This new year promises to be an interesting one for us as we dream up more goals and ideas for our work and home lives. For instance, we’re planning to take our first big international vacation as a family by this summer, to visit relatives in Asia. We may stop by a few countries while we’re at it. After seeing some of our relatives over the holidays, we discussed the possibility of visiting the home country over the summer. A lot of my extended family live on the other side of the world (as I talked about in this immigration story here). So we’ll see how that works out! Nothing better than to start thinking about travel first thing in the new year — as this article we published on personal financial planning has suggested: planning big trips way in advance can save you money!
Other things that came out of the holidays? Well, I got to exploring another business idea that has a more brick and mortar focus. It’s something I won’t be describing much for now, but let’s just say it’s completely out of the realm of my experience and background. Since I don’t know much about what’s involved yet, I haven’t yet entered the phase where I’m supposed to be discouraged about trying it out. You know how it is with new business ideas: you start out becoming interested. You get intrigued… then hooked. Afterwards, you get excited and only after a while does reality set in. I am not in the “let’s face reality” part just yet as I’m still studying my options.
Now why am I doing this given how busy I already am with online business ventures? I’m just going to have to call it a form of exploration — to see what else can be done out there and to see what’s worth doing. If there’s anything I’ve learned about becoming an entrepreneur, it’s to keep my mind open to potential opportunities. Let’s see if something comes out of it. The danger of course, is that if you spread yourself thin, it can be more trouble than it’s worth. Just read about this case study of a family whose franchise went bust while they continued to nurture strong careers. Perhaps they took on too much on their plate and bit off more than they could chew. Certainly, it’s something to ponder.
So how about you? Any plans for this year? Did anything over the holidays capture your eye or ear? Heh, love how that rhymed! 
Announcements
While some of us were busy thinking of next steps, others were executing some interesting events: check out Money Crashers’ massive giveaway! They’re having a huge 2010 New Year Giveaway Bash that involves $5,900+ (and growing) in cash and prizes. Make sure you join! I’ll be writing up a separate post about the details in a bit.
Also, here are a few great mentions of our site around the web!
- The New York Times: Tips For Cutting Your Cable Bill
- Money Help For Christians: Best of the Money Blogs 2009
- WeSeed: 10 Steps To Get Your Financial Life In Order
Personal Finance Articles
I also got a chance to visit some friends around the blogosphere, who have these posts to share:
- The Financial Blogger: How To Buy A Blog in 3 Easy Steps
- The Sun’s Financial Diary: Resolving to Save Money
- Lazy Man and Money: Make a New Year’s Resolution for SMARTER Goals This Year
- The Online Investing AI Blog: What The Great Recession Has Changed
- Frugal Dad: Four Lifestyle Tweaks For The New Year
- Out of Debt Again: Make Your Own Sauerkraut
- The Financial Blogger: 5 Tricks To Keep Your Resolutions (Carnival of Personal Finance)
- Eliminate The Muda: Festival of Frugality
{ 15 comments… read them below or add one }
Howdy SVB – HNY to you! So many plans this year, so little time
Any plans for this year?
Regular readers of my stuff know that I have been trying for some time (eight years!) to diminish the level of dogmatism that some feel over Buy-and-Hold so that we can open up investing discussions to lots of exciting ideas that conflict with the Buy-and-Hold model. My thought for this year is to go to the political blogosphere and to try to gain supporters there with an argument that it was the continued promotion of Buy-and-Hold for 30 years after the academic research was published showing that valuations affect long-term returns that caused the economic crisis (we have made ourselves so poor with this investing “strategy” that we can no longer afford to buy stuff!). The economic crisis has obviously affected the political debate (many middle–class workers are alarmed that our economic and political leaders have been so ineffective in their handling of the crisis).
If this works, I think it could be a big deal. I believe that we all place too much emphasis on “expertise” in the investing area. Anyone with common sense can come to understand investing just fine if they don’t buy into all of the crazy marketing slogans put forward by The Stock-Selling Industry. My experience is that the primary expertise of most of those whom we think of as “experts” in this field is in selling stuff. If we can get more people involved who come at these questions from a common-sense perspective rather than with a defensive unwillingness to acknowledge that perhaps they have actually gotten some things wrong from time to time, we will change the history of investing.
