The Biggest Unknown Risk of Stock Investing

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The following is a guest post by Rob Bennett, who writes at A Rich Life.

Most people think of stocks as being “risky.” But not too risky.

Most people think it is prudent to go with a stock allocation of 60 percent, 70 percent, or even 80 percent. They cannot think of stocks as being too risky if they are willing to invest so much of their life savings in this asset class.

I think the best way to describe investor attitudes today is that we think of stocks as being both risky and non-risky at the same time. We say that stocks are risky because we know that prices can suddenly drop hard — stock prices are volatile. But we also believe that stocks are not really all that risky for those committed to holding them for the long term. However, it is easy to look at real time stock charts and quotes and panic about falling prices. In the long term, stocks always provide good returns. By following a Buy-and-Hold strategy, we can overcome the riskiness of stocks.

I don’t think it is so. I view this as dangerous thinking.

It really is almost so. The long-term average return for U.S. stocks is 6.5 percent real. If you hold stocks long enough, you are in all likelihood going to obtain a return in that neighborhood. Buy-and-Holders are very much on the right track, in my assessment. Focusing on the long-term really is the key to becoming a successful investor.

However, my strong sense is that most investors have not thought through carefully what it means to stick with stocks for the long run. To try to stick with stocks for the long run and fail to do so is the worst of all possible worlds. The possibility of becoming a failed Buy-and-Hold investor is the biggest unknown risk of stock investing.

To stick with stocks for the long run not only in your aspirations but in the real world, you need to know before you buy stocks precisely what it is you are signing up for. I have had conversations with thousands of middle-class investors that tell me that most of us have little idea how rocky a road it is that we are traveling by going with high stock allocations today.

Investors have told me that they choose their stock allocations according to an assumption that it is possible they will see a 50 percent portfolio loss. In other words, they won’t put $200,000 into stocks unless they feel comfortable with the thought of for a time seeing that portfolio balance reduced to $100,000.

The thinking here is sound. You need to be prepared for a worst-case scenario. But where in the world did we get the idea that a 50 percent loss is a worst-case scenario?

Following their 1929 highs, stock prices fell 89 percent in nominal terms, 80 percent in real terms. And the valuation levels that brought on the 1929 crash were far lower than the valuation levels that brought on today’s bear market. If stocks continue to perform in the future anything at all as they always have in the past, we should be looking at the prospect of a 50 percent loss as a best-case scenario, not a worst-case scenario.

Another big problem is that most Buy-and-Holders have never stopped to define clearly what constitutes the “long term.”

How long is it that you will have to hold stocks to see your portfolio balance return to levels that don’t cause you to lose sleep at night? A year? Three years? Five years?

Try 25 years.

I’ve performed a regression analysis on the historical return data to determine how long it may take for an investor who bought stocks in 2000 to see a positive return, presuming that stocks perform in the future at least somewhat as they have always performed in the past. The numbers show that eventually a Buy-and-Hold strategy really will pay off. But given the prices at which stocks were selling in 2000, it may take a long, long, long time. In a worst-case scenario, investors who purchased stocks in 2000 will still be in the hole in 2025.

Buy-and-Hold really is a fantastic strategy for those who buy stocks at reasonable prices. It’s a virtual impossibility for stocks purchased at fair-value prices to pay a negative return for 10 years. So those able to wait that long can buy stocks when they are selling at fair-value prices without worry as to how things are going to turn out. But it’s a huge mistake to think that the rules that apply when stocks are selling at fair prices also apply when the sorts of prices that have applied from 1996 forward are in effect.

There have been four times in U.S. history when the P/E10 value rose to 25. The 20 year real return (including dividends) for the first three occasions was: (1) -0.2 percent; (2); 0.4 percent; and (3) 1.9 percent. We are today halfway through the fourth of these 20-year post-bull time-periods. The P/E10 value we reached in the bull market that ended in 2000 was 44. The P/E10 value that launched the Great Depression was 33.

Those who sell early in a bear market suffer losses. But the losses of those who sell early end up being small compared to the losses suffered by those who hold and hold and hold and then finally sell because the pain becomes just too great to bear. I believe that all investors need to become intimately familiar with the numbers cited in this article before adopting a Buy-and-Hold strategy.

The greatest unknown risk of stock investing is the possibility that you will try to follow a Buy-and-Hold strategy but come up short because you did not educate yourself up front as to just how bad things might get before the bear market comes to an end.

Rob Bennett views Treasury Inflation-Protected Securities (TIPS) as a greatly underrated asset class. His bio is here.

[Kevin] I find Rob Bennett’s views on buy & hold to be quite fascinating, and I thank him for a great guest post and for sharing his views here. Dear reader, what are your thoughts on the stock market? Is it too expensive? None of us can predict for sure, but after a decade of sideways growth, what are your thoughts on where things are going to go in the future?

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  1. says

    Interesting post. I agree that investors should think through these numbers. One problem is that it is extremely difficult to carry out the approach. When P/Es are high it looks like the world has changed and it is by definition following a period where it has been very easy to make money in stocks. 2000 is a perfect example. At that time it was impossible to get across to people that they were making a huge mistake buying internet companies. If in 1998 you agreed with Greenspan on irrational exuberance, by 2000 you had lost the confidence of a lot of your clients. And they are hard to win back. People hate to admit they were wrong.
    Interestingly even Buffett took significant heat during this period.
    When P/Es are low it is difficult to get most investors to invest. 3/09 investors were jumping ship – not backing up the truck.
    The go around is for investors to accumulate by adding in down markets as well as up markets and in a secular up market they will do well. I, for one, will take a 6.5% real return.

  2. says

    Everything you are saying is right on, in my assessment, DIY Investor. You are accurately describing the world of investing as it exists today.

    But what if we changed how we go about doing things?

    That’s what I propose. Say that every time we told people where the DOW and the S&P 500 stand, we also told them the valuation-adjusted numbers. So, when stocks are priced at three times fair value (as they were in January 2000), we would divide the nominal number by 3 to let people know the real values of their portfolios. People who thought they had $300,000 in accumulated wealth would be told that they really possess only $100,000 of lasting wealth, and so on.

    I see magic in this. If we did it this way, every time valuations rose to dangerous levels, lots of people would sell stocks. That would bring prices back down to reasonable levels. We would never again see a runaway bull market.

    Which means we would never again see a huge bear market either (there has never been a huge bear market that did not follow inevitably from a huge bull market). Stock prices would continue to rise 6.5 percent real per year because that amount of price gain is supported by the economic realities. But the gain would never be much more than that or much less than that.

