Valuation-Informed Indexing #208: Why I Write Only About Valuation-Informed Indexing

I’ve posted Entry #208 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Why I Write Only About Valuation-Informed Indexing.

Juicy Excerpt: In other fields, we learn new things and we move ahead. In the investing field, we learn new things and — we ignore the new things we have learned.

I believe that the reason why we do this is not that investing doesn’t matter but that it matters too much. We cannot bear to acknowledge having made big mistakes in our investing strategies because we know that making big mistakes in this area delays our retirements. So we are in denial about what we learned from Shiller. We aren’t going to acknowledge this mistake until it wrecks us.

When that happens, we are going to realize that we have missed out on 33 years of learning experiences. We will enter a new world, one in which there is no legitimate argument over whether we need to adjust our stock allocations in response to big valuation shifts but only over what tools we should use to determine how big an allocation adjustment is needed in different circumstances.

“Mike Piper Always Hated Being Dishonest. But He Feels That His Blog Will Be Destroyed If He Permits Honest Posting. It’s Similar to the Case With Wade Pfau. I Think That A Good Case Can Be Made That It’s the Same Basic Story with Jack Bogle. How Do We All Work Ourselves Out of the Trap That We Have Created for Ourselves?”

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

He told me that “there is nothing that I would like better” than to open up his blog to honest posting re the last 33 years of peer-reviewed research. He said that he hasn’t done it because he is “afraid” of what Mel Linduaer would do to him. He said that everyone he knows views Lindauer as “a massive jerk.”

Why the partial quotes? I suspect that the rest of the quotes would give a different impression from the on you are trying to give.

There are a lot of blog entries here dealing with Mike Piper.

He always hated being dishonest. But he feels that he has no choice. He feels that his blog will be destroyed if he permits honest posting.

That’s how lots of people feel. It’s very similar to the situation with Wade Pfau. He loved doing honest research. Be he didn’t want to see his career destroyed.

I think that a good case can be made that it’s the same basic story with Jack Bogle. Jack is the one who provided the honest information in his book that helped me come to understand that the Old School SWR studies were in error. He put that language in the book because he has a conscience. Yet he is the lead promotor of Buy-and-Hold. Beat that!

The impression that I am trying to create is that Mike Piper feels trapped by the lies that he and many others have told in the past. And that the same is so with Wade Pfau and Jack Bogle and thousands of others.

Now –

How do we all work ourselves out of the trap we have created for ourselves?

Do you have any constructive ideas, Evidence?

Rob

Goon Poster to Rob: “Even If You Did Not Violate Specific Rules of These Boards, You Made Them So Absolutely Unbearable That the Moderators Had to Ban You or Else Everyone Else Would Simply Stop Coming to the Board.”

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

Even if you did not violate specific rules of these boards you made them so absolutely unbearable the mods had to ban you or else everyone else would simply stop coming to the board.

You just respond to other peoples question by rambling off topic about what YOU want to talk about. I would love to be a fly on a way and see you interact in real life with someone. I would be curious to see if you are as socially inept even when discussing things other than finance.

How can you seriously claim their is a Buy and Hold Mafia preventing open discussion when you were allowed to speak at FINCON. You spoke, people listened, and everyone thought you were an idiot. What’s hard to understand about that?

I didn’t violate any rules. Not once. That’s a stone cold fact. Even a number of Buy-and-Holders have acknowledged this.

It is true that the moderators have been put in a tough spot. It is true that many community members have told site owners that they would leave their sites if I was not removed. That’s ALSO a stone cold fact. And I DO have sympathy for those site owners (even though I do NOT believe that they are right to ban honest posting).

I NEVER go off topic. That claim is false.

I have zero problems interacting with all kinds of people in real life. And I of course had zero problem on the internet until the morning of May 13, 2002, when I put up my famous post pointing out the errors in the Old School SWR studies. I was the most popular poster at the Motley Fool site on May 12, 2002. By September 27, 2002, there were 200 of my fellow community members endorsing a post containing threats to kill my wife and children if I continued to post honestly re the numbers that people use to plan their retirements. It’s the investing issue that is the problem here.

