My Weight Problem and Your Investing Problem

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Beyond Buy-and-Hold #33

I’m fat.

I’ve never talked about this on the internet before. It’s a personal matter. My general thought is that my weight problem is properly none of your concern and none of your business.

I bring it up here because of my never-ending quest to get people talking openly about the true cause of our economic crisis. When large numbers of people come to believe that there is no need to consider the price at which stocks are selling when setting their stock allocations, there is always an economic crisis. I want to get us back on the right track and that requires helping people come to a better understanding of the dangers of Buy-and-Hold Investing.

I’ve run into a bit of a brick wall.

The case against Buy-and-Hold is rock solid. And yet most of us don’t care. Most of us continue to follow Buy-and-Hold strategies. Many of us go so far as to continue to promote them.

I must be doing something wrong.

Is there a connection between excess weight and excess stock prices?

Pondering what it might be got me thinking about my weight problem. I see a similarity in my dealing with weight issues and in your dealing with investing issues.

I don’t want to be fat. It’s pretty darn easy to figure out what I need to do to fix the problem. Stop eating so many chocolate chip cookies!

Losing weight is very, very, very easy. Intellectually.

And losing weight is very, very, very hard. Emotionally.

I’ve come to believe that it’s the same way with investing.

You don’t want to hear the case against Buy-and-Hold because somewhere deep inside you’ve known from the first day that valuations affect long-term returns. Hearing me make the point just makes you angry with me for bringing up a sore subject. You follow Buy-and-Hold because of the emotional comfort it provides by encouraging you to believe that bull market gains are real.

I’ve had people tell me about all the great reasons why I really should try to lose weight. I would look better. I would be more confident. I might prevent myself from suffering a heart attack early in life. I would have more energy.

Those arguments never work. I know all those things already. So I’m not impressed to hear them.

There is no intellectual solution to an emotional problem

I’ll begin making progress with my weight problem when I become emotionally committed to doing so. Let’s hope that it doesn’t take a heart attack to get me there!

I need to find a way to get you emotionally committed to solving your Buy-and-Hold problem.

I don’t know what would work. I’d be thrilled to hear suggestions.

The best I can do today is to consider what it is that makes me eat too many chocolate chip cookies. I eat too many chocolate chop cookies because the world is a scary place and I am one of the vulnerable humans trying to bravely face up to all the things I must face up to to make my way in it.

We all do something. Some of us drink to block out the anxieties. Some of us become addicted to our work because work is more manageable than the scary stuff and it makes us feel in charge to be able to manage stuff. Some of us gamble to feel a thrill that displaces the scary feelings. Some of us distract ourselves from our own flaws by becoming masters at detecting the flaws in others and spend most of our time pondering the changes all those other people need to make in their lives.

Conquering our emotions: the key to success with weight—and with investing

When I figure out the answer to my weight problem, it’s going to involve something that takes the reality of my emotional vulnerability into consideration. Perhaps I’ll find that running does a better job of taking my mind off my troubles than eating chocolate chip cookies. I might end up becoming too skinny!

Here’s one thing I can say today: I don’t think that those of us who follow valuation-informed investing strategies are better in any ultimate sense than those who do not. I certainly believe that the strategies are more effective. But we have our fears that cause us to entertain our fantasies too (it is fantasy thinking for me to persuade myself even for a few moments that eating another chocolate chip cookie is going to solve any of my problems). We’re the same as all the other humans except that we’ve mastered some things that the other humans have not yet mastered (just as they have mastered some things that we have not yet mastered).

I care about you and I want you to achieve your life goals. I don’t think I am better than you. I hope that my act of working up the courage to say that much gets us started on a journey together to a better place for both of us.

Yak! This stuff is scary! I need a cookie!

Rob Bennett does not believes that stock prices are a random walk. Rob’s bio is here.