    That’s investor heaven! We would have an asset class that provides great returns (6.5 percent real is a super return) but that possesses little volatility. High returns with little risk! Could things get any better?

    We have 30 years of academic research showing that this works. All we need to do is to make people know about it and all middle-class investors overnight become able to retire five to 10 years sooner than is today considered a realistic possibility. I think it is fair to say that our economic crisis would come to a quick end if middle-class workers were to learn how to invest so that they can retire up to 10 years sooner. Knowing that would get people spending again and renewed spending would increase corporate profits and increased profits would permit businesses to rehire all those unemployed workers. The political frictions we have been seeing in recent years would be greatly diminished.

    The purpose of academic research into how stock investing works is to help us learn things that we did not know before and the purpose of knowing new things is to become empowered to obtain far higher returns at greatly reduced risk. The only thing holding us back today is that the news is so wonderful that many have a hard time believing it could really be true. But it all checks out. I have studied this on a daily basis for nine years now and I can tell you that it all checks out.

    I am very much looking forward to the next step. It may take going into an economic depression to get us there. But I believe that we are getting close to making the changes that will bring on the greatest period of economic growth ever seen in our history. My sense is that a lot of people could stand hearing some good economic news along about now!

    Thanks much for sharing your thoughts.


  3. says

    Yes, I would love for you to do that, Zachary. That would help us all out.

    I am not a statistics person. I have five calculators at my site. But in each case I hooked up with someone with a background in statistics and it is that person who did the numbers work. The person who worked on the first four calculators was John Walter Russell. He died in October 2009. So I cannot bring questions to him today. But John published his research at a web site and that remains up (ownership was passed to me on John’s death). I will provide some links below. If the material at the links does not answer your questions, please follow up either here or by sending me an e-mail ( or by calling me (540-751-0685) and I will get answers to you.

    The calculator that performs the regression analysis is “The Stock-Return Predictor.” That is here:

    John’s web site is here:

    I can’t point you to one article where he goes through the procedure he used to build the calculator. He provided that at a Yahoo Briefcase, but Yahoo took down the site without notice and that material was lost. However, he wrote many articles in real time during the years when we were exploring these questions at a great many discussion boards (these calculators are the product of nine years of internet discussions involving thousands of interested parties, including a good number of big-name experts). I think you will be able to figure out what you need to know by looking at John’s site. I would start at the “Foundations” section and work from there.

    You also might want to look at “The Investor’s Scenario Surfer.” This calculator lets you work through a randomly generated 30-year returns sequence that is realistic given the 30-year sequences we have seen throughout the historical record. Each year, you have the option of choosing a new stock allocation given any changes in stock valuations that take place over the course of the year. At the end of the 30 years, you can compare the return you obtain from following a Valuation-Informed Indexing strategy with the return you would have received from following a Buy-and-Hold strategy. VII produces superior results in about 90 percent of the tests I have run. Here is the link for the Surfer:

    You might want to look at two studies done recently by Wade Pfau, Associate Professor for Economics at the National Graduate Institute for Policy Studies. The first shows that VII beats Buy-and-Hold in 102 of the 110 30-year rolling periods in the historical record:

    The second shows that long-term timing produces dramatically higher returns than Buy-and-Hold at the same risk level or the same returns as Buy-and-Hold at greatly reduced risk:

    I know that I am hitting you with a lot of material at once. Please understand that we have been working this full-time for nine years running now. You generate a lot of material over that amount of time. The potential here is breathtaking. The statistical evidence shows that investors can reduce the risk of stock investing by 78 percent just by being willing to take valuations into consideration when setting their stock allocations.

    It might help to look at an overview of the work we have done that I provide at my site. The overview links to graphics that might help you get a sense of what is going on and why this works so well for the long-term investor:

    The first link at the overview is to the home page of my site, where I set forth (at the “People Are Talking” section) over 100 comments from both experts and ordinary investors who have looked at my work in this area. Links are provided. Given how big a change this is from the conventional investing wisdom, I think it helps to know that lots of smart people have looked at this and found that it stands up to scrutiny.

    I hope that helps. I wish that John were here and could just give you a quick answer to your precise question. I don’t speak the language of statistics. So I am at a bit of a disadvantage. But if the materials I have provided do not answer your questions, I have thousands of e-mails that I exchanged with John that I can look through to try to find the answers and I have several people who possess statistics skills whom I have consulted who may be able to explain the details of what goes into the calculators better than I can. If what I have provided does not do the trick for you, I hope that you will either leave a comment here or send me an e-mail or phone me so that I can get you better answers.

    Thanks much for your interest, Zachary. In the event that you end up writing a critique, I very much look forward to seeing it. That is so regardless of whether you end up writing a positive or negative commentary. What we most need today is discussion of these ideas. I am as grateful to those who find weak spots as I am to those who offer praise. The aim here is to make sense of what is going on and we need people coming at this from a lot of different sets of life circumstances to pull that off.


  4. says

    Thanks for your kind words, Jon.

    I hope that you won’t think I am being argumentative if I say that I do not think you are precisely following Buffett’s approach if you buy stocks both when prices are high and when they are low (unless you are picking stocks, as Buffett does — I had the sense that you were an indexer but I do not really know for sure).

    Buffett believes in holding for the long term. I agree with him 100 percent. The reason why holding for the long term is so important is that short-term price changes are essentially meaningless and paying attention to them will just about always cause you to do the wrong thing. The media focuses on short-term price changes and that’s the one thing we all need to ignore. Both Buffett and Bogle say to focus on the long-term and I believe strongly that both Buffett and Bogle are right about this.

    There’s a difference between Buffett and Bogle, though, in my view. Buffett starts this long-term holding business only after first assuring himself that the stock he is investing in represents a solid long-term value proposition. Bogle does not do this. When you are investing in indexes, you don’t need to look at the quality of management or the product pipeline or the moat or any of the other factors Buffett takes into consideration. There’s only one thing you need to look at when buying an index fund to know the long-term value proposition — the valuation level.

    Stocks always perform well in the long term starting from low or moderate prices. There is not one exception in the historical record. Stocks always perform poorly in the long term starting from super-high prices. Again, there is not one exception in the historical record. I favor holding for the long term. But only after first assuring yourself that the purchase you are making is justified in the first place.