Not one person at FinCon said that they thought I was a idiot. Not one. I received loud applause when people heard the title of my talk (“How to Become the Most Hated Blogger on the Internet”). A number of people came up to me afterwards and told me how impressed they were. We sat around and talked and ate for several hours. It was all friendliness, no friction. A woman who I was planning to hire to help me with marketing efforts told me that she asked people sitting near her what they thought and they told her I sounded “bitter.” She told me that she would be thrilled to work with me once you Goons were no longer in the picture. She does not want to have organized groups attacking here site and destroying her business.

I agree with your point that the Buy-and-Hold Mafia does not possess absolute power. It’s not just that I talked at FinCon. Shiller published his book and it was reviewed in major publications and it was a best-seller. He even won a Nobel prize. And people like Todd Tresidder have sites where they openly discuss implications of Shiller’s finding that valuations affect long-term returns. So word IS getting out. But far too slowly. We very much need to pick up the pace here.

The core problem is that there are two academic models that explain how the stock market works. Most of the experts in this field have led people to believe that there is only one. That is simply false. There is Buy-and-Hold, the model rooted in a belief in Fama’s research. And there is Valuation-Informed Indexing, the model rooted in Shiller’s research. Both Fama and Shiller have been awarded Nobel prizes. Every community member’s right to post honestly re his or her belief in EITHER model must be respected at every discussion board and blog on the internet. There can never be a single exception.

All of the trouble that has come about is because of decisions that were made long before I came on the scene. Bogle should have given a speech within one week of the day that Shiller published his “revolutionary” (Shiller’s word) research. He should have told people that there was now research that threw doubt on the Buy-and-Hold Model. If he still personally believed in Buy-and-Hold (I believe that he did), he should have said that too. But he should have let all his followers know that there were now reasonable grounds for doubt.

Had he done that, no one would have been shocked when I questioned the Greaney study. Had Bogle given that speech back in 1981, every study published after that date would have contained language indicating what model it followed and directing people to literature providing background on the alternative model. Then there would have been no grounds for charges of fraud. Everything would have been done out in the open. We all would be friends. We all would converse with each other in an environment of mutual respect and affection, We all would have for 33 years now have been enjoying a wonderful learning experience together.

It didn’t play out that way. Humans are not angels. We made some mistakes and things got on the wrong track. Now we have millions of people whose retirements are riding on the validity of the Buy-and-Hold Model. It makes those people sick to think that they have been following a strategy that may not work out in the long run. I am not wrong to tell them that. It is our society as a whole that has failed them by keeping the truth from them for so many years.

People need to hear both sides, Anonymous. There are no grounds for legitimate controversies here. People MUST hear both sides to be able to make informed decisions as to how to invest their retirement money. I am 100 percent happy to work with any responsible parties to figure out how to get us from the horrible place where we are today to the wonderful place where we all long to be tomorrow.

Are you willing to lend a hand, Anonymous? Do you want to work with me to take this matter in a constructive and positive and life-affirming direction?

If you are, please let me know and we can get to work right away.

Rob

“I’ve Learned the Lesson that the Buy-and-Holders Are Very, Very, Very Insecure re Their Investing Views and Would Prefer Not to Be Presented With Serious Challenges to Those Views. Intimidation Tactics Are for Losers. I Don’t Like to Think of My Buy-and-Hold Friends As Losers. So I Want Them to Knock Off the Funny Business.”

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

More proof that you were banned for your poor behavior. Any normal person would have learned their lesson by now.

Yes and no, Anonymous.

There are many people who do not like the “behavior.” That much is certainly so.

But the seemingly problematic “behavior” is just to present the lessons taught by the last 33 years of peer-reviewed research in precisely the same manner as the Buy-and-Holders present the lessons taught by the pre-1981 peer-reviewed research.

The Buy-and-Holders don’t limit themselves to one post per day or one post per week or whatever limit it is that the Buy-and-Holders want me to impose on myself.

The Buy-and-Holders do not hold back from using phrases like “this is wrong” or “this is dangerous” or “this is not consistent with the peer-reviewed research.”

The Buy-and-Holders don’t remind their readers with every comment that they post that they are human and they could be making a mistake. I don’t do this in every comment. But I do it often. That’s more than I can say for most of my Buy-and-Hold friends. A good number of my Buy-and-Hold friends don’t EVER note that it could be that they have gotten everything terribly wrong and that all of those reading their words need to be sure to check out the other point of view.

