Message Font: Serif | Sans-Serif
No. of Recommendations: 44
What I can't figure out is why so many people think there is a debate worth pursuing?

There is a huge mountain of data which shows that the RP4 does not outperform the Dow.

1) The RP4 was data mined. (how significant the data mining was is still a point of debate.)
2) The RP4 only performed as well as the Dow through 1970. (this is exactly what you would expect if the RP4 does not work.)
3) The RP4 only performed as well as the Dow since 1996.
4) The RP4 performed worse than the Dow since it became the "Official Foolish Four" (this probably has a 50% chance of occurring). Although Ann's portfolio is ahead of the Dow.
5) The RP4 has higher transaction costs than an index fund.
6) The RP4 has significantly higher taxes if not in a tax deferred account.
7) The RP4 has considerably more volatility than an index fund.
8) During the sample period, the only stocks that out-performed the Dow were the 100 stocks on the January list from 1971 to 1995.
9) The RP4 stocks picked during the sample period that were not one of those 100 stocks mentioned in 8) above, did not outperform the Dow. Using TimberFool's database, you would have had a universe of over 400 stocks picked by the RP4 that were not one of the 100 January stocks. Testing those 400+ stocks actually showed they performed worse than the Dow.
10) The "January Effect" only occurred during the sample period. There was no January Effect before 1971 or after 1995.
11) The "Monthly Pattern" which shows the RP4 out-performance being greatest at January and worse the further you get from January only shows up during the sample period. It does not exist either before or after the sample period.
12) If you had invested during the sample period you would have been significantly better off buying the stocks that had been on the previous January list any time during the year than you would have been buying the current RP4. In other words, if you going to invest in September during the sample period then you would have made more money buying the stocks on the January RP4 and holding them until the following September than if you bought the September RP4 stocks.

There is the following evidence that the RP4 does out-perform the Dow.

1) The 100 stocks on the January lists from 1971 to 1995 out-perform the Dow.
2) The "Official Foolish Four" portfolio is out-performing the Dow.

Oh, I'm sorry I forgot. There are two additional pieces of information to support the RP4.

I'd like to think that #3) is the most important but I suspect that #4 is actually the most important.

3) Qwerty is an obnoxious PITA.
4) TMF still claims in the fool school and elsewhere that the RP4 is still a valid long term strategy.

Aside from the hard evidence above there is circumstantial evidence on both sides.

RKM thinks the RP4 makes logical sense to him
TMF has had many months to respond to the criticism of the RP4 and has been virtually silent.
TMF improperly used statistics in "proving" the validity of the RP4.
TMF purchased a CRSP database many months ago and has neither produced any results nor have they even stated what tests they think are worth performing.

I don't know why TMF hasn't produced any results. It could be that they haven't had the resources available to crunch the data. However, I find it hard to believe that they haven't even detailed the tests that they want to perform.

Looking at all the evidence, it seems amazing that their is still a debate.

I see a lot of similarities to the cigarette debates. For years no one was aware of the link between cigarettes and cancer. Then it became common knowledge that cigarettes caused cancer. However, you still had the tobacco executives raise their right hands and swear under oath that they believed that cigarettes didn't cause cancer. Everyone knew they were lying but the executives thought it was in their best interest to lie.

At first, I thought that TMF was just ignorant about the statistics of the RP4. As time goes on, I am more convinced that many people at TMF understand that the RP4 does not work. They may not grasp the statistics as well as DataSnooper does, I sure don't. but I am fairly sure they understand DataSnooper's conclusions. FractalWalk has done an excellent job explaining the problems of the RP4 is pretty clear English. I am sure that most everyone at TMF can understand FractalWalk's posts. Now, I am beginning to think that Tom and David and Ann are lying in the Fool School and elsewhere because they have made a business decision that it is better to lie than to tell the truth.

I am having a hard time coming up with a different explanation that fits the available facts. To be fair, other people think that TMF is just bloody incompetent and willfully ignorant.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.