    I think of Valuation-Informed Indexing as being a combination of the best ideas of Buffett and the best ideas of Bogle. I think Buffett understands investing better than anyone else alive. The problem is that his approach is too darn complicated for the typical middle-class investor. I think Bogle is the genius of simplicity. We have a desperate need today for an investing approach that the regular person can implement and Bogle has done more than anyone else alive to develop and promote one. For that, I think we all should be exceedingly grateful.

    My aim is to combine Buffett’s insights with Bogle’s insights to create an approach (Valuation-Informed Indexing) that is as simple as Buy-and-Hold but that doesn’t put index investors through the emotional turmoil of having to endure 20 years of poor returns (we have seen 20 years of poor returns every time in which stock prices reached the levels they reached in the late 1990s — there is not a single exception in the historical record). If you become willing to lower your allocation when prices go to insanely high levels, you get all the benefits of the Bogle approach without having to endure these long stretches of zero or negative returns.

    My view is that Buffett and Bogle go together like chocolate and peanut butter!


  5. says

    When the world looks upside down like today (europe down 4-5%, US set to open significantly lower), it is usually a good time to nibble at the markets. Times of high pessimism make for great long-term returns. Times when euphoria is running high means lower future returns.

  6. says

    So it isn’t buying and holding that you are against it is the common eduction piece that goes along with it?

    I love the “hold” part of Buy-and-Hold, Evan. I am the biggest Bogle fan in the world because he has done more than anyone else to stress the fact that investors need to tune out the short-term noise and focus on the long term. That was a huge advance and we all should be grateful to the Buy-and-Holders for working so hard to help people understand why this is so.

    The thing that I am against is buying without giving thought to the long-term value proposition being obtained. I believe that stocks offer an amazing long-term value proposition when prices are low, a very strong value proposition when prices are moderate and a poor long-term value proposition when prices are high.

    I am widely viewed an being anti-Buy-and-Hold. There was a day when I would have objected to that characterization. I personally think of what I recommend (Valuation-Informed Indexing) as just being a version of Buy-and-Hold, a revision to the conventional way of practicing it. I am writing a book on investing and for a long time my working title was “The New Buy-and-Hold.”

    I have given up on that title because so many Buy-and-Holders have reacted with hostility to the idea of taking valuations into consideration when setting their stock allocations. I still like these people and I am grateful for the many things I have learned from them. But I think it would be fair to say that at least among a good number of Buy-and-Holders it is absolute heresy to say that valuations should be taken into consideration. I don’t agree with that. So I guess it’s fair to say that I am anti-Buy-and-Hold, at least in the minds of many conventional Buy-and-Holders.

    I believe that in time we are all going to come to see that Buy-and-Hold was never intended to be one set of rules that could never change, even when what the research tells us changes (Buy-and-Hold was developed prior to the publication of Shiller’s research showing that valuations affect long-term returns). At that point Valuation-Informed Indexing will be viewed as one approach to Buy-and-Hold and there won’t be any problem. It makes me sad that that’s not the case today. But I have just come to accept that for now this is the reality.

    The bottom line is that I believe that Buy-and-Hold was a huge advance and that the Buy-and-Holders got it right on everything except one point. The one point on which I differ is that I think that investors must from time to time adjust their stock allocations to take into consideration big changes in valuations (one change every 10 years or so on average is enough to do the job). I call this approach “Valuation-Informed Indexing.” There would be no Valuation-Informed Indexing without all the years of good work done by the Buy-and-Holders. So I personally think of VII as being just a variation. But that doesn’t seem to be a widely held viewpoint at this particular moment in time.

    It makes me feel good that those participating on this thread are making me feel perfectly welcome although I have no doubt that you all maintain a healthy skepticism re what I am saying). For that I am exceedingly grateful. I suffer no illusions that I know it all. I obviously need to be open to learning new things and I learn more when people challenge my views in a respectful way than I do when people just pat me on the back. I think that the discussion being put forth on this thread (with both “sides” being represented) is just super.


  7. Paul says

    I think every investor should have trading plans for the different cycles of the market a buy and hold plan only works in a certain kind of market. when the weather changes buy and hold could become ineffective in the long run, I personally only hold for 3-6 months and take profits at the first signal of danger. But i have a specific trading plan for Bull markets, Bear markets and a sideways market. I only use fundamental analysis for choosing which stocks to watch but i rely on technical analysis (the Charts) for entering and exiting trades. I’ve never once used a calculator to determine if i should buy. maybe its just me am i weirdo?.

    • Jim Timberlake says

      It you use a medium term trend signal service that offers medium term trend changer signals for the general market you don’t have to limit your investments mechanically but according to the begin and of up-and downtrends. By the way, we offer in our website a Tutorial of 4 strategies to hedge ETFs against medium term bull market corrections and bear down trends and to double ETF profits with small additional option investments.
      Compared to single stock investments ETFs buffer stock risks by diversificaton but require in addition hedging against general market downtrends. That the latter is possible for ETFs is one of the to advantages of ETFs compared to Mutual Funds.

  8. Sinclair says

    I couldn’t agree with you more. Great piece, especially with so many decrying “buy and hold” right now. The way I see it, if a position drops 50% I’m going to double down and buy more. That’s the type of discipline that builds long term wealth. When I see “red”, I see more opportunity than loss.

  9. says

    I couldn’t agree with you more. Great piece, especially with so many decrying “buy and hold” right now. The way I see it, if a position drops 50% I’m going to double down and buy more.

    You’re making a very interesting point with these words, Sinclair. You’re describing the kind of Buy-and-Hold approach that I believe in.

    What Buy-and-Hold is really all about is sticking to a strategy long enough for it to pay off. What would cause someone not to do that? A lack of confidence that the strategy will work. And what adds to our confidence? Knowledge.

    The more you know about why you did what you did, the more likely you are to stick to your guns when everyone around you is losing his or her head. I guess you could say that the thing I am opposed to is mindless Buy-and-Hold. By looking at valuations, I have a better idea of what to expect with my investments. Knowing what to expect enhances my confidence. And confidence gets me through the tough times.

    People often ask me to specify a stock allocation that I think investors should go with at the various P/E10 levels. There is no one answer to that question. It depends on one’s life goals and one’s financial circumstances and one’s risk tolerance. The key is not so much what allocation you choose but that you choose it for the right reasons. If you thought things through in advance, you are far more likely to stick with your choice. If you did what you did because you read one article in a magazine listing “10 Reasons to Do Such and Such,” you will likely panic when things don’t turn out as you expected.

    Say that you looked at the numbers in 2000 and elected to go with a somewhat high stock allocation all the same because of personal considerations that led you to believe that made sense for you. If that’s the story, you are not shocked by what has been going on for 12 years now. You didn’t know exactly what was coming. But you expected something along these lines. So you are not feeling panic. That means that you are more likely to stick with your decisions. Which means they are far more likely to pay off down the road.

