Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
I have millions of dollars and they are real. They are in my account and I can spend it at any time. Your dollars are not real. They are not in your account and only exist in your head. You won’t see one cent of your fantasy $500 million windfall. How do you know? Because you have nothing to spend.
These are important facts as it determines WHO has the problem. If I had a major issue come up (medical, repair to home, etc) I have the money to pay for it right now? Can you say the same? Of course not. You don’t have any money as you have admitted many times.
You’re saying that it is the numbers in an account that are the ultimate reality. I’m saying that the peer-reviewed research is a higher reality. The peer-reviewed research tells us whether we can trust the numbers in the account.
Shiller did something. I say that he showed us when we can trust the numbers in the account and when we cannot. You have never said what you believe Shiller showed that was so important that it merited a Nobel prize.
If it is so that we cannot trust the numbers in our account, that’s a big deal. I believe that it is so. So I believe that we need to come to terms with that. That’s why I advocate that we open every site on the internet to honest posting re the peer-reviewed research. I don’t see this as being optional. I see it as being imperative. It’s not possible to have intelligent discussions about stock investing for so long as we don’t even know whether the amounts in our accounts are real or not.
We’ve got a tiger by the tale re this one!
Rob
Can you buy your groceries with your opinions on the peer-reviewed research? How does that work when you go to check out?
Research-based Investing insights do not permit one to purchase groceries in the here and now. But they permit one to obtain more groceries over the course of an investing lifetime than one could hope to purchase going strictly by gut feel.
If you prefer to focus on the current moment over the long term, that’s your business. But lots of others have expressed an interest in doing well in the long term and those people have every right in the world to engage in the discussions that they want to engage in whether it makes you feel uncomfortable to hear people talking over what the research shows or not. It’s not your place to decide for them.
Rob
Just to clarify, you can’t buy groceries now, but you HOPE you can buy more in the future. As such, since you can’t buy groceries now, why would anyone want to follow a timing scheme like that?
I choose to have something that works now AND the future as it always has in the past.
Buy-and-Hold has never worked in the past. It has always increased risk while reducing return. That’s been so for as far back as we have records of stock prices. The Bennett/Pfau research shows this very clearly. I believe that we should be discussing that research at every site.
Common sense and the peer-reviewed research tell us that it is a logical impossibility that failing to exercise Price discipline when buying stocks could ever be a good thing and the historical record of course backs that up. If Shiller’s research had been available at the time Buy-and-Hold was being developed, the Buy-and-Holders never would have suggested that market timing isn’t always required. They made a mistake because all of the research needed to get it right was not available at the time and they haven’t corrected it for 44 years because getting something so basic so terribly wrong makes it look like they are not really experts. But further delays in correcting the mistake just make things worse.
At the very bare minimum, the Buy-and-Holders should agree to follow the law so that others can bring the mistake to the attention of investors and to help us all to minimize the negative effects of the next Buy-and-Hold crisis.
Rob
You can’t even show one time where buy and hold failed over any 30 year period. Whereas, market timing failed every time, just like it failed for you. Wade Pfau pointed this out last year.
Buy-and-Hold (failing to exercise Price discipline when buying stocks) has failed every single time it has been employed. Say that someone told you that his approach-to buying a car was going to be to go to the nearest dealership and pay whatever price they were asking without spending one moment looking into the question of what the car was worth. Would you say that that approach might work?
I would say that it could not possibly work. It’s possible that he could get a quality car and it’s possible that the dealer might not rip him off too much. But no matter how things played out, he added to his risk by failing to do any research into the real value of the car before buying it. So he hurt himself by following a Buy-and-Hold “strategy.” Buy-and-Hold is not a strategy, it is a marketing gimmick. We need to move past it and permit discussion of the last 44 years of peer-reviewed research,
Rob
If you are saying that buy and hold failed every time, it should be easy for you to point out just ONE single example of where someone had a retirement failure with buy and hold. So go ahead and give us a link to just one person that had such a failure. You are the one making the claim, so let’s see you back it up.
There’s obviously been retirement failures. And every one that has taken place has been influenced by our lack of knowledge about how important it is to practice valuation-based market timing. Prior to 1981, we just didn’t know. From 1981 through today, there’s been this crazy ban on honest posting re the last 44 years of peer-reviewed research.
It’s possible that someone could just fail to save enough. In that case, Buy-and-Hold didn’t cause the retirement failure. But in most cases, Buy-and-Hold is going to have played a role. The failure of most investors to practice price discipline causes stocks to be overpriced and paying too much for the stocks he buys ends up hurting the person who suffers the failed retirement. Maybe he would have been okay if honest posting had been permitted and prices had been more stable.
The onus should not be on those who believe that honest posting should be permitted to show that Buy-and-Hold was the primary cause of a failed retirement. The onus should be on the Buy-and-Holders to show that some other factor was dominant in this particular case. We know what Buy-and-Hold/Get Rich Quick strategies do great long-term damage. So the default assumption should be that they played a significant role in any failed retirement.
Are you able to imagine any circumstance in which failing to exercise price discipline would not make a failed retirement at least a little bit more likely? If a guy was driving 60 mph on an icy road, would you ask for proof that driving at that speed in those conditions played a role in causing the accident? It’s obviously a foolish thing to do. Why do something so reckless? Why not just follow ordinary precautions?
Rob