A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

Valuation-Informed Indexing #721: Buy-and-Hold Destroys Wealth, But Only Very Slowly

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I’ve posted Entry #721 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Destroys Wealth, But Only Very Slowly.

Juicy Excerpt: It really does always produce good results at the end of 30 years. But most of us don’t focus on what is good for us 30 years down the road. If we did, we would exercise more and take better care of our teeth and eat less sugars and carbs. We respond to negative reinforcement that descends on us quickly after we engage in problematic behavior. Bad results that we don’t see for 30 years often don’t influence our thinking very much.

Valuation-Informed Indexing #720: Buy-and-Hold Is a Thrill Ride

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I’ve posted Entry #720 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Is a Thrill Ride.

Juicy Excerpt: We’ve gotten accustomed to the thrill ride. The market has been operating in the same manner for so long that we have come to believe that it’s the only way it could operate. Not so! Shiller was awarded a Nobel prize for his research because it tells us something important. What it tells us is that the market operates as it does not because that’s the only possibility but because our lack of knowledge of the realities caused us to invest in ways that frequently caused the market to become dysfunctional.

“Buy and Hold Investors Are Satisfied Getting the Market Return.”

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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 and Hold investors are satisfied getting the market return.

Market timing junkies think they have some magic way of exceeding the market return even though years of experience shows that holding such a belief is not supported by the evidence.

What if the market becomes emotional and produces irrational exuberance? Are the irrational exuberance “gains” part of the “market return” that you expect to get?

We all need to work to keep the market return honest and real. We do that by permitting honest posting re the peer-reviewed research at every site. If all that investors can hear is what our Wall Street Con Men friends want them to hear, they are not going to obtain the market return on stocks they purchase at times of insane levels of irrational exuberance. The Bennett/Pfau research shows that as clearly as anything could be shown. As Wade put it after 16 months of research into the question: “Yes, Virginia, Valuation-Informed Indexing works!”:

Irrational exuberance gains are not the same as genuine economic gains. I mean, come on. Investors can only get the market return for as long as the market remains rational. And that doesn’t happen by magic. We all need to work together to keep our Get Rich Quick/Buy-and-Hold impulses under control to keep the market rational.

My sincere take.

Rob

Valuation-Informed Indexing #719: Irrational Exuberance Is a Silent Killer — Unless Someone Draws Attention to It, Life Goes On As If It Doesn’t Exist

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I’ve posted Entry #719 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Irrational Exuberance Is a Silent Killer — Unless Someone Draws Attention to It, Life Goes On As If It Didn’t Exist.

Juicy Excerpt: What if we learned that the traffic lights on our roads don’t work and that a car might be heading at us at full speed from the other direction when the green light tells us that it is safe to roll on through the intersection? Those lights need to work. If the traffic lights are not working, it’s not safe to get on the road. I am sure. Driving without traffic lights makes no sense. Having one’s retirement money in stocks at a time when the CAPE value is 37 (where it stands today) is akin to driving at a time when the traffic lights aren’t working.

“I See That CAPE Value As Being the Consequence of the Widespread Promotion of Buy-and-Hold Strategies.”

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

Everyone already makes that decision, Rob.  They just don’t have to agree with you as to what YOU think. Is overpriced.  They don’t have to be forced by you to go broke, just like what happened to you.

Today’s CAPE value is 37, Anonymous. Do you think that that CAPE value came to apply as the result of millions of investors making informed choices as to their stock allocation?

I see that CAPE value as being the consequence of the widespread promotion of Buy-and-Hold strategies.

Rob

“No One Can Determine What Something Is Worth Unless the Information They Need to Make That Determination Is Available to Them. Once a Ban on Honest Posting re the Peer-Reviewed Research Is Put in Place, the Market Is No Longer Functional.”

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

Question: How much is a house worth?
Answer: It is worth the amount that someone else is willing to pay for it.

Question: How much is a plot of land worth?
Answer: It is worth the amount that someone else is willing to pay for it.

Question: How much is a painting worth?
Answer: It is worth the amount that someone else is willing to pay for it.

Question: How much is a share of stock worth for any company?
Answer: It is worth the amount that someone else is willing to pay for it.