    We need to focus more on the emotions attached to the investing project. It is emotional risks that are the real risks of stock investing. People don’t talk about them much because you can’t always reduce emotions to a number to enter into a table in a study. And it is those pretty studies with the fancy graphics that impress most of us. But we only fool ourselves when we fail to direct sufficient attention to the single most important aspect of the question.

    It is those who gain control over their emotions who are the most successful investors. So we need to talk about the steps that need to be taken to get a confident emotional place. I believe that a key step is being willing to look at valuations, the Taboo subject among many of today’s stock investors.


  10. says

    It is a fact that buying overvalued assets is a likely road to a low return.

    You always have an encouraging word to offer, Barbara. I don’t often hear too many of them. So I am most grateful.

    I think it would be helpful if people would try to think through some of the implications of the words of yours that I have quoted above. Just about everyone agrees with that statement. Even my harshest critics acknowledge that valuations affect long-term returns. But most people do not believe that stock returns can be predicted.

    It’s logically impossible that both of these two beliefs can be accurate. To say that something affects something else is to say that it causes it. If valuations affect long-term returns, valuations cause long-term returns. So pretty much everyone today agrees that we know the cause of long-term stock returns.

    Now that we know what causes long-term returns, shouldn’t we now be able to predict long-term returns effectively, at least to some extent? Doesn’t that logically follow?

    There can be reasonable disagreements as to the extent to which prediction is possible. I don’t have a problem with that. But it seems to me that there should be something close to universal agreement that long-term returns are to some extent predictable. And that news is so exciting that I also believe that all of us should now be looking carefully into the question of how predictable returns are. If it turns out that they are highly predictable, we have changed the history of stock investing in a fundamental way.

    To the extent that returns are predictable, stocks are not risky. Risk is uncertainty. Make something predictable and you eliminate uncertainty, which is to say you eliminate risk. We are on the threshold of making stocks a low-risk asset class. This is the most exciting time in history to be studying how stock investing works. It’s like we just discovered electricity. There are a thousand wonderful inventions waiting to be invented in coming days once we all acknowledge the incredible power of what we have already learned.

    We know that long-term returns are predictable. We don’t know how much. Why not get about the business of figuring out how much? I can tell people what I have learned or what I think I have learned — the research available to us today shows that long-term returns are highly predictable, the data shows that we can reduce the risk of stock investing today by 80 percent from what it was in all earlier times. But I could be wrong. Other people should be looking at this. This is the most exciting field of discovery that those interested in stock investing have ever stumbled upon.

    I’ve seen a lot of friction in the first nine years of these discussions. That makes me sad. In part it makes me sad just because I don’t like friction. But the other reason it makes me sad is that too many people are failing to see the huge opportunity here. We have the potential here to advance our understanding to an amazing extent.

    My partner in these efforts for eight years was John Walter Russell, a very smart and very kind man who died in October of 2009. John and I used to joke that we were clearing the underbrush at a future beach resort that today looked like a bunch of weeds but that in future days was going to be the premier vacation spot in the world. We could see where things were headed and others just couldn’t see why we kept hacking away at those weeds with such energy.

    This thing will in time lead us all to some amazing places. That’s the point I am trying to make here. Anyone who wants to go down in history as having played a pioneering role will be welcomed to the club with open arms. There’s lots of important and highly fulfilling work to be done and remarkably little competition for the available slots. It’s good piled on top of good piled on top of good piled on top of good. You don’t see that too often down here in the Valley of Tears.


  11. says

    I think Buy and hold investors need to dollar cost average with new money constantly to maximize their chances of good return. I think you are right about the long term definition. It’s tough to stick with something for 25 years.

  12. says

    I think Buy and hold investors need to dollar cost average with new money constantly to maximize their chances of good return.

    Thanks for adding your thoughts, RetireByForty. We all need to hear a variety of viewpoints. I hope that you understand that I am going to question this idea not for the purpose of being argumentative or because I want to dominate the discussion. I want the other viewpoint to be expressed as well and I feel that, if I don’t put it forward, people may not hear it. So I want to present the other side and then encourage everyone to give consideration to both points of view.

    The problem with Dollar-Cost Averaging is that valuations can remain either high or low for very long periods of time. Stocks offered a strong long-term value proposition for the entire time-period from 1975 through 1995. That’s 20 years running in which going with a high stock allocation would have helped you. And then stocks offered a poor long-term value proposition from 1996 through today (with the exception of a few months in early 2009). That’s 16 years running in which going with a high stock allocation set you back.

    Dollar-Cost Averaging would have caused you to buy stocks at both relatively low and relatively high prices within both long time-periods. But it doesn’t address the reality that for 20 years running there were no bad times to buy stocks and that for the next 16 years running there were no good times to buy stocks (except for a few months in early 2009). You could have bought stocks in a lump sum from 1975 through 1995 and did just great. And Dollar-Cost Averaging didn’t help you to avoid paying high prices from 1996 through today because ALL the prices that applied in those years were too high (except for the prices that applied in early 2009).

    I’ll list here the P/E10 value that applied in January of each year from 1996 forward and the most likely annualized 10-year real return for stocks purchased at that P/E10 value (obtaining by running a regression analysis on the historical return data; there is a 50 percent chance that the return ultimately obtained will be higher than the number listed and a 50 percent chance that the return ultimately obtained will be lower than the number listed):

    1) 1996 – P/E10 of 25 — Likely 10-Year Return of 1.6

    2) 1997 — P/E10 of 28 — Likely 10-Year Return of 0.9

    3) 1998 — P/E10 of 33 — Likely 10-Year Return of 0.07

    4) 1999 — P/E10 of 41 — LIkely 10-Year Return of -0.83

    5) 2000 — P/E10 of 44 — Likely 10-Year Return of -1.09

    6) 2001 — P/E10 of 37 — Likely 10-Year Return of -0.43

    7) 2002 — P/E10 of 30 — Likely 10-Year Return of 0.53

    8) 2003 — P/E10 of 23 — LIkely 10-Year Return of 2.08

    9) 2004 — P/E10 of 28 — Likely 10-Year Return of 0.89

    10) 2005 — P/E10 of 27 — Likely 10-Year Return of 1.10

    11) 2006 — P/E10 of 26 — Likely 10-Year Return of 1.31

    12) 2007 — P/E10 of 27 — Likely 10-Year Return of 1.10

    13) 2008 — P/E10 of -24 — Likely 10-Year Return of 1.80

    14) 2009 — P/E10 of -15 — Likely 10-Year Return of 5.61

    15) 2010 — P/E10 of 21 — Likely 10-Year Return of 2.71

    16) 2011 — P/E10 of 23 — LIkely 10-Year Return of 2.08

    TIPS and IBonds paying 4 percent real were available at the top of the bubble. That return could have been locked in for many years (I personally locked in a return of 3.5 percent real). That return beat the return available for stocks for this entire 16-year time period, with the one exception of 2009. Why not get the better return from the less risky asset class? How does it pay to Dollar-Cost Average into stocks when a higher return is available from a less risky asset class?