There’s tons to learn if only we can open ourselves to it and find ways to talk to each other about what we have learned. Perhaps we will make some friends in the political blogosphere who will help us find an end run around those who don’t like the idea of questions being raised about popular (but long discredited by the academic research) investing strategies.
Rob
Appreciate the info Rob — I realize you are very passionate about your work goals especially in the realm of investment theory. But how about your personal and family goals?
Would love to hear about your “other” lives as well.
But how about your personal and family goals?
Thanks for asking, SVB.
The truth is that for me it comes down to the same thing.
My life is blessed in every respect other than certain issues I’ve encountered in investing discussions held on the internet. I have a wonderful family, I have good health, I have a reasonably strong faith, I am doing work I love, I live in a country that I love.
The one problem that I have in life is that the growth of my internet business has been held back for eight years now because of this group that does not want people to learn the realities of stock investing. When I break through this wall, I just see things getting better and better and better. There are so many angles to this story that it is one that I can write about for the rest of my life. But of course it is no fun if I don’t reach the people who want to learn about this stuff. So I do need to break down the wall.
I don’t want to sound as though all I am is my work. I think the way to put it is that the only area where I don’t have total happiness today is an area related to my work and even there the work itself is great. It’s just that the work that I have done happens to make some feel defensive and threatened and I need to get around those people to make the work pay off both for me and for the communities for which I write.
Rob
I can appreciate Rob’s comments, to a point. As a Certified Financial Planner who has been helping folks find, define and achieve their aims, goals and objectives, I continue to learn new ways to help people every day. What I learn from my experiences dealing with thousands of people cannot be learned in books- practical and academic learning are vastly different. It’s important, when looking for a professional to work with, that you feel comfortable with the individual and you are confident of his or her experience, certification and you can identify with this individual as one who you feel a long-term, values based realtionship can be established. I could not emphasize more the value of “expertise” and “practical experience” when helping people.
Buy and hold? For the most part, a long obsolete theory that, unless you are talking about fixed income instruments help for a long term goal, just does not work in this economic environment. While I am not an advocate of trading and short term decisions, laying out a long term plan, reviewing it regularly and making changes when necessary due to life issues, market conditions etc. is the way to move in a forward motion. Always remember: between A and B, there are a million points to be addressed: we call that life. Welcome to the new world!
Any plans for this year?
For me, no. I went to Disney last year, and that tapped me out financially for a while… Sounds like a great trip! I’m excited for you! Someday, (hopefully) I will get to travel overseas for vacation too once in a while…
Did anything over the holidays capture your eye or ear?
Not really much… Ironically, I got shot in the eye with a nerf gun in a neaf war with my son. Figures, the one time that I don’t enforce the “goggle rule”, I get nailed
Good luck on your new business, I’m researching rental property, but I doubt that I will go that route. Sounds like too much hassle and too much mess if you get the wrong renters… I hate the conflicts that can arise from dealing with those types of issues.
This is a year of serious growth and developing my business further. I am striving to be the best Web Design and Internet Marketing business in South Africa.
Rob Bennett seems to enjoy complaining about how someone else’s dinner tastes, for them: “…it was the continued promotion of Buy-and-Hold… that caused the economic crisis … we have made ourselves so poor with this investing “strategy” that we can no longer afford to buy stuff!”
Rob,
Contrary to your claims, Buy and Hold allowed me to retire early, to a place I love, with a feeling of peace and security and abundance. I realize that you for some reason have decided to turn your antipathy for this actually sort of uncommon mode of investing into something resembling a religious war, but can you please stop to respect both:
* Truth; in the accuracy of what you say,
* Other people’s points of view; in that they may have different points of view?
I’d thank you to do that.
[i]Other people’s points of view; in that they may have different points of view?[/i]
There are millions of good and smart people who believe in Buy-and-Hold with their hearts, minds and souls, NoFalse. I feel a great deal of respect and affection for these people. John Bogle is a hero of mine. I think it’s fair to say that he believes in Buy-and-Hold, no? Bogle is also the godfather of Valuation-Informed Indexing, the investing strategy that I explore at my site. I couldn’t do the work I do in the investing area were it not for the many wonderful things I have learned from John Bogle.
You really are putting your finger on something of importance here, however. You say that I should respect the “viewpoint”of Bogle and the other Buy-and-Hold advocates. I respect the people who came up with these ideas because they are good and smart people who have helped us all in many important ways. I do not respect the Buy-and-Hold idea. I hate the Buy-and-Hold idea. Asking me to respect the Buy-and-Hold idea is like asking me to respect racism or sexism or communism or war or ignorance or poverty. Not this boy.
