Valuation-Informed Indexing #105
by Rob Bennett
Buy-and-Hold is a form of Get RIch Quick. The relentless promotion of Buy-and-Hold was the primary cause of the economic crisis. We’ll see another 65 percent price drop in coming days. It’s a myth that there is research supporting the Buy-and-Hold strategy.
I say these sorts of things! And I don’t just say them behind closed doors. I say them in public places. I say them in rooms where there are lots of Buy-and-Holders present. I continue saying them even after numerous suggestions are made that I stop.
Is it rude of me to do so?
I don’t think so. But I need to add in fairness that even lots of people who are sympathetic to my line of thought disagree with me re this one.
I have a blogger friend who has a great deal of respect for my investing views. I don’t know if he shares all of them but he certainly shares most of them. I once put a comment to his blog and he called me on the telephone and asked if I would delete some of my words. He said that I was laying it on too thick. He said that I was “bullying” the people who disagree with me by coming on so strong.
“Bullying,” he said! Me!
Of all the negative adjectives in the English language, I think that the last one that I would apply to myself is “bullying.” Lazy? I’m afraid that one fits. Shy? Guilty. Chubby? I’m working on it, I’m working on it! But “bullying”? I don’t like bullies. That one stung. This was a fellow who likes me who said this.
I don’t think the word “bullying” applies. But I do understand where the fellow is coming from.
Say that you’re a conservative and hearing liberal viewpoints causes your blood pressure to shoot up. You can avoid liberal web sites. You can get all your news from places that present things with a conservative slant. If you’re a liberal, you can play it just the other way.
And, if you root for the Phillies, you can avoid reading the report on the game between the Phillies and the Washington Nationals that is published in the Washington Post. You’ll probably find the write-up set forth in the Philadelphia Daily News more to your liking.
We all have different perspectives on life. And we all like to see those perspectives affirmed.
Buy-and-Holders believe that there is no need to change your stock allocation in response to changes in stock valuations. They go to discussion boards to hear like-minded people affirm their beliefs. They don’t need some clown telling them they got it all wrong. A fan who roots for the Nationals in the Philadelphia park runs the risk of getting a beer dumped on his head and so does a fellow who argues the merit of Shiller’s investing ideas at a board populated largely by Buy-and-Holders.
That’s the problem. Buy-and-Holders know what Shiller thinks. They don’t want to believe that what he says is so. It takes a lot of effort on their part to tune him out. I make that hard. In this sense it is true that I am to some extent forcing them to look at things they don’t want to look at. Forcing people to do something they don’t want to do is “bullying.” My friend is not entirely wrong.
However, there are four big reasons why I see the investing case as being different than the baseball case or the politics case.
One, there aren’t different camps of investors. Not really. Not at the same time. When stocks are priced at three times fair value, as they were in 2000, just about everyone alive is a Buy-and-Holder. There’s no way that prices could rise to three times fair value without that being so. So it’s not like those who favor Shiller’s ideas can go to their own discussion boards in the way that Nationals fans can limit themselves to rooting for the Nationals when they play in Washington. Please give me the URL for a discussion board that accepts Shiller’s ideas as the right ones. There isn’t one.
Two, Buy-and-Hold is promoted as being a research-backed approach. Shiller’s ideas aren’t just his personal opinions. He has published research supporting them. Buy-and-Holders are required either to accept those research findings or to present reasonable arguments for ignoring them. They have done neither. That’s not intellectually honest.
Three, investing is not a game. If Shiller is right, insane levels of overvaluation cause economic crises. If Shiller is right, there are millions of people unemployed today because the Buy-and-Holders messed up. That’s a public policy matter of great importance. We all have a duty to try to help the Buy-and-Holders understand where they messed up. We can hardly do that if we are so afraid of offending them that we don’t even dare to discuss the implications of Shiller’s findings in their presence.
Four, it is only when those who believe in Shiller’s ideas work up the courage to give voice to them in public places that they will begin to gain influence. Shiller’s breakthrough research was published 30 years ago. No one in those three decades has identified any flaws. Yet Buy-and-Hold remains dominant. Why? Buy-and-Hold posits that stocks are worth buying at any possible price, so The Stock-Selling Industry favors it. How is this ever going to change unless some of us start to make some noise?
I respect Buy-and-Holders. I admire Buy-and-Holders. I feel gratitude to Buy-and-Holders for the many things I have learned from them. I work very hard to always be 100 percent polite in my conversations with Buy-and-Holders.
But I don’t think I am helping anyone if I fail to state my sincere views when talking things over with Buy-and-Hiolders. I want them to look for the holes in my logic and point them out to me and so I try to extend the same favor to them. I work it. I see it as my job to present the best case possible for Shiller’s ideas. It’s not my intent to bully. But it is my intent to do all that I can to expose my Buy-and-Hold friends to Shiller’s exciting, new investing ideas.