I’ve “learned the lesson” that the Buy-and-Holders are very, very, very insecure re their investing views and would prefer not to be presented with serious challenges to those views. I REJECT the idea that those of us who believe that we see something good in the last 33 years of peer-reviewed research should be holding back from saying what we believe JUST AS STRONGLY AS WE BELIEVE IT because of the intimidation tactics employed by our Buy-and-Hold friends to discourage us from doing so.

When any of us give in to the intimidation tactics, we hurt everyone. We hurt the millions of middle-class investors who need to hear both sides of the story to make good decisions. We also hurt the Wall Street Con Men, who got into this field because they want to help people plan their financial futures effectively, not because the want to cause economic crises. We also hurt the Internet Goon Squads, who end up serving prison sentences rather than engaging in fun back-and-forth conversations with their Valuation-Informed Indexing friends.

I don’t submit to intimidation tactics.

I love my Buy-and-Hold friends. But I don’t submit to intimidation tactics. In fact, that’s partly WHY I don’t submit to intimidation tactics. Intimidation tactics are for losers. I don’t like to think of my Buy-and-Hold friends as losers. So I want them to knock off the funny business. I certainly am not going to persuade them to knock off the funny business by submitting to their intimidation tactics.

I would be grateful if you would spread the word all over the internet that Rob Bennett is the fellow who REFUSED to submit to the intimidation tactics of the Wall Street Con Men and their Internet Goon Squads. I have hopes as time passes of becoming even more famous for this than I am today.

I hope that helps a bit, Anonymous.

Rob

 

“We Have Fallen Into an All-Or-Nothing Battle Here. Either I Am Totally Crushed and End Up With Nothing and You Goons Get Off With No Prison Sentences or I Become One of the Richest Men in the United States and It Is You Goons Who End Up Ruined. That Reality Makes It Pretty Darn Hard to Work Out a Compromise.”

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

What has enabled you to remain impervious to the all powerful Buy and Hold Mafia something not a single other person on this planet has been capable of?

This is a super question.

First of all, it is of course not the case that I am the only one who has not been influenced by the intimidation tactics of the Buy-and-Holders. There are lots of people who have made brave statements. I think it would be fair to say that I have made more of an effort to overcome the feelings of wanting to hold back that all humans feel when faced with this sort of social pressure. But lots of people have made some effort.

A big part of it is what you suggest, that the Buy-and-Holders cannot intimidate me because I have no status in this field and thus have nothing to lose. I obviously want my internet business to succeed. You Goons have made a point of doing everything in your power to see that it does not and then of celebrating whatever financial setback you have caused and reminding me of it over and over again. But it’s not like you can call my employer with a word from Jack and get me fired from my job because I made him “look bad” re some topic or another.

I am in unusual circumstances. If I break through and gain recognition of my right to post honestly, I go from being a nobody in this field to being the biggest name in it. So I stand to make tons of money on the other side of the line and am not able to make any at all until the Goon matter is successfully resolved. That’s obviously an odd set of circumstances.

It’s the product of the creation of this powerful new communications medium. Many people do not respect the work product of internet discussion boards and blogs. So they don’t worry about censorship in the new medium to the extent they would be concerned about censorship in newspapers or books or whatever. That is indeed one of the reason why this bad situation has been permitted to drag on so long.

I do not share these views even a tiny bit. I believe that the new communications medium is a VERY powerful and important one. I believe that people should be talking about the interactions on our boards on a daily basis in all of the other communication mediums. The new medium does a better of showing how people put investing strategies to use and specifically how emotion influences them. Investor emotion is the great unexplored issue in this field. So we should be seeing newspaper articles and speeches and research papers about the ins and outs of our 12-year saga showing up at new places on an almost daily basis.

We haven’t seen that. One gets the feeling that the results of such explorations would be so fruitful that people are afraid to be the first to go there. Everyone is holding back to see someone else (other than me) try things out and show whether this new ways of doing things can bring in a payoff or not. Most would conclude that it has not thus far brought off a payoff for me. On the day when I get that $500 million paycheck, I think it would be fair to say we are going to see an explosion of new efforts along the lines that I have been engaging in for years.