    The Dollar-Cost Averaging concept was developed at a time when we did not know how to predict long-term returns. If we did not know how to predict long-term returns, it would make sense to engage in Dollar-Cost Averaging. But Shiller’s research and the research that followed from it makes Dollar-Cost Averaging unnecessary. We now know how to predict long-term returns effectively. So the best strategy (in my view!) is to invest heavily in stocks at times when the long-term return is likely to be good and to invest less heavily in stocks when the long-term return is likely to be poor.

    It’s important to understand that the return differential obtained by comparing the return from stocks and from TIPS or IBonds is only part of the story. The bigger item from a dollars-and-cents standpoint is the compounding returns effect. Those who lowered their stock allocations when prices went to insanely dangerous levels will be reaping the benefits of compounding returns on that differential for decades to come.

    In the long-term, it adds up to a huge amount of money. I have done comparisons in which, at the end of 30 years, the Valuation-Informed Indexer has a portfolio value of more than double the size of the Buy-and-Holder. This isn’t common. But it does happen. The Valuation-Informed Indexers ends up ahead in 90 percent of the tests (this finding of mine has been recently confirmed in academic research that is on its way to being published in a highly regarded journal).

    Again, please understand that I am just putting the other point of view before people for their consideration. I respect the intelligence and good will of those who believe that Dollar-Cost Averaging is a good idea. I think it can be a good idea in some circumstances. But I also believe that there are times when valuations are so high that Dollar-Cost Averaging does not solve the problem and the better answer is to lower your stock allocation until prices improve.

    Again, thanks to all for participation in a wonderful thread. My favorite Guest Blog Entry of all time was one that I did a few months back at Free From Broke because of the large number of great comments that were posted to it. This one is now in that league, in my assessment. We have seen a great variety of thoughtful and helpful and well-informed contributions.


  13. says

    – Historically there was a 5% probability of losing money in real terms over 15 years when investing in the S&P 500. And the worst real loss over 20 years was 4% (total, not annualized).

    – What is the probability of losing purchasing power in a savings account? I checked that in France: from 1972 to 1982 the real loss was 40%, and you would still not have recovered your initial capital 40 years later. Ask people about the worst case scenario for white-bread savings accounts… and write a new post blaming them for not understanding the risk.

  14. says

    We disagree on fundamentals, Mathieu.

    I own TIPS and IBonds paying a guaranteed return of 3.5 percent real. The probability of me losing purchasing power is zero. You are looking at an average situation. But there is no law that requires investors to invest in average situations. All you need to do to beat the average handsomely is to wait for when a much better deal presents itself and then take advantage of it.

    I also disagree with out about there being only a 5 percent chance of losing money in stocks for 15 years. Again, you are using an average number. If you looked at all times in which stocks have been available, I can imagine that you might get a number like that. When I am trying to determine what to do in circumstances in which stocks are selling at the sorts of prices that have applied from 1996 forward, I look only at times when stocks were selling at similar price levels to those that have applied from 1996 forward. There have only been four such cases in the historical record. In each of the first three cases, stocks paid dismal returns for the following 20 years. We are only 12 years into the fourth such 20-year time-period.

    Our different way of going about things illustrates the entire dispute. Buy-and-Hold was developed in the 1970s. The prevailing academic construct at the time was the Efficient Market Hypothesis. If the EMH proved out, Buy-and-Hold would be the perfect strategy. If the market is efficient, there is no way to know what are better times and worse times to be invested in stocks. It is impossible to predict returns if the market is efficient. The terms “overvaluation” and “undervaluation” are nonsense terms if the market is efficient.

    Shiller’s research showing that the market is NOT efficient was published in 1981. If valuations affect long-term returns, it IS possible to predict long-term returns. There is now a significant body of research backing up Shiller’s findings.

    Fama’s model and Shiller’s model are competing models. The fundamental premises of each model contradict the fundamental premises of the alternative model. That’s why the subtitle of Shiller’s book Irrational Exuberance is: “The National Bestseller That Revolutionized the Way We Think About the Stock Market.”

    There are millions of good and smart people who believe in the Buy-and-Hold Model. The group that believes in the Shiller model (Valuation-Informed Indexing) is smaller but also comprised of many smart and good people. I certainly don’t believe that Buy-and-Holders should give up their beliefs just because there is now a competing model. What I believe is that we need to have a national debate on the question of which model really checks out.

    The reason why this is imperative is because, if Shiller is right and yet millions of people continue to follow the Buy-and-Hold Model, the end result will almost certainly be that we will be entering the Second Great Depression within the next few years. If Shiller is right, the entire amount by which stocks were overpriced at the top of the bubble will be lost over the following 15 years or so. That’s $12 trillion. No economy can lose $12 trillion in spending power and not collapse entirely. The Federal debt accumulated since the days of George Washington is only $15 trillion. We are talking about losing almost that amount of money in a time-period of about 15 years.

    On the other hand, if Buy-and-Hold checks out, it certainly would be good to know that. There is no way we are ever going to know without having the national debate. Today, we have Buy-and-Holders telling other Buy-and-Holders that Buy-and-Hold works. That doesn’t do the trick. We need to hear how Buy-and-Holders respond when their ideas are challenged by non-Buy-and-Holders. It’s only when we encourage the two sides to talk to each other that we can begin to come to a reasoned consensus as to where to go from here.

    I hope you understand the spirit in which I put forward these words, Mathieu. I could be wrong. I have been wrong before and this could just be another one of those cases in which I end up wearing the dunce cap. But if I am not wrong, I have a responsibility to work as hard as I can to get a national debate launched before our entire economic and political system goes down. We all have a lot at risk here. We all should want to have as many people as possible participating in civil and reasoned discussions aimed at revealing the realities.

    I certainly wish you the best of luck with whatever investing strategies you elect to follow in any event.


