Valuation-Informed Indexing #103

by Rob Bennett


There was a time when I was experiencing back pain. I visited a number of doctors. It frustrated me that they would all ask me the same irrelevant question — “Do you like your job?”

“What the heck does that have to do with my problem?” I would want to respond. “I came to you for help with my back pain!”

The story here is that doctors know that a high percentage of back-pain complaints are rooted in job dissatisfaction. Workers who have back pain can thereby become eligible for disability payments. People who do not like their jobs can escape them by experiencing back problems.

You need to be careful with your interpretation of what I am saying here. The doctors don’t say that a high percentage of those who complain of back pain are faking it to escape their jobs. The tests show that these people really experience the back pain. It’s just that people who are happy with their jobs aren’t nearly as likely to experience back problems. Once our minds come to know that experiencing back pain can solve our troubles, our minds deliver back pain to us without letting us know that that is what they are doing.

Our nation is having its share of troubles today.

Investing returns are bad. That’s one sort of problem.

The economy is a mess. That’s another sort of problem.

Political tensions are high. That’s another sort of problem.

The political experts are working hard to come to a better understanding of the political problems and the economic experts are working hard to come to a better understanding of the economic problems and the investing experts are working hard to come to a better understanding of the investing problems.

I have a suggestion.

The experts in the different fields need to arrange to get together in one place and talk things over with each other. 

All our our troubles are rooted in the same cause — Our unwillingness to acknowledge the mistake at the core of the Buy-and-Hold investing strategy.

Buy-and-Hold teaches people that they don’t need to worry about overvaluation — stocks are worth buying at any price! Once that belief catches on, bull markets follow. Every time there’s a big bull market, a big bear market follows as prices work their way back to fair-value levels. It is the popularity of Buy-and-Hold that caused our investing troubles.

But that’s not all that Buy-and-Hold has done to us. Buy-and-Hold caused our economic and political troubles too.

When stock returns are bad, people become afraid to spend money. That contracts the economy. Tens of thousands of businesses fail. Millions of workers lose their jobs.

And when millions of workers lose their jobs, political tensions are exacerbated. Liberals start yelling at conservatives and conservatives start yelling at liberals. I don’t mean like they usually do. I mean louder. Meaner. It’s a mess.

We’re never going to work things out between the liberals and the conservatives. Thinking that we are going to work that one out is like thinking that we are going to teach dogs and cats to play nice. So, when people see political tensions getting worse, they feel helpless. What to do?

A lot of people feel that way about the economy too. We spent trillions on a stimulus plan. That didn’t fix things. What else can we do? Again, it’s hard to feel hopeful about our future.


Our problems can be fixed. All of them. We need to focus on the true cause of them, though. That’s something we very, very, very much do not want to do.

Shiller showed in 1981 that Buy-and-Hold strategies can never work. We all know that on some level of consciousness, just like a good percentage of the back-pain sufferers know on some level of consciousness that their real problem is their feelings about their jobs rather than physical problems with their backs. We don’t want to acknowledge the Buy-and-Hold problem, however. We were taken in by Buy-and-Hold. Acknowledging that we were taken makes us feel like fools. We have elected to put that one off. And then to put it off some more.

We need to stop putting it off.

When we do that, we will see how much dealing with the Buy-and-Hold problem will help us with our economic troubles. And how much dealing with our economic problems will help us with our political troubles.

You solve a problem by getting to the source of the problem and taking action. It is our mistake about Buy-and-Hold that got us on the wrong track. We need to focus our attention on fixing the Buy-and-Hold problem. The rest will follow naturally.

After the doctors kept asking me that same annoying question, I looked into the matter and learned what I know today about the true cause of most back pain. It made me sad to learn that. The people who are feeling the back pain are not faking. They really feel pain. We should want to help them.

We don’t help them by telling them that we are going to do something for their back pain. We help them by telling them we are going to do something to make them feel better about the work they do every day. To solve a problem in a real way, you need to get to its source.

Rob Bennett argues that the taboo on talking about money hurts us. His bio is here.