( Photo by Magnus D )

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4 Responses to My Weight Problem and Your Investing Problem

  1. Rob, this is a well written analogy. I was always the nerd who would rather have his nose in a book than on the football field. In my teens I started riding my bike to work. What I learned was that the act of doing something physically active gradually replaced the desire to eat junk. I am now in my 50s and still follow that simple rule. If I get the desire to sit and eat, I get off my butt and do something active. After you’ve had a good sweat from exercise, the last thing you want is a cookie. It was my personal experience that changed me emotionally. It was a lesson that I had to learn for myself in my own way. I think the same applies for buy-and-hold vs. valuation-informed investing. Its a shame that it has to be that way, but people seem to learn best from their own experiences whether it be positive or negative. Hopefully I can learn from my positive experience with valuation-informed investing and not a negative experience with buy-and-hold.

  2. I relate strongly to what you’re saying, Norman.

    I’ve struggled with weight issues my entire life. But during my first year of law school I noticed one day that I had lost 20 pounds without trying. I was so busy studying that I didn’t have time to eat extra junk. It’s not the effort you put into dieting that makes the difference. It’s your HABITS. Do some small thing every day and it adds up. Trying to force yourself to do something never works in the long run, in my experience.

    I am convinced that it works the same way with investing. There is no dramatic event that caused our economic crisis. What happened is that we became convinced that Buy-and-Hold could work. It never really made complete sense. But we figured it was the best thing out there and what the heck? One year of Buy-and-Hold didn’t kill us. Nor did two. Nor did three. But the bad habit of ignoring price eventually caught up with us. Things have now reached a point where we either need to change direction or die.

    Can we do it? I believe we can do it. But, again, not with some dramatic act. What we need to do is to change our HABITS. Instead of encouraging Get Rich Quick in thousands of different ways each day, we should be in a thousand different ways encouraging investors to take valuations into consideration. If we all just start doing that, we will soon be looking at the economic crisis in the rear-view mirror. We will look up one day and see that our retirement plans are back on track and express amazement that it all happened without effort.

    None of this needs to be hard. What we need is steady, consistent moves in the right direction. Small moves in the wrong direction take you to a very bad place in the long run. Small moves in the right direction take you to a very good place in the long run.

    Thanks much for stopping by.

    Rob

  3. Norman and Rob – I think this is the analogy of replacing a bad habit with a good one. Until we do, the old one remains entrenched and dominates our lives. This has an impact with investing. We all fall back on the “default setting” which for decades has been the buy-and-hold. Unless that’s replaced with a credible investment practice, nothing will change, we’ll always go back to the comfort zone. I think that VII is that credible alternative.

    What may be holding it back right now is the fact that the market is too rich to apply it. That may delay it’s acceptance until the next crash, but those who get in early will reap the biggest benefits. My sense is that valuation will be THE stock driver after the next crash. The optimists will be flushed out of the market, and the idea that a rising tide will lift all boats will be discredited. Valuation will be everything.

  4. Thanks for those encouraging words, Kevin.

    The only thing I feel a need to add is — When we all move to valuation-informed strategies (I agree that this is going to happen because our free market system will not be able to survive otherwise and most of us love the many benefits brought to us through the free market system), the people who came up with Buy-and-Hold are going to be recognized as heroes of the middle-class. Perhaps not right away. There will be people who will be angry about the money they lost and all this sort of thing. But the full reality is that there would be no Valuation-Informed Indexing if there had not first been a Buy-and-Hold — the new model builds on the many genuine advances of the earlier (now long discredited) one.

    Our goal is to put the ugliness and friction behind us, not to make it worse. The goal is healing and then rebuilding of both our economic and political systems.

    The signs are that we are getting there. It’s happening far, far, far too slow for my tastes. But there are indeed many signs that it is happening. The humans are goof-ups. But they never let us down in the end. If the humans didn’t have at least something on the ball, we would have never gotten so far that we had to come to worry about investing in the first place.

    Courage!

    Rob

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