  15. says

    I like to buy and hold, but on occasion I don’t mind selling if the returns are right. At the same time, I don’t mind selectively averaging down if the underlying value is there.

  16. says

    Great article Rob,

    But no matter what you tell people, there will always be run-away bear and bull markets–no matter what. You can’t change human emotions, after all, no matter what analyzing tool you try to convince them with.

  17. says

    The thing about the stock market is, if you wait long enough, you can almost always be wrong. I was talking to someone the other day that bought a stock, held it, make 40 percent after a year and sold it. That 40 percent gain for a year sounds pretty good. However, the stock ended up increasing 300 percent over a 5 year period or something like that, and the guy was beating himself up over it. You can almost always look back and regret a trade. (Or regret buying something in the first place.)

    All I can do is educate myself on the stock I am looking to buy. If the price appears to be low for what the company appears to be worth and I dive in, then I can’t really beat myself up if it tanks, unless my analysis was just totally wrong. The market peaks and plummets, and sometimes there is no rhyme or reason.

    If people cannot handle making a wrong decision, not waiting long enough, waiting too long, then index funds or something else is probably the better choice. Tuning out the noise is fantastic advice. Whereas people are all fuming about stock prices now, I look at it as opportunity because I am not looking to sell. I know someone who has a son in college and kept his funds in stocks for college instead of moving in to safer investments as high school graduation neared. You just cannot do that because they you are forcing yourself into a position of possibly selling at the worst time if you really need that money.

    Sorry for the long ramble!

  18. says

    But no matter what you tell people, there will always be run-away bear and bull markets–no matter what. You can’t change human emotions, after all, no matter what analyzing tool you try to convince them with.

    There’s a mountain of historical evidence supporting what you are saying here, Andrew. I am just idealistic enough to believe that you are wrong.

    Before man learned how to fly, there were people who said “man has never known how to fly and never will.” Before man learned how to harness the power of electricity, there were people who said “man has never overcome darkness with light and never will.” Before man began listening to the Beatles, there were people who said “man will always listen to Perry Como and there’s nothing that four moptops playing in German bars are ever going to be able to do about it.” Things change. Sometimes a lot. Sometimes for the better.

    I take the other view. I say that there is zero chance that we will not make this change. The reason is that it is more important today to know how stock investing works than it has ever been in any earlier time in U.S. history. The same thing that caused today’s economic crisis caused the Great Depression — insanely overpriced stocks. But what we saw in the Depression was a small thing compared to what we have ahead of us if we don’t make this change within the next few years.

    In the late 1920s, most stockholders were rich people. Few middle-class people invested in stocks. That wipeout of the rich did great damage to our economic system. But think how much worse it is going to be in day when middle-class people are required to invest in stocks to have any hope of being able to retire someday.

    We have passed the point of no return with this thing. We either fix stock investing or we watch our entire economic and political system crumble to the ground. My bet is that, as conditions continue to worsen, there are going to be brave people who are going to step forward and make the case for fixing stock investing. And sooner or later the pain that the rest of us are experiencing will become great enough that we will gladly go along. Why wouldn’t we?

    The Great Paradox is that Buy-and-Hold became impossible with the development of Buy-and-Hold. Buy-and-Hold took us out of the dark ages. It is the Buy-and-Holders who said that we should root our strategies in the historical data and the academic research. Once you do that, you have a way of testing whether strategies work or not. We are in the process of making stock investing a scientific enterprise.

    So strategies that fail scientifically fail, period. Buy-and-Hold as put forward in its first draft incarnation is in the process of has failing scientifically. Buy-and-Hold has killed itself. The people who came up with the idea will be very happy about that when they gain some emotional distance and are able to think clearly about these things.

    We are going to move from Buy-and-Hold to something better. The Buy-and-Holders are going to get credit for their huge contributions, contributions which made this forward movement possible. But we are going to move forward. Stocks are not going to be a risky asset class in the future. We are all going to be earning far higher returns at greatly diminished risk. We are going to see the greatest period of economic growth ever experienced in our history. And we are going to someday look back at the quarrels some of us are engaging in today and wonder whatever could we have been thinking?

    The only thing that has held back this advance for 30 years is that the advance is so huge that it frightens people. There are lots of people who have grown accustomed to the old way of thinking about stock investing and it scares them to consider moving forward into a future so much brighter than anything we have ever seen before.

    They’ll get over it. If you look at our history, you’ll see that people have resisted all such major advances. But we always get over our feelings of resistance. We always choose the light over the darkness, after lots of fretting and stammering and questioning and shyness and hesitation.

    We are working our way through a process. Things need to get very, very, very bad before they can get very, very, very good. That’s because it is experiencing the bad that gives us the courage to accept the need to move forward into the good. It’s not an accident that it’s always darkest before the dawn. There’s a reason why it always plays out that way, why that is the only way it ever can play out.

    Humans were created in such a way as to resist major change, even wonderful change, until things reach a point where they have absolutely no choice but to accept their good fortune. Look around you and you can see evidence everywhere you turn that conditions are getting to a point where we will soon have no choice remaining open to us but the one that makes all our lives better and richer and more fulfilled than we ever in earlier days imaged was possible. Such a fate! Why did this have to happen to us?

    But I could be wrong, right? I’m biased. I never went to investing school. I never managed any multi-million-dollar fund. Im just some guy who figured out how to get stuff posted on the internet sharing with you what I have come over the first nine years of our discussions to believe about where all this stuff is headed. The true and complete answer is that we will all decide where this takes us by the decisions we make on a day-by-day basis. Maybe I am right, maybe I am wrong. We’ll see. It’s not knowing for absolute sure that gives living life its kick.

    My bet is on the humans. I’ve come to know quite a few of them over the course of my 54 years and the encouraging truth is that, despite some truly horrifying flaws (Perry Como!), a good percentage of the humans end up not being such bad eggs in the final analysis.


  19. says

    If people cannot handle making a wrong decision, not waiting long enough, waiting too long, then index funds or something else is probably the better choice.

    Indexing is another one of those things for which I believe we all should be grateful to the Buy-and-Holders. It was the same group of people who came up with both innovations.

    None of the return prediction stuff that I advocate works with individual stocks. It’s indexing that made all this possible.

    This is a big part of the explanation for why people have a hard time accepting all this. People think “if predicting returns were really possible, people would have started doing it many years ago.” It wasn’t possible until we had index funds to invest in and index funds have only been around since 1976.