So, it is simple. If you want something and you are willing to pay the price that is asked by the owner, then buy it. If you don’t like the price, then don’t buy it. You don’t just demand that other people have to lower their price on a particular asset just because you say so and that YOU think it is overvalued. Your faulty thinking has led to you going broke, while the rest of us have done very well, from a financial perspective. We are not here to make you happy. We are not here to fix your problems.

No one can determine what something is worth unless the information they need to make that determination is available to them. Once a ban on honest posting re the peer-reviewed research Is put in place, the market is no longer functional. So you get the crazy and dangerous CAPE level we see today in the stock market.

I would permit honest posting re the peer-reviewed research. Then I am confident that the price that people were willing to pay for stocks really did reflect their true value. It’s the ban on honest posting re the peer-reviewed research, enforced by the sorts of people who have posted in “defense” of Mel Lindauer and John Greaney, who have been holding us back for 22 years now.

Where I’m coming from.

Rob

“Part of the Scientific Process Is Adopting a Skeptical Attitude.”

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

“ But I don’t believe for two seconds that you are truly confident about your strategy ”

Back at you, Rob.

I’m confident enough to argue for permitting both sides to post honestly re their beliefs. if Buy-and-Hold prevails over Valuation-Informed Indexing in a fair fight, then so bet it, you know? No one knows everything. So no one should go with Valuation-Informed Indexing just because I endorse it. But no one should go with Buy-and-Hold just because Lindauer and Greaney endorse it either. They need to be challenged too.

Part of the scientific process is adopting a skeptical attitude. You might think that you have it all figured out but you might be wrong. To remain in the realm of scientific investigation, you must always permit new research and new discussion of what the research shows. I love what the Buy-and-Holders set out to accomplish. It pains me that they betrayed their own vision when they determined that new research could not be considered just because finding that that research is valid would require them to acknowledge that they got it wrong back in the days when the research needed to get it right was not available.

I think that my attitude toward these matters is a more confident one than yours. No, I am not 100 percent certain of every single thing I believe. It wouldn’t be healthy to be 100 percent certain across the board. At some point that becomes an excessively dogmatic attitude. But I am not afraid to have people hear both sides. I believe that, once people are able to hear both sides, Valuation-Informed Indexing will begin gaining ground on Buy-and-Hold. I believe that there will come a day when it will surpass it in popularity. We’ll see.

Rob

“Shiller’s Book Is Offered in Libraries All Across the Nation. We Are Close.”

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

Everybody else is wrong and only Rob Bennett is right.  Poor Rob is the victim of a mass conspiracy.

Shiller’s book is offered in libraries all across the nation. We are close.

There are reasons why we have laws against the behavior we have seen from you Goons. That sort of stuff scares people. I believe that in the days and years following the onset of the next Buy-and-Hold Crisis, we will work up the courage we need to get past you.

We’ll see, you know? I think we are a good people.

Rob

“It Is Irrational Exuberance to Push a Timing Scheme That Has Never Worked. There Is Less Risk Going With a Strategy That Has Always Worked Over Every 30 Year Period and That Is Buy and Hold. It Is the Least Risky Path for Investors Based on the REAL Peer-Reviewed Research. We Need to Reject People Pushing Risky Timing Schemes.”

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

It is irrational exuberance to push a timing scheme that has never worked.  There is less risk going with a strategy that has always worked over every 30 year period and that is Buy and Hold. It is the least risky path for investors based on the REAL peer-reviewed research.  We need to reject people pushing risky timing schemes.

Okay, Anonymous.

My best wishes to you.

Rob

“Stocks Are in a General Sense a Better Choice Than the Other Options. But Price Always Matters. No Matter How Great Stocks Are, There Is a Price at Which They Are No Longer the Best Option.”

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

That is not what the research actually says and is clearly not the outcomes we have seen.  If you want to consider stock risk, then you can’t ignore the risk of every other investment vehicle.  Look at how everyone has gotten destroyed by inflation with every other investment option other than stocks.  You are the poster boy of retirement failures.

Stocks are in a general sense a better choice than the other options. I certainly agree with that much. But price always matters. No matter how great stocks are, there is a price at which they are no longer the best option. To be able to identify what that price is, you need to always pay attention to irrational exuberance, to practice price discipline, to engage in valuation-based market timing. When the Buy-and-Holders discourage investors from doing this, they take an amazing asset class and turn it into something dubious and dangerous.

I would permit honest posting re the peer-reviewed research. Marketing gimmicks taken too far hurt people in very serious ways.

Rob