New weekly commentary by Hussman voices his concern about buy and hold, and refers to Jack Bogle:
"As usual, I have no intention of encouraging investors to deviate from other disciplines, provided that those disciplines are well-informed, that investors are committed to following those disciplines over the full course of the market cycle, and that they are well-aware of the typical return and drawdown characteristics of their chosen approach. Jack Bogle of Vanguard is a good example – he encourages a buy-and-hold approach, but he recognizes and is prepared for the likelihood that the coming decade will include a number of interim market losses in the range of 30-50%. Measured from the bottom in 2009, buy-and-hold has outperformed virtually every other approach, including trend-following and risk-managed approaches. The relative performance of a buy-and-hold strategy is likely to be wildly different during the bear market portion of the present cycle, but again, my chief concern for buy-and-hold investors is that they don’t suddenly discover the strategy today and then abandon it only after severe market losses."
For a full version of the commentary, go to
http://www.hussmanfunds.com/wmc/wmc130722.htm
Bogle referenced by Hussman
Re: Bogle referenced by Hussman
Did you take a look at the returns on his funds? They are mostly stinkers.
Re: Bogle referenced by Hussman
Investment strategies fall in and out of vogue. "Harvard/Yale Portfolio," "Harry Browne Permanent Portfolio," the "Lazy This and Lazy That", the "Three Fund Portfolio," "Larry Swedroe Portfolio," etc.
The thing I've had to wrap my head around is that there is no perfect strategy. There are only good strategies that sometimes are outpaced by the hot strategy of the moment. The Three-Fund Portfolio is as good as anything (usually its Total Bond-Total Stock-Total International, but it could also be Total U.S. Small Cap-Total International Small Cap--Short-Term TIPS or another three-fund combination of your liking.)
The main point: You need broad diversification across asset classes. You'll only know which combination of ingredients performed best AFTER the fact. (And something, somewhere will ALWAYS outperform what you own. But only for a finite period.)
The thing I've had to wrap my head around is that there is no perfect strategy. There are only good strategies that sometimes are outpaced by the hot strategy of the moment. The Three-Fund Portfolio is as good as anything (usually its Total Bond-Total Stock-Total International, but it could also be Total U.S. Small Cap-Total International Small Cap--Short-Term TIPS or another three-fund combination of your liking.)
The main point: You need broad diversification across asset classes. You'll only know which combination of ingredients performed best AFTER the fact. (And something, somewhere will ALWAYS outperform what you own. But only for a finite period.)
- SecretAsianMan
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Re: Bogle referenced by Hussman
I had to comment on this. Whatever you may think of it (full disclosure: I'm a slicer-and-dicer), the Three-Fund Portfolio always consists of TSM, TBM, and TISM. There is nothing else "it could also be." The aforementioned funds are the only possible funds that may comprise the Three-Fund Portfolio. Any other combination is another strategy.steve roy wrote:The Three-Fund Portfolio is as good as anything (usually its Total Bond-Total Stock-Total International, but it could also be Total U.S. Small Cap-Total International Small Cap--Short-Term TIPS or another three-fund combination of your liking.)
SAM
Re: Bogle referenced by Hussman
Ged,
Not advocating for Hussman. He is a market-timer for sure. He's been mostly out of the market for years now, and has missed most of the run up since 2009. He is more than willing to admit that this was a mistake on his part (not that it makes up for his fund's horrible performance to date).
What I found to be interesting about his reference to Bogle is not that he advocates against buy and hold, but merely cautions that it is a long term strategy which requires significant discipline in bad times.
Not advocating for Hussman. He is a market-timer for sure. He's been mostly out of the market for years now, and has missed most of the run up since 2009. He is more than willing to admit that this was a mistake on his part (not that it makes up for his fund's horrible performance to date).
What I found to be interesting about his reference to Bogle is not that he advocates against buy and hold, but merely cautions that it is a long term strategy which requires significant discipline in bad times.
Re: Bogle referenced by Hussman
Tigerman, thanks for the link. As a practicing Boglehead, I don't normally pay attention to Hussman. Of course, the reason is the very one he warns buy and hold investors about--abandoning buy and hold. On this one, I agree with him. The Bogleheads do recommend--in fact require--buy and hold; however, every time there is a severe downturn, some investors, including Bogleheads, get out near the bottom.
Much of what Hussman wrote could easily be found on the Bogleheds site:
That's the problem in my view too. You can lead an investor to the water trough, but you can't make him drink, and sometimes you'd like to through him in! The problem comes from serious mistakes about the investor's real risk tolerance--not the one he thinks he has when risk isn't obvious. Worth noting that risk is always present whether it's obvious or not. It's impact just can't be evaluated when there is no stress.
Paul
Much of what Hussman wrote could easily be found on the Bogleheds site:
In nearly every effort worth pursuing, I think the secret to eventual success is the same. Find a set of well-informed daily actions that you’re convinced will produce good results if you follow them consistently. Then follow them consistently.
In a world where randomness, frustrations, and events outside of one’s control play an enormous role in day-to-day outcomes, the best measure of day-to-day success is whether or not those daily actions were followed. Over time, the results take care of themselves.
That includes the various roads to Dublin.There’s not a single road to easy street that doesn’t run through the sewer at one point or another.
The problem, in my view, is that investors constantly switch their discipline when it isn’t performing well at the time.
That's the problem in my view too. You can lead an investor to the water trough, but you can't make him drink, and sometimes you'd like to through him in! The problem comes from serious mistakes about the investor's real risk tolerance--not the one he thinks he has when risk isn't obvious. Worth noting that risk is always present whether it's obvious or not. It's impact just can't be evaluated when there is no stress.
Correct and well said.Just as day follows night, buy-and-hold strategies reach the peak of their popularity at market tops, because those are the points where every effort in recent memory to sell or reduce risk has apparently failed. Conversely, buy-and-hold strategies are most reviled at bear market troughs, when the full weight of losses is felt.
The easiest way to lose discipline is to measure each day by whether it was up or down
Being aware of the drawdown characteristics isn't enough, unfortunately. This is a behavioral issue of evaluating drawdown characteristic in an unemotional state and evaluating them when fear runs high. The very different emotional states will produce very different risk tolerance levels in most investors. Investors need to account for that when creating their asset allocation. Check out Behavioral Pitfalls in the Wiki.As usual, I have no intention of encouraging investors to deviate from other disciplines, provided that those disciplines are well-informed, that investors are committed to following those disciplines over the full course of the market cycle, and that they are well-aware of the typical return and drawdown characteristics of their chosen approach.
Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: Bogle referenced by Hussman
hussman's a fun read, but he's kind of a permabear, isn't he?
this line was brilliant.tigerman3 wrote: my chief concern for buy-and-hold investors is that they don’t suddenly discover the strategy today and then abandon it only after severe market losses."