I love the people. I hate the idea. Do you see the difference?
I hate the idea because I love the people. Buy-and-Hold says that there is no need to take price into consideration when buying stocks. This is Get Rich Quick investing. This hurts people. It causes failed retirements. It causes failed businesses. It causes failed marriages. What’s not to hate?
People came to believe in Buy-and-Hold because of a mistake (the mistake goes by the name “Efficient Market Hypothesis”) made by the academics who developed the model. The reason why the academics made the mistake is that they are humans. All humans make mistakes. Fortunately, humans also possess the ability to correct their mistakes. Academics who came later did research revealing the mistake. That research was done in 1981 (and confirmed many times since). Had the Buy-and-Hold advocates simply acknowledged the mistake when it came to their attention, we would not all be enduring an economic crisis today.
The trouble comes from the fact that the model that has caused such financial ruin brought in hundreds of millions of dollars to The Stock Selling Industry. There is a feeling of great shame today about what has been done to us as a result of this mistake and the unwillingness of those responsible for it to correct it for so many years. Here’s the question that all of us who care about these people need to be thinking about — Is it better for them for us to point out the mistake and get it corrected or is it better for them for us to let the mistake continue destroying the U.S. economic and political systems? I obviously think it is better for every single person involved to get this mistake corrected as quickly as possible.
Is your best friend the person who lies to you when you are doing things to destroy your career and your marriage and your health? Or is your best friend the person who takes you aside and tells you (in kind but blunt works) that you are messing up and that you had better get your act together? I say things bluntly because I have learned from experience that that is the only thing that has any hope whatsoever of helping my many Buy-and-Hold friends find their way to a better place.
Buy-and-Hold is a data-based model. Those of us who follow the literature have known for 30 years that those who developed this model got all the numbers wrong. All of the conventional investing wisdom of the past 30 years is the opposite of what works, according to the entire historical record. The Stock Selling Industry has just about zero interest in getting the word out. But personal finance blogs are not owned by The Stock Selling Industry. We have the power to get the word out and to thereby keep the U.S. economy from falling into the Second Great Depression. I see that as work worth doing, NoFalse.
And you know what? I think there are thousands in The Stock Selling Industry who would breathe a huge sigh of relief if we succeeded in this work. These people want to give good advice. John Bogle did not start out as a little boy dreaming of the day when he could bring the U.S. economy to its knees by telling middle-class investors to do the opposite of what works with their retirement money. John Bogle deep in his heart wants this matter cleared up (even if he is not able to acknowledge this today).
I respect all Buy-and-Holders, NoFalse. I respect them enough to know that deep in their hearts they want to invest effectively and they want all of their friends and neighbors and fellow community members to invest effectively. We are all in this together. We all have a part to play. I’ve been given the job of being the one to let the cat out of the bag and launch a national debate on what really works in stock investing. I am going to give it my best shot. I will fight it hard.I will fight it to win. If I remain true to myself, I will also fight it with love in my heart for all Buy-and-Holders every step of the way.
I am not your enemy, NoFalse. I am your friend.
Rob
After much snipping and pruning, we get to Rob claiming: “Buy-and-Hold says that there is no need to take price into consideration when buying stocks. This is Get Rich Quick investing. ”
Rob, your assertion makes no sense on it’s face. And seeing you repeat it many times doesn’t somehow add more sense than was initially there.
Implicit in the term “Buy and hold” itself is the expectation that it will take TIME — this is the “hold” part. So, one may have to “hold” while the market goes up, and goes down, and goes sidewise. But you hope to be in it LONG ENOUGH (again, that’s the ‘hold’ part) to gain on the average expectation of the market. No one is ramming that vision down people’s throats. It is certainly not the most common practice. And even those who like the idea in principle often lack the discipline to execute it for real. So two things become readily apparent about your assertion:
1) Buy and Hold is not a ‘get rich quick’ scheme. First, it’s not even about getting ‘rich’ it’s about capturing the net average gains. This is the mature opposite of stock speculators and timers. But most important of all, there is nothing “quick” about it; either in promise or in practice. Again, the “hold” is right in the description.
