Beyond Buy-and-Hold #50This question has been raised by numerous people, a good number of them smart and good people. So I think it needs to be addressed.
The problem with me being the one to address it is that truly crazy people often don’t recognized their own craziness. It could be that that’s the case here.
I’ll try to circumvent this problem to the extent possible by presenting both sides of the story with the greatest amount of fairness that I am able to muster as a lifelong practitioner of journalism who believes that fairness is the essential trait that a reporter must possess to do good work.
Do “outrageous” claims make someone crazy?
The first argument in support of the claim that I am crazy is that I put forward such outrageous claims. I don’t just say that Buy-and-Hold has a few flaws, I describe it as the most dangerous Get Rich Quick scheme ever concocted by the human mind. I say that the promotion of Buy-and-Hold caused the economic crisis. I say that Valuation-Informed Indexers take on only one-fifth of the risk taken on Buy-and-Holder and yet earn higher returns. There is not anyone else alive on Planet Earth making these claims today.
When one person’s claims are that far removed from the norm, it is evidence that that person is crazy.
The response argument that my far-out claims do not prove that I am crazy is that many of the claims that I made in the early years of our nine years of internet discussions were considered equally far out at the time I made them but have since been verified as accurate by big names in the field.
Challenging the safe withdrawal rate
My first big claim was that the Old School safe withdrawal rate studies get the numbers wildly wrong. The Economist, one of the most respected magazines in the world, recently ran an article saying just this nine years after Crazy Rob said it at the Motley Fool discussion board. Crazy people are rarely able to come up with insights years ahead of the leading experts in their field.
The second argument in support of the claim that I am crazy is that I have been banned by at least 15 different web sites and none of the big names in the field that I have contacted (John Bogle, Robert Shiller, Bill Bernstein, etc.) have taken up my cause. It takes a lot to get banned from an internet site.
That one person could manage to get banned from 15 of them is evidence that something is not right with that person’s mental faculties. If by some wild coincidence all 15 sites were in the wrong, you would think that an expert in the field would point out the injustice and demand that action be taken. That hasn’t happened in my case.
The response argument that my bannings do not prove that I am crazy is that a good percentage of the people who banned me have written me e-mails apologizing to me for doing so. Several have told me that they have the greatest respect for my work and that they think my work has huge value. There’s something exceedingly odd about these bannings.
Also, the expert whose investing views are closest to my own (Robert Shiller) has said in interviews that he has never publicly told all that he knows about investing because he would be viewed as “unprofessional” if he did so. That’s another way of saying that he fears what would happen to his livelihood if he were branded as crazy.
There’s risk in being ahead of your time
It could be that there are many big names in the field who are sympathetic to what I say but refrain from saying so in clear terms because the changes we are soon going to see in our understanding of how stock investing works are so revolutionary that the jump from where we are today to where we will be tomorrow is a big one, one big enough to make the pioneers look to be a bit crazy for a time.
The third argument in support of the claim that I am crazy is that Buy-and-Hold remains popular despite a stock crash that has caused people to lose large percentages of their life savings. If Buy-and-Hold were as bad a strategy as I say it is, one would think that those who followed it and lost money as a result would have turned on it by now and that my web site would today be the most popular web site on the internet. My web site is not today the most popular web site on the internet. It is not a close call.
The response argument that the continued popularity of Buy-and-Hold does not prove that I am crazy is that we are not yet even close to seeing how much financial destruction Buy-and-Hold will cause by the end of this bull/bear cycle.
The argument that I make about stocks is that insanely high valuation levels reveal investor irrationality. Stock prices are still very high today (although certainly they are not as high as they were at the top of the bubble). Thus, we should expect to see huge support for Buy-and-Hold today.
It is only when prices have fallen to their lows for this Bull/Bear cycle (that’s a 50 percent price drop from where we are today) that we will be able to say that Buy-and-Hold has remained popular despite a return to rationality. My guess is that another 50 percent price drop will cause much of today’s support for Buy-and-Hold to dissipate. When that happens, those today viewed as sane will be viewed as crazy and those today viewed as crazy will be viewed as sane.
The bottom line on all this?
It’s like they say in that Mounds Bar television commercial:
Sometimes I feel like a nut —
And sometimes I don’t!
Rob Bennett rejects the conventional advice that it is never a good idea for investors to lower their stock allocations during a prolonged http://www.passionsaving.com/stock-market-downturn.htmlstock market downturn. His bio is here.
Rob Bennett rejects the conventional advice that it is never a good idea for investors to lower their stock market downturn. Rob’s bio is here.