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 wins again.
https://fourpillarfreedom.com/heres-how-18-different-portfolios-have-performed-since-1970/
Not a single market timing scheme made the list.
That’s the problem, Anonymous. There’s 39 years of peer-reviewed research showing that market timing is the key to long-term investing success. So why not include market timing among your options? The peer-reviewed research that I co-authored with Wade Pfau shows that incorporating market timing into your strategy does two things: (1) it increases return; and (2) it diminishes risk. That’s a bad thing how? It sounds like a very, very GOOD thing to me.
All that you need to do to understand why market timing is so essential is to recognize that it is by market timing that we practice price discipline when buying stocks. Price discipline is what makes markets work. So it is perfectly silly to think that market timing might not be required when buying stocks. How did the idea that market timing is not required ever gain any credence? It was that crazy Efficient Market Theory that did it. If the market was efficient, market timing would be a bad thing. But of course Shiller showed that the market is NOT efficient 39 years ago. If we were all thinking clearly, this “controversy” over whether market timing is required would be ancient history by now.
The article notes several times that there is a trade-off between volatility and return. But of course again that is an idea associated with the Efficient Market Theory that should have been left in the dust many years ago. The Bennett/Pfau research shows that there is no trade-off. Following a true research-based strategy increases return while also diminishing risk. Surprise! Surprise! Is it really so odd that going from a pure emotion-based approach (price indifference) to a true research-based approach (market timing) would help in every possible way?
I have never had any problem making the case on the merits for Valuation-Informed Indexing.The case on the merits is overwhelming. The case on the merits blows people away. The problem that I have faced is that the case is so strong that it shocks people who have only heard about Buy-and-Hold strategies. People just cannot believe that we have known about a superior stock investing strategy for 39 years and that it is not talked about at every site on the internet every day. You are giving a perfect illustration of the problem with this article. The author lists a good number of possibilities and failed to even include the first true research-based approach (the belief that the market is efficient is not research based, that was just an assumption that turned out to be false when tested by Shiller). Huh? What the f? What possible reason could there be for listing all possibilities except the one supported by the research? That’s an emotional call, not a rational one.
I looked to see if the author of the article supplied an e-mail address. If he had, I would have sent him my article “Buy-and-Hold Is Dangerous.” I think there’s a good chance that, if we got into a conversation, he would become a Valuation-Informed Indexer in time. Or, if we posted at the same board, I think he might come around in time. People do not become convinced by hearing about a new idea one time. They need to see it discussed multiple time by different people and ask questions about it on numerous occasions before they are able to gain confidence in it. Please note that the Valuation-Informed Indexers have no fear of having Buy-and-Hold discussed in our presence. But a large percentage of Buy-and-Holders are so terrified of the idea that people might learn about Valuation-Informed Indexing that they do not include any research-based portfolios in their lists of how different types of portfolios perform over time. Gee, I wonder why.
None of this is rational, Anonymous. You can’t make the realities of stock investing disappear by putting your fingers in your ears and ignoring the clear message of 39 years of peer-reviewed research. If Shiller’s Nobel-prize-winning research is legitimate research, there will be another price crash within the next year or two or three. Millions of people will suffer failed retirements, hundreds of thousands of businesses will fail, millions of people will loses their jobs, political frictions will increase. I believe that at that time there will be people who will be concerned enough about what the Ban on Honest Posting has done to us as a nation that they will stand up to you Goons and we will all pull together and enjoy the greatest learning experience ever achieved in the personal finance realm. We’ll see.
Market timing is required. It always has been, it always will be. The only reason why many people don’t like acknowledging the importance of market timing at a time when stocks are priced at two times their real value is that it would require them to acknowledge that the value of their stock portfolio is only half of what they have been led to believe it is. That will no longer be an issue after prices have fallen by 50 percent or more. So we’ll see what happens then.
I wish you all good things. But I think that the Ban on Honest Posting is hurting us all in very serious ways. So I cannot sign on to it.
If there was any evidence that market timing is not required, you would present that evidence and we never would have seen a single death threat or a single unjustified board banning or a single act of defamation or a single effort to get a single academic researcher fired from a single job. I mean, come on.
The peer-reviewed research matters. My sincere take.
Market Timing Schemer Rob
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