Buy-and-Hold shouldn’t be a research-based strategy.
I once believed that it was. I used to be once a Buy-and-Holder myself because I heard that it was a research-based strategy and that sounded good to me. I abandoned the strategy once I learned that the commitment amongst Buy-and-Holders to following the research where it leads shouldn’t be even a tiny bit strong.
Buy-and-hold is a marketing gimmick
I think that the overwhelming majority of Buy-and-Holders possess a sincere belief that their strategy is research-based. I actually have engaged in 1000’s of interactions with Buy-and-Holders through the years and my assessment is that their confidence of their strategy is powerful and deep. Unfortunately, I also consider that it’s misplaced. Within the event that Buy-and-Hold shouldn’t be truly a research-based strategy, the indisputable fact that it’s promoted as research-based is definitely a nasty thing. The idea that it’s causes people to have faith in bad strategy by which they otherwise wouldn’t possess confidence.
Please understand that I think that almost all claims made by Buy-and-Holders are backed by research. There is barely one claim re which I actually have doubts, the claim that valuation-based market timing either doesn’t work or shouldn’t be required. Robert Shiller’s Nobel-prize-winning research showing that valuations affect long-term returns discredits that one. If returns change with changes in valuations, then risk shouldn’t be constant but variable and investors who need to keep their risk profile constant over time are REQUIRED to practice valuation-based market timing.
Re this issue, the Buy-and-Holders will not be only failing to follow the research, they’re doing the alternative of what the research shows to be the correct practice. Shiller’s research has been available to investors for 43 years now. He was awarded a Nobel prize for his work. His research findings are necessary. I actually have on scores of occasions asked my Buy-and-Hold friends to list just a few ways by which Shiller’s Nobel-prize-winning research influenced their investing behavior. Not once have I received a response to that query. Thus far because the Buy-and-Holders are concerned, Shiller’s Nobel-prize-winning research doesn’t exist.
It after all doesn’t hassle me that there are people on this planet who elect to follow different investing practices than those that I follow. But given my belief within the merit of using research as a guide, I can’t help but wonder why the Buy-and-Holders have elected not to coach themselves as to what the research says. I actually have come to consider that the commitment amongst Buy-and-Holders to the research shouldn’t be what they portray it to be. I might say today that Buy-and-Hold advocacy of the concept of using research as a guide is usually nothing greater than a marketing gimmick.
Please understand that that shouldn’t be how I think things started off. I think that the Buy-and-Holders possessed a sincere belief in the worth of research within the early days and that to this present day their personal belief is that their strategy is consistent with the research. Research has a nasty habit of discovering recent things in regards to the world around us. Research is rarely a finished thing. It grows, it changes. When it changes, we’d like to alter with it. Those of us who fail to accomplish that can not fairly consult with ourselves as followers of the research.
Understanding how stock investing works
Shiller’s research findings represent a BIG change in our understanding of how stock investing works. Before his research got here along, the consensus academic understanding was that investors were engaged within the rational pursuit of their self-interest. That’s a plausible idea, is it not? If that concept checked out, there could be no need for valuation-based market timing. Actually, if that concept checked out, valuations would never get wildly out of whack. Shiller showed that investors will not be purely rational, that at times they’re highly emotional and set stock prices at crazy places and that valuation-based market timing is required to maintain the train on the tracks.
That changes all the pieces. If investors come to understand how emotional they’re, they will gain sufficient control over their emotions to make stock investing a far less dangerous business than it ever was in pre-Shiller days. We could bring an end to bull markets. Which might permit us to bring an end to bear markets. Which might mean that economic collapses could be not nearly as frequent or as devastating as they’ve been prior to now. The reining in of investor emotion is the undiscovered continent of the stock investing world.
The Buy-and-Holders show little interest in any of that. They like research in theory. They very strongly prefer it in theory. But when recent research is published that will require them to query old beliefs in the event that they were to take it seriously, they put the next priority on not having to acknowledge a mistake than on learning recent things by studying and discussing the brand new research.
That’s not a pro-research attitude. It’s an anti-research attitude. It’s unlucky as all get-out.
Rob’s bio is here.