2) Since the practice of Buy and Hold is difficult, it is not particularly popular, and is surely NOT endorsed by industry which likes selling different stocks, many times, it certainly is not accountable for all the evils you lay at it’s door — the housing market crumbling, the recent stock swoon, etc.
In my opinion, your position is not a very good basis on which to found a ‘movement,’ especially one that cannot stand even the most rudimentary logical inspection.
Good luck to you, but if you don’t change your tune, I doubt you will find many dancers.
Implicit in the term “Buy and hold” itself is the expectation that it will take TIME — this is the “hold” part. So, one may have to “hold” while the market goes up, and goes down, and goes sidewise. But you hope to be in it LONG ENOUGH (again, that’s the ‘hold’ part) to gain on the average expectation of the market. No one is ramming that vision down people’s throats.
The part that we disagree on is the “No one is ramming that vision down people’s throats” part, NoFalse.
There is a trivial sense in which the rest of what you are saying here is “true.” I put the word “true” in quotes because what you are saying is more false than true (in my assessment!). But there is indeed at least a surface sense in which it is true. The problem is that your claims are half-truths and the part that is false is far more dangerous than the part that is true is helpful.
Those who bought stocks during the time when they were insanely overpriced (the time-period from January 1996 through September 2008) will indeed end up ahead if they hold those stocks long enough. The problem is that the length of time that they are going to need to hold is not the length of time that they have been led to believe they are going to need to hold by the marketing campaigns of The Stock Selling Industry. Most middle-class investors interpret the claim that stocks always do well in “the long run” as an assurance that they will end up okay if they are able to hold at least five or ten years. Nothing could be further from the truth. The historical data shows that it may take as long as 50 years for people who bought stocks at insane prices to end up doing better than they could have done buying Treasury Inflation-Protecting Securities (an asset class that comes with a government guaranty attached).
Buy-and-Hold has become popular four times in U.S. history. It caused a devastating economic crisis on each of these occasions (since 1900, we have never suffered an economic crisis that was not preceded by a time of widespread praise for this investing “strategy”). Assuming that we see losses this time somewhat in accord with what those of us who have looked at the historical record have come to expect, those middle-class investors who bought into the Buy-and-Hold mumbo jumbo will be seeing losses to their portfolio amounts of something between 80 percent and 90 percent real. What percentage of those people will end up holding 50 years?
The obvious answer is — a number closely approaching zero. Stock values dropped 80 percent in the years following the 1929 crash (we went to far higher valuation levels in the 1990s). It is entirely possible that not one middle-class investor held through those losses. Yet the Buy-and-Hold advocates point to those years as years in which Buy-and-Hold “worked.” It worked? Even though every single person who bought into the marketing campaign for this “strategy” suffered devastating losses? Even though not one of those following it held in the real world? I say “no.” I say this is gibberish.
What works for me is a strategy that helps real live people living in the real live world. Buy-and-Hold works on paper, that’s all. It’s not the same thing. It’s not even close.
Investing for the long term is a wonderful idea. On that I am in 100 percent agreement with the Buy-and-Holders. What I say is that middle-class investors should aim to keep their risk profiles roughly constant. If the risk of holding stocks is low (there is minimal risk at times of moderate and low prices, according to the entire historical record), middle-class investors should be heavily invested in stocks because of the great return they provide. When the risk of owning stocks is off the charts, I think that middle-class people should be cutting back on their stock allocations so that they have a reasonable chance of holding onto those stocks that they do own. At the prices that applied from 1996 through 2008, this means going with a stock allocation of something in the neighborhood of 20 percent, certainly no more than 30 percent except for those in exceptional circumstances.
Buy-and-Hold “works’” in the marketing materials generated by The Stock Selling Industry. That’s because they just happen to “forget” to include consideration of the factors that always make it such a real-world disaster for those who elect to follow it. And, yes, the marketing materials are indeed rammed down people’s throats. Honest posting on the flaws of the Buy-and-Hold Model is today banned at the Motley Fool site, at the Morningstar.com site, at IndexUniverse.com, at Bogleheads.org and at a number of personal finance blogs. Why? Why are the thousands and thousands of middle-class investors who come to these places to hear the straight story of what works in stock investing only permitted to hear one side of the story, the side that just happens to be the one that brings hundreds of millions into The Stock Selling Industry (every industry obviously wants its customer to believe that its product is worth buying at any price imaginable — I know of no other industry that gets away with promotion of such an obviously preposterous claim)? Forgive me if I have come to believe that the huge financial incentives for telling middle-class investors precisely the opposite of what works might be partly to blame for our current economic crisis, NoFalse.
