A Rich Life

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

Beyond Buy-and-Hold #70 — Why I Don’t Pull Punches in My Discussions With Buy-and-Holders

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I’ve posted Entry #70 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called Why I Don’t Pull Punches in My Discussions With Buy-and-Holders.

Juicy Excerpt: But my goal is to bury Buy-and-Hold 30 feet in the ground, where it can do no further harm to humans and other living things. I would like to see all of the experts in this field endorsing Valuation-Informed Indexing, which I view as the investing strategy of the future. I look forward to the day when The Stock-Selling Industry is spending hundreds of millions of dollars promoting investing strategies that work.

What are the chances that those things are going to happen if I stop speaking out strongly in opposition to Buy-and-Hold or do so less frequently? I think it is safe to say that the chances are pretty darn small. If I follow the advice of my Buy-and-Hold friends, I will be more popular. But I will also be ineffectual! I will not achieve my goals. I can see how that sounds good from their point of view but I am not able to see how it could be seen as a good thing from mine.

VII #63 — Valuation-Informed Indexers Can Retire Five Years Sooner

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I’ve posted Entry #63 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Valuation-Informed Indexers Can Retire Five Years Sooner.

Juicy Excerpt: Both portfolios survived until Year 60/Age 85 in each of the hundreds of return sequences tested. The most likely end-point portfolio value for the Buy-and-Holder was $754,000. For the Valuation-Informed Indexer, the most likely end-point portfolio value was $1,095,000.

The VII portfolio also had a higher best result — 2,872,000. This compared to a best result for the Buy-and-Holder of $1,516,000. However, the Buy-and-Hold portfolio registered a much better worst result. This number was $249,000. The VII number was $28,000, showing that there were a small number of return sequences in which the VII portfolio came close to failing.

Valuation-Informed Indexers generally obtain higher returns despite taking on less risk. But Valuation-Informed Indexers who elect to retire at age 60 are taking on slightly more risk in their retirements than their Buy-and-Hold counterparts as the cost of being able to do so. The added risk they are taking on has both its positive and negative aspects. The Valuation-Informed Indexer who retires at age 60 is a bit more likely to experience a close call retirement than the Buy-and-Holder who leaves the workforce at age 65. However, he also enjoys the potential of being able to leave a much bigger estate to his children or to charities. In the typical case, he will end up with the larger portfolio.

VII #50 — “Approximately True” Investing Advice Doesn’t Cut It Anymore

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I’ve posted Entry #5o to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called “Approximately True” Investing Advice Doesn’t Cut It Anymore.

Juicy Excerpt: How are we going to hold back the crowds anxious to make a speedy transition from Buy-and-Hold to Valuation-Informed Indexing?

But wait.

There are no crowds! People hate Valuation-Informed Indexing. I am the concept’s leading promoter on the internet and it is more common for me to be greeted with bricks thrown in my direction than with welcoming committees. How come? What’s going on?

One big problem is that most promoters of Valuation-Informed Indexing take far too apologetic a tone when making the case. I point you to a comment Shiller makes in his book Irrational Exuberance that I think should strike anyone persuaded by Shiller’s case as polite to the point of excess, perhaps even outright odd.

ITNR #59 — Dangers of Valuation-Informed Indexing

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I’ve posted Entry #59 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called Dangers of Valuation-Informed Indexing.

Juicy Excerpt: Prior to 1981, the academic research really did support Buy-and-Hold. There are now 30 years of research discrediting Buy-and-Hold and supporting Valuation-Informed Indexing. There’s one sense in which 30 years of research is a lot; stock investing has been the subject of sustained academic study for only about 50 years. But in the grand scheme of things 30 years of research is not enough research to draw definite conclusions. Buy-and-Hold was discredited within a decade of when it was popularized in 1974 by the publication of the book A Random Walk Down Wall Street. It is possible that future research will discredit Valuation-Informed Indexing.