  20. says

    Thanks for the really great guest post, Rob. I don’t think I’ve had too many guest posts with such great discussions in the commentary, but this one definitely belongs up there.

    As a buy & holder myself, I really take posts like this to heart. I don’t believe what you’re saying actually contradicts holding investments for the long-term, and when we asset rebalance we are actually implicitly taking valuations into account in a sense. I strongly agree that we do need to be prepared to face further losses, and if stock markets were to fall significantly it would definitely signal a huge confidence blow. In fact, I believe one of the main reasons asset values remain high in the face of stagnation is due to the policies in place at the Federal Reserve, and the manipulation of the currency which basically is the fuel that drives the political machine and keeps the game going in the face of a looming iceberg. This is the root of much that we see going on.

    I also get Andrew Hallam’s point — you may know about Valuation-informed indexing, and you may also know that you should never sell at the bottom of the markets especially out of fear, but people are fallible and prone to acting out of emotion. In such a time these emotions did serve us well, but we’re not quite adapted to a modern market economy and our instincts sometimes get in the way of our best interests.

    That’s why I appreciate the discussion that you bring to the table that help to bring new light and understanding. I don’t know what’s going to happen in the next 10 years, but I do agree a big paradigm shift is coming. Though we may stumble, I do believe that as a species we do learn from our mistakes. I am an optimist for the longer-term future and just hope that the seas aren’t too rough on the way there!

  21. says

    Thanks for providing the forum for the discussion, Kevin.

    I’ll be scheduling a “Birds of a Feather” presentation on Valuation-Informed Indexing at the Financial Bloggers Conference in Chicago this weekend. If there is anyone reading these words who will be attending and who has an interest in talking over any aspect of this topic, I hope you will either attend that session or get together with me during a break or a meal and we can talk about all the particulars. Next to the interpretation of Bob Dylan songs, it is one of my favorite topics!


  22. says

    Great post… I’m not sure why the “buy-and-hold” strategy seems to lead so many people into depositing their money and walking way… for at least a year it seems, until they do some big annual review. Personally, I’d rather be more aware of my money… I worked hard for it and I don’t want any market conditions just walking away with it.

  23. says

    Personally, I’d rather be more aware of my money… I worked hard for it and I don’t want any market conditions just walking away with it.

    Thanks for your kind words, Doctor Stock.

    I imagine that everyone has picked up that I am not the biggest advocate of Buy-and-Hold around today. For the purpose of providing a little balance, however, I’d like to say a few words in defense of the general concept in response to your words quoted above.

    A big part of the appeal of Buy-and-Hold is that people have had bad experiences listening to advisors who tell them when to get in stocks and when to get out. A lot of people feel that that also doesn’t work.

    Buy-and-Hold makes a certain amount of sense, at least on the surface. Stocks really do always go up over the long term. And it really is hard to know when the turns are going to be coming (my personal view is that it is impossible to know this). So Buy-and-Hold tells people not even to try to guess when the turns are going to be coming and just to count on the fact that stock prices always go up over the long term.

    Buy-and-Holders understand that prices go down and they of course don’t like to lose money. They just feel that they will be better off in the long run not trying to guess what are the good times and bad times to hold stocks. My take is that there is a lot of smart thinking going on there along with one thing that I personally happen to think is a mistake.

    I hope me saying that doesn’t cause people to become even more confused! Thanks much for taking time out of your day to help us all out by putting another point of view on the table for our consideration.


  24. says

    I’m in general agreement with you Rob…

    One significant difference… I believe markets trend upward over time, but not every stock; therefore, when investors are encouraged to buy and hold stocks, they may end up with nothing (especially if they dollar cost average or “double-down”). For example, look at Ballard, Oilexco, Prometic, etc…. each on their own, a disaster since 2000 or so… but the markets, yes, up overall.

    Buy and hold is different than buy and get snowed!


  25. says

    The assumption underlying all of your analysis is that history will repeat and stock prices will generally rise for the forseeable future. Does the greying baby boom phenomenon change this fundamental premise?

  26. says

    You’re asking a good question, Dale.

    No, I don’t take factors like that into consideration. But that doesn’t mean that someone else shouldn’t.

    There are dozens of factors that cut one way and there are dozens of factors that cut the other way. I share the belief of the Buy-and-Holders that you can drive yourself crazy trying to figure them all out. For example, a factor cutting the other way is the explosion in technological advances. Arguments could be made that that could counter the baby boomer effect.

    On an overall basis, our economy has been strong enough to finance an average long-term return of 6.5 percent real for as far back as we have records. Valuation-Informed Indexing (and Buy-and-Hold) assumes that that will more or less remain the case into the future. If it does, all the numbers work.

    The only difference between Valuation-Informed Indexing and Buy-and-Hold is that VII says that valuations always affect the result. There is a reason why valuations are treated differently. All other factors are priced-in; investors take them into consideration when setting the market price. This cannot be so with valuations because mispricings are by definition irrational and thus investors cannot be aware that they are engaging in mispricings when they are doing so and cannot be pricing them in. Thus, the only way to get this factor priced in is to make an adjustment to the nominal price for the extent of mispricing that applies at any particular time.

    All that said, someone who believed that demographics was going to be a big factor could make an additional adjustment for that factor. You could take the numbers generated by a regression analysis of the historical record and then just subtract one percent or two percent or whatever you thought proper for the demographics factor. That’s perfectly acceptable. You just don’t want to get too carried away and start making adjustments for too many factors because the more factors you look at the more confusing things get.

    In the analysis of any problem, you want to zero in on the most important considerations. Valuations is 70 percent of the game in stock investing (in my view!). So I cannot bear to think about investing without taking valuations into account. I don’t make other adjustments because I worry that I sacrifice clarity by doing so. But if I had studied demographics and felt strongly that it was a bigger factor than most people realized (and that, thus, it was not sufficiently priced in), I would go ahead and make another adjustment. It’s not a mortal sin or anything to do that. It’s just a different judgment call.

    It’s critical that we all hear about the judgment calls being made by others. We all have only our own knowledge and experience to go by and need to know what others think to gain a sense of the whole reality. What alarms me (terrifies me, actually) about the unwillingness of Buy-and-Holders even to consider the possibility that valuations might matter is that they are willfully refusing to take other points of view into consideration and thereby narrowing their knowledge base. I want to hear from people who think I am wrong not to consider demographics because I may be wrong about this factor and I am never going to learn that that is so unless people who have studied it more than me help me out by letting me know where I messed up.

    So thanks for putting a little bit of concern in my head! Perhaps that concern will grow over time and generate significant insights and I will have you to thank for getting the process started.


