should be speaking up in opposition to those “studies.”
Where I’m coming from.
Rob
Look up the portfolio of Ronald Reed, who was a janitor and a gas station attendant. Individual stock buying is not as hard as people think it is. When you’re buying blue chips with unassailable brands and huge structural competitive advantages while they are temporarily beaten down for reasons outside of management’s control you can do very well. Take Hershey at today’s prices (I bought some at under $180!) and over the next 25 years you’ll likely beat the index funds which are weighted so that you don’t just have some trash mixed in with the good but you’re big on those that have already “won”. Not a guarantee, but that’s why you don’t go all in on a single stock.
Or you could just buy index funds. It’s a wise approach that requires minimal effort for a better than fair return.
I just checked Empower. My net worth hit another all time high. Having over a million dollars in cash + assets and a house that’s mostly paid off (no rush, though, with a 2.5% rate) at the age of 40 is “good stuff on top of good stuff”.
“But we would see a steady return of 6.5 percent real.”
You don’t understand where stock returns come from. Or to be more accurate you choose (or pretend) not to understand.
Bernstein’s article explains it very well http://www.efficientfrontier.com/ef/403/fairy.htm
The reason why you keep repeating things that you know are wrong is that you have been unable to articulate a convincing argument in favor of your SWR and market timing beliefs.
“I just checked Empower. My net worth hit another all time high. Having over a million dollars in cash + assets and a house that’s mostly paid off (no rush, though, with a 2.5% rate) at the age of 40 is “good stuff on top of good stuff”.
It’s nice that you’re happy with your circumstances, Sensible. But I don’t believe for two seconds that you are truly confident about your strategy (Buy-and-Hold). If you were, you wouldn’t behave the way you do. People who are confidence in their strategy are okay with knowing that other people follow other strategies.
And that lack of confidence will have an effect on our entire nation somewhere down the road. It is the lack of confidence that is typical of people following Buy-and-Hold strategies that causes bear markets. Falling prices brings on feelings of panic among people who are trying to persuade themselves that irrational exuberance gains represent something real.
I think we would all be better off permitting honest posting re the peer-reviewed research. Our economic system would be more stable and so would our political system.
My best wishes.
Rob
“Look up the portfolio of Ronald Reed, who was a janitor and a gas station attendant. Individual stock buying is not as hard as people think it is. When you’re buying blue chips with unassailable brands and huge structural competitive advantages while they are temporarily beaten down for reasons outside of management’s control you can do very well. Take Hershey at today’s prices (I bought some at under $180!) and over the next 25 years you’ll likely beat the index funds which are weighted so that you don’t just have some trash mixed in with the good but you’re big on those that have already “won”. Not a guarantee, but that’s why you don’t go all in on a single stock.
Or you could just buy index funds. It’s a wise approach that requires minimal effort for a better than fair return.”
I personally favor index funds. I think it is possible for people who put a lot of work into it to do better picking individual stocks than they would going with index funds. But I also think that it’s easy to fool yourself into thinking that you can pick stocks effectively. So I think it’s better for the typical investor to just go with index funds. It takes a lot of risk out of the story. But I believe that there are exceptions to the general rule.
Rob
Based on your actions you don’t believe in buying stocks. At least not at the price that anyone else is willing to sell them to you for.
“But we would see a steady return of 6.5 percent real.”
You don’t understand where stock returns come from. Or to be more accurate you choose (or pretend) not to understand.
Bernstein’s article explains it very well http://www.efficientfrontier.com/ef/403/fairy.htm
The reason why you keep repeating things that you know are wrong is that you have been unable to articulate a convincing argument in favor of your SWR and market timing beliefs.
I think it is you who doesn’t understand where stock returns come from, Evidence. You don’t adjust for irrational exuberance when calculating safe withdrawal rates. Huh? What the f? There’s 43 years of peer-reviewed research showing that irrational exuberance is a real thing and you don’t take it into consideration when telling people when they can afford to retire? Not this boy.
Bernstein comes down hard on both sides of the divide. He wrote in his book that the Buy-and-Hold retirement studies are in error, that the safe withdrawal rate was only 2 percent at the top of the bubble. Good for him, you know? That was a brave thing to do. But his book is filled to the brim with reasoning typical of the Buy-and-Holders. His editors should have insisted that he square those comments with his claim that the Buy-and-Hold retirement studies are in error. The purpose of having editors is to be sure that you catch things like that before the book goes out.
Once we open every site to honest posting re the peer-reviewed research, people like Bernstein will have to come to terms with the far-reaching how-to implications of the last 43 years of peer-reviewed research in this field. We will learn more from them and that will work to the benefit of everyone on the planet.
Where I’m coming from.
Rob
Based on your actions you don’t believe in buying stocks. At least not at the price that anyone else is willing to sell them to you for.
I believe that stocks are an amazing asset class. But I definitely believe in practicing price discipline when buying them, just as I believe in practicing price discipline when buying anything else.
The price at which stocks are available for sale would obviously be very, very different in a world in which honest posting re the peer-reviewed research was permitted at every site. In that world, investors would be able to act in their self-interest and their efforts to do that would keep stock prices are reasonable levels at all times. So stocks would always offer a strong long-term value proposition. It is the relentless promotion of the Buy-and-Hold stuff (no price discipline now!) that has messed up the market. Those who truly love stocks should want to see honest posting re the peer-reviewed research permitted.
Rob
“But I definitely believe in practicing price discipline when buying them, just as I believe in practicing price discipline when buying anything else.”
Other investors also practice price discipline when selling stocks.
They refuse to sell stocks to Rob Bennett at the knock down prices he wants to pay, whenever much higher prices are available on the free market.
As with most investing topics you are incapable of seeing both sides of an argument.
You don’t realize that just as you are unwilling to pay more than a certain price for stocks, other investors are unwilling to accept less than a certain price for stocks.
Those willing to pay the market price for stocks will continue to participate in capital markets.
Those who are unwilling to pay the market price will sit on the sidelines for about 30 years.
The fair-value price for stocks is not a “knock-down price.” Yes, I would like to pay the fair-value price for the stocks I buy. Why wouldn’t I?
We can never know the market price for stocks until we permit the market to function properly. The market obviously cannot function properly until we open every site to honest posting re the peer-reviewed research. Investors need to be able to act in their self-interest for the market to function properly. Investors cannot act in their self-interest for so long as there is an internet-wide ban on honest posting re the peer-reviewed research.
Rob
“Yes, I would like to pay the fair-value price for the stocks I buy. Why wouldn’t I?”
The problem is that your idea of fair market is lower than other peoples, therefore they won’t sell to you.
You seem to think that fair value is a single number, whereas in reality investors can have different ideas of what is fair value for them.
We can add fair-value to the long list of investing topics that you don’t understand.
I believe that my idea of fair-value stock prices would be very much in line with that of most other investors if all investors had access to discussion boards and blogs that permitted honest posting re the last 43 years of peer-reviewed research in this field.
There’s only one way to find out.
Rob