I doubt you will find many dancers.
I invite you to take a look at the “People Are Talking” section on the left-hand side of the home page of my “A Rich Life” blog, NoFalse. I have already found a good number of “dancers,” both among the ranks of experts and among the ranks of ordinary people seeking an investing strategy that stands a realistic chance of working in the real world. The millions of people whose financial futures are being destroyed by the reckless promotion of Buy-and-Hold for 30 years after the academic research showed that its chances of working in the real world are precisely zero are the people who built our economic and political system. I have a funny feeling that some of them may be in the process of developing a desire to take it back. We’ll see.
Rob
Geez….
Rob has such a contorted view of investing and people that it’s difficult to know where to start. Oh, why bother.
This thread looks like it went off topic. I know people want to debate and Rob tends to be a strong “debate magnet”. I would, however, refrain from taking the arguments personally. My take on things is that there’s room for all financial strategies and do whatever works for you. I don’t think there’s a wrong or right way to approach things — but I also believe in everything in moderation. Sometimes a strategy works well, sometimes it doesn’t, depending on circumstances. Buy and hold works well in up markets, and it sucks in more volatile, flat markets. So how do I go about things? I do a mix of approaches and diversify. It’s worked for me.
And this year? I’ll be doing more of the same. Going with the flow and being flexible about how you approach your plans and strategies can serve you well.
“your claims are half-truths”
Amazing.
This is why every attempt to engage Mr. Bennett ends in failure — he simply cannot accept any information that is contrary to his already chosen position that there is some evil afoot, so anyone who points out his mistaken assumptions and/or erroneous thinking is immediately slandered as a liar and/or a ‘hater.’
Good luck with your planned assault on the political blogosphere. I suppose it’s true that some sort of change is in order, since you have failed to convince the financial blog community, but as is often the case with you, I’m not at all convinced that you are applying sound reasoning in assuming that the frothy mix of politics is the right place to take your war on passive index investing; which is about the most benign thing a person could do, and one that I am not sure can be outlawed without significant impact on our basic personal freedoms! I mean, will your plan criminalize the decision to *NOT* trade regularly (chuckle)?
Here is a truth, and no half-way about it: you will certainly be no more successful convincing that population of the correctness of your arguments than you have with this audience.
anyone who points out his mistaken assumptions and/or erroneous thinking is immediately slandered as a liar and/or a ‘hater.’
This response is emotional, NoFalse.
This is one of the big problems with the Buy-and-Hold model. It encourages emotionalism in investing. I think we should be taking it the other way. We should be discouraging excessive emotionalism.
Middle-class people buy thousands of things every year. We buy cars and sweaters and cell phones and videos and bananas. And there is one common theme in every purchase we make — price always matters. If the people trying to sell us sweaters or bananas tried to get away with telling us that their products are a good deal at any price, we would laugh at them. Rightly so.
I think we should do the same when The Stock Selling Industry tries to tell us that stocks always provide a good long-term value proposition regardless of price. This claim is self-serving and unbelievable. And the entire historical stock record shows that Buy-and-Hold is the worst strategy possible for the long-term investor. The incredible think is not that there are now more and more people becoming skeptical of the conventional investing “wisdom” but that The Stock Selling Industry got away with this one for so long.
We middle-class investors bear primary responsibility for that one, I fear. All humans are weak. We all possess a Get Rich Quick impulse. We all would like to believe that there’s some alternative universe where eating six pieces of chocolate cake each day is good for our health and where failing to adjust our stock allocations in response to dramatic changes in valuations might not cripple our retirement accounts. I think that, if we are to hope for our financial planning efforts to bear good long-term fruits, we are going to need to work harder to disabuse ourselves of such fantasies.
I would not listen to a doctor who told me that it’s fine to be 100 pounds overweight just because he knew that that was what I wanted to hear from him. I understand that his flattery is going to cost me in the end. It’s the same with investing advice. I don’t want the “experts” telling me what I want to hear when I am dangerously overinvested in stocks. I want them telling me what really works.
I wish you well with your investing efforts, NoFalse. But I cannot say that I have confidence that you are on the right track.
Rob