  27. Timberlake says

    It may be that the market will be long term higher. But nobody knows how much and when. In the last decade the S&P 500 ended 15% lower and the baby boomers didn’t help to believe that the market might increase in the long term.

    I am always amazed that nobody is talking of loss hedging in buy and hold strategies. There exist fine strategies to hegde ETF portfolios against medium term market corrections that appear in most years several times and against bear market downtrends. If you are able to hedge your portfolio against medium trend losses you don’t have to speculate about the future because you can react to the present trends. In our website we offer a Tutorial to learn how to hedge ETFs. It makes a tremendous performance difference when you buy and hold ETFs with or without hedging. You can make profits even in bear markets.

  28. Carlyle says

    Here is a comparison of Mr. Bennett’s 10-year estimated S&P 500 Index returns based on PE10 versus actual returns for years beginning 1996 through 2001 [courtesy of the calculator available at As Mr. Bennett doesn’t state whether his projected returns are arithmetic or CAGR (Compound Annual Growth Rate) so I’ll list both:

    1996 10.75 9.08 1.6
    1997 10.02 8.41 0.9
    1998 7.20 5.87 0.07
    1999 0.61 -1.47 -0.83
    2000 1.21 -0.99 -1.09
    2001 3.55 1.31 -0.43

    PE10 proved to be not especially accurate in estimating 10-year returns for years beginning in 1996 through 1998; more so for years 1999 through 2001. Only time will tell how closely the estimated returns will compare to actual returns at the close of additional 10-year periods. It might be interesting to compare 10-year estimated versus actual returns for 10-year periods beginning prior to 1996.

  29. Carlyle says

    Here is a comparison of Mr. Bennett’s estimated returns for the S&P 500 as determined by PE10 versus actual returns
    [courtesy of moneychimp’s calculator available at for the 10-year periods from 1996 for which complete 10-year return data is available:


    1996 10.75 9.08 1.6
    1997 10.02 8.41 0.9
    1998 7.20 5.87 0.07
    1999 0.61 -1.47 -0.83
    2000 1.21 -0.99 -1.09
    2001 3.55 1.31 -0.43

    I note for the 10-year periods from 1996-1998 the estimated returns based on PE10 varied wildly from actual returns; for 1999-2001 much less so. It might be interesting to compare estimated versus actual returns for 10-year sequences beginning prior to 1996.

    Also interesting to note that, again using moneychimp’s calcuator, had one been fully invested in the S&P 500 from 1996 through 2010 he or she would have achieved an “average” return on their investement of 8.86% with a CAGR of 6.72.

  30. says

    I note for the 10-year periods from 1996-1998 the estimated returns based on PE10 varied wildly from actual returns; for 1999-2001 much less so. It might be interesting to compare estimated versus actual returns for 10-year sequences beginning prior to 1996.

    Absolutely, Carlyle. My sense is that you are trying to be critical of what I am proposing. But you are not being critical, you just do not fully understand the message. We agree. What you are suggesting here is precisely what people should be doing.

    The historical stock-return data is public information. Everyone reading these words should enter the term “Shiller data” into a Google search and then examine what comes up. Shiller provides the P/E10 number for every month from January 1870 forward. Look at the number for any month, predict the 10-year stock return based on that number (using The Stock-Return Predictor, a calculator at my web site), and then look 10 years ahead and see how well it worked.

    It ALWAYS works. There is not one exception in the historical record. It is not even logically possible that there ever could be one. This is wonderful news for all stock investors, Carlyle. You want to learn all you can and make use of this in forming your own investing decisions. I encourage you to study this in great depth until you are absolutely convinced and understand all the ins and outs.

    What you are focusing on in your comments above is that there is no magic in the 10-year mark. That is of course so. It’s not always precisely 10 years. It could be 5 years. It could be 8 years. it could be 12 years. What does it matter? It ALWAYS works. And taking what always works into consideration permits you to retire 5 to 10 years earlier than you could have hoped to retire following Buy-and-Hold strategies. Do you appreciate what we have here?

    Shiller testified to the Federal Reserve in 1996, telling them that those who were heavily invested in stocks at the time would live to regret it within 10 years. Some Buy-and-Holders said in 2006 that he had been proven wrong because we had not yet seen the stock crash and the economic crisis he predicted. Horror of horrors! We didn’t have the economic crisis until two years later!

    Do you appreciate what Shiller did for us? He told us how to avoid this economic crisis. If we had educated investors about how stock investing really works back in 1996, we wouldn’t be in the situation we are in today. The deficit problem wouldn’t be nearly as big as it is today (because we wouldn’t have had to pass any stimulus bills). We wouldn’t have Democrats yelling at Republicans and Republicans yelling at Democrats. We wouldn’t have sky-high unemployment rates. We wouldn’t be worried about falling into the Second Great Depression.

    You are 100 percent right that we cannot predict short-term results. We cannot. You and I are in complete agreement. Can we just let that one go and move on to the exciting stuff.

    We CAN predict long-term results. And being able to do so changes the investing project in a fundamental way. It takes most of the risk out of stock investing. When you know what your long-term return is going to be, there’s little risk. Look at the P/E10 level that applies when you make the purchase, and you know. It really is as simple and wonderful as that.

    The economic criss was caused by the fact that the Buy-and-Holders don’t get this. They understand that short-term results cannot be predicted and they are 100 percent right about that. Now they need to let it in that long-term results can ALWAYS be predicted. Once they do that, we will be able to spread the word to all middle-class investors and we will all be living in the Garden of Paradise for ever more. Or at least until we the humans screw things up in some new way!

    Please give this some thought, Carlyle. Deep down inside, you want the same thing all the rest of us do. You have it! All you have to do is to give up your resistance to the idea and you have it all. Please just try to let go of the idea that has failed (that it is not necessary to look at valuations when setting your stock allocation) and let in all the wonderful stuff that we have learned from the academic research of the past 30 years.

    I certainly wish you the best of luck in all your future endeavors in any event. Hang in there, my old friend!


  31. says

    very good post, i was really searching for this topic as i wanted this topic to understand completely and it is also very rare in internet that is why it was very difficult to understand

    thank you for sharing this.



  1. […] from Rob Bennett, guest posting at Invest it Wisely:  The Biggest Unknown Risk of Stock Investing.  What is it? It’s that of becoming a “failed buy-and-hold investor”.  But it […]

  2. […] familiar with – such as major indexes. These assets also tend to be less volatile compared to individual stocks, which makes the pace of trading slower as […]