That reality makes it all the more urgent both that I stick to what I have been doing and that you Goons stick to what you have been doing. We have fallen into an all-or-nothing sort of battle here. Either I am totally crushed and end up with nothing and you Goons get off with no prison sentences or I become one of the richest men in the United States and it is you Goons who end up ruined.

That reality makes it pretty darn hard to work out a compromise, eh?

I don’t know how to change that reality, Anonymous. If I could think of something, I would put it forward. It’s pretty darn hard to come up with anything truly promising.

The one thing that I can say (and that I do say over and over again) is that we all are in the same boat. I believe that this started out as a mistake and that there are many big-name figures in the field who would like to bring an end to the cover-up. I believe that the cognitive dissonance argument can go a long way to helping address their concerns re what would happen to their reputations when that happens. And I believe that the rewards that would be experienced by the millions of middle-class investors would be so great that they would be in a forgiving mood if the transition was achieved prior to the onset of the next crash.

I don’t say that that addresses every concern on your end. It does not. There’s just nothing more than I can do than that.

I am of course 100 percent happy to address every concern that I can possibly address. Re that, there is no issue here. And I think it would be fair to say that I can be pretty darn creative and effective when I put my mind to placing things in a positive light. I am happy to do it because I believe that that is a life-affirming way of going about things. And of course I feel genuine respect and affection for all of my many Buy-and-Hold friends.

But I am not Superman, you know?

The circumstances that apply to me are different than the circumstances that apply to anyone else. That’s the short answer to your question.

I hope that that helps a bit.

Rob

“Buy-and-Holders Kinda Sorta Acknowledge That Valuations Matter. But They Don’t QUANTIFY the Effect of Valuations. They Quantify Everything Else. But Not That. It’s Their Idea! But They Hate That One Application of Their Idea With an Awesome Hate.”

Set forth below is the text of a comment that I recently put to another blog entry at this site:

I actually don’t know one person who buys into stocks without concern for price.

Yes and no.

Buy-and-Holders kinda sorta acknowledge that valuations matter.

But they don’t QUANTIFY the effect of valuations.

They quantify everything else. But not that. The Old School SWR studies contain NO adjustment for the valuations level that applies on the day the retirement begins.

That’s always been the source of the friction between me and the Buy-and-Holders.

I learned from them to quantify stuff and to pay attention to the peer-reviewed research and to focus on the long-term. So, when I learned from Shiller that valuations ALWAYS affect returns in the long-term, I naturally got about the business of QUANTIFYING the effect.

And the Buy-and-Holders went positively apeshit.

It’s THEIR idea!

But they hate it. They hate that one application of their idea with an awesome hate.

You figure it out, you know?

I think they hate it so much because they know on one level of consciousness that what I am saying makes perfect sense given everything else they believe.

If you come up with some different explanation of their behavior, please fill me in. Until someone comes up with something else, I am going with the cognitive dissonance thing.

It’s their idea to quantify things. I picked that one up from my Buy-and-Hold friends. But they hate, hate, hate the idea of quantifying the effect of valuations on long-term returns.

Other than that, Jack Bogle and I (and Mel Linduaer and I and John Greaney and I) are soul mates.

Rob

Goon Poster to Rob: “You Have Your Agenda and Want To Spread It On Every Thread, Even When It Is Not the Subject Being Discussed. You Think That Your Points Are More Important Than What Anyone Else Has to Say, Yet Give No Consideration to the Opinion of Others. If It Doesn’t Mesh With Your Line of Thinking, You Say That People Are Lying or Afraid and That Is Just a Bunch of Bull.”

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

A contributing factor of you getting kicked off all those sites is the factbthat also don’t listen. You have your agenda and want to spread it on every thread, even when it is not the subject being discussed. You think that your points are more important than what anyone else has to say, yet give no consideration to the opinion of others. If it doesn’t mesh with your line of thinking, you say that people are lying or “afraid” and that is just a bunch of bull.

I plead “guilty” to having an agenda and wanting to spread it far and wide. No apologies whatsoever.

