Beyond Buy-and-Hold #70
By Rob Bennett
I was talking with a friend of mine at the Financial Bloggers Conference in Chicago. He?s a Buy-and-Holder. He told me what I need to do to get reinstated at the various boards and blogs that have banned me for pointing out the dangers of this popular investing strategy.
I need to pull back a bit. It?s okay for me to say that valuations matter, people can deal with that. But I need to not post so often. It really gets on people?s nerves when they see me participating in every thread in which the valuation issue comes up. And my posts are so long! I need to write shorter posts less frequently and not take such strong stands. It wouldn?t hurt if I would stop describing Buy-and-Hold as a Get Rich Quick scheme, for example.
Okay.
He?s right, of course. The Buy-and-Holders would love it if I followed that advice.
The investment strategy of the future?maybe the near future
But my goal is to bury Buy-and-Hold 30 feet in the ground, where it can do no further harm to humans and other living things. I would like to see all of the experts in this field endorsing Valuation-Informed Indexing, which I view as the investing strategy of the future. I look forward to the day when The Stock-Selling Industry is spending hundreds of millions of dollars promoting investing strategies that work.
What are the chances that those things are going to happen if I stop speaking out strongly in opposition to Buy-and-Hold or do so less frequently? I think it is safe to say that the chances are pretty darn small. If I follow the advice of my Buy-and-Hold friends, I will be more popular. But I will also be ineffectual! I will not achieve my goals. I can see how that sounds good from their point of view but I am not able to see how it could be seen as a good thing from mine.
Now, I?d like to make a point coming at things from the other direction.
Have you ever heard me offer the sort of advice that was offered to me to the Buy-and-Holders? They outnumber me by 10 to 1 on every board and blog at which I have posted. Have I ever once asked that they post less frequently or less forcefully? I don?t do that.
I enjoy it when Buy-and-Holders engage in a vigorous effort to make their case. It keeps my on my toes when they do that. There have been numerous times when I have learned something important from interactions with my Buy-and-Hold friends in which they were stating their case as forcefully as possible.
Why is it that the Buy-and-Holders and I have such a different take on things?
Telling the truth is never easy?especially when it comes to investing habits
It?s because I am confident in what I am saying. I don?t say that I know it all. There have been a few occasions when I have learned things through my interactions with Buy-and-Holders that caused me to change my thinking on an issue. I don?t think I am arrogant. But I am confident that I am on the right track.
There are two reasons.
One, I root my investing beliefs in the academic research, which in turn is rooted in the historical stock-return data of 140 years. That?s objective stuff, real stuff. It gives me confidence to know that my views are rooted in something real.
The Buy-and-Holders cannot say that. Their views are rooted in the research of the 1960s and 1970s. But they have never corrected their model to reflect Shiller?s finding in 1981 that valuations affect long-term returns. They know that, of course. It makes them feel shaky re just about everything they say.
Two, my primary goal is to learn how investing works. If I had a conversation with a Buy-and-Holder that convinced me that I had made a mistake, I would just correct the mistake. I don?t feel a need to defend anything because Valuation-Informed Indexing is something new enough that I think everyone understands that it remains subject to revision.
Again, the Buy-and-Holders cannot say that. The Stock-Selling Industry has been pushing Buy-and-Hold relentlessly for years now. If it turns out that there is something to the 30 years of research now backing up Shiller?s findings, this investing model was responsible for causing a huge amount of human misery. The Buy-and-Holders feel that it is too late to make corrections in their investing strategy. Their take is that too much damage has already been done.
So we are playing two different games. I engage in conversations with Buy-and-Holders because I want to teach and learn. They are not open to learning experiences. To acknowledge that it is possible for them to learn something, they would need to acknowledge that they do not know it all today. They cannot bear to acknowledge such a thing. If people accept Buy-and-Hold, they are happy. Those who do not immediately accept the strategy must either be bullied into coming around or be removed from the discussion.
I owe a lot to the Buy-and-Holders. I have learned a great deal from them. They changed our understanding of how stock investing works in fundamental ways and I think we all should be grateful to them.
As a friend, I must tell them that I think they made a terrible mistake when they abandoned the learning project. It is not a healthy situation on a discussion board or blog when one side is trying to shove its viewpoint down the throats of everyone. It?s when people of different viewpoints engage in honest and warm give and take that boards and blogs really take off.
Rob Bennett acknowledged in an article on learning from mistakes that he never should have bought that Leo Sayer album. His bio is here.
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