I plead “not guilty” to pushing that agenda on any thread in which it was not relevant. That is something that I would never do. That is something that I would never consider doing. I am a very big believer in following rules, Anonymous. And that is a rule which is needed and makes sense and which I endorse. I never, ever break that rule.

All that said, there is a small bit of legitimacy to what you are saying here.

Shiller’s findings are relevant to a LOT of threads.

That’s not my doing. That’s just the way it is. Shiller’s findings are of fundamental importance. They are relevant to many, many. many discussions.

I plead “guilty” to believing that my points are more important than the points being made by most others. Everyone is guilty of that. If I didn’t think my points were important, they wouldn’t be my points. I obviously always show respect and affection to those making other points. I obviously always try to learn from those making different points. That’s as far as a human can go. We all have biases. We all are influenced by the life experiences that have comprised our lives and by the particular skill sets that we bring to the table.

I plead “not guilty” to saying that people who don’t believe in Valuation-Informed Indexing are lying or afraid. I have said 10,000 times that there are millions of good and smart people who believe in Buy-and-Hold. I was a Buy-and-Holder myself prior to the evening of August 27, 2002. Do you seriously believe that I called myself a liar and a fearful person prior to that date?

I plead “guilty” to saying that those who engage in Goon behavior (death threats, demands for unjustified board bannings, tens of thousands of acts of defamation, threats to get academic researchers fired from their jobs) are liars or fearful. Those behaviors are over the line of what is considered acceptable or tolerable in a free society.

The root problem here is that Buy-and-Hold and Valuation-Informed Indexing are opposite strategies that both claim to be rooted in the peer-reviewed academic research. If VII weren’t rooted in research, the Buy-and-Holders wouldn’t get so upset. They still wouldn’t follow VII strategies. But they wouldn’t see VII as a threat. They see it as a threat because they believe that their ideas are rooted in research and those advocating VII are advocating a strategy that is the opposite in every possible way that is ALSO said to be rooted in the research. Huh?

The answer is for Buy-and-Holders and Valuation-Informed Indexers to show respect and affection for each other and to try to learn from each other.

That’s the way that this would have played out if getting this investing stuff right weren’t so darn important. If it were a small thing, the Buy-and-Holders could say “well, this new stuff doesn’t sound quite right, but let’s hear what these people have to say, it sure can’t hurt just to listen to them.” In this case, it CAN hurt. If the Valuation-Informed Indexers are wrong, they could cause people to suffer failed retirements. So the Buy-and-Holders feel a need to come on very strong.

The other side of the story is that, if you believe in Valuation-Informed Indexing, it is the Buy-and-Holders who are causing failed retirements! We believe just as strongly in what we believe. Buy-and-Hold is every bit as dangerous in the eyes of Valuation-Informed Indexers as Valuation-Informed Indexing is in the eyes of Buy-and-Holders.

We have to find some way of having a conversation without yelling at each other.

I am game for anything that doesn’t require me to say something that I do not believe. I don’t want to tell lies. That’s normal and understandable, right?

Now –

The problem comes with what you say up front. Shiller’s findings are “revolutionary.” They turn our old understanding of how stock investing works on its head. They change every strategic consideration.

It’s not my intent to jump on every thread in which the Buy-and-Holders are having a conversation amongst themselves and ruin it for them by turning it into an argument. It is NOT my intent to do that.

But it is not only confirmed Buy-and-Holders who participate on our boards and blogs. About 10 percent of our community members follow VII strategies. Those people should be able to hear the VII side of the story on all the threads on which it applies (and that is most of them). And there is a much larger percentage of the community that remains in the Buy-and-Hold camp but would like to hear the other side of the story from time to time as well. Those people have rights. The Buy-and-Hold dogmatics don’t get to decide by themselves how things go down.

Say that the Buy-and-Holders wanted the right to label some threads “For Buy-and-Holders Only” so that they didn’t need to get in arguments re basic points with the Valuation-Informed Indexers. I have no problem with that so long as the same right is extended to the Valuation-Informed Indexers. We get to have our threads where the Buy-and-Holders stay out too. And of course there would be other threats (most threads) in which both Buy-and-Holders and Valuation-Informed Indexers would participate.

The core thing here is that there needs to be a general recognition that there are TWO schools of academic thought re how stock investing works, not one. Buy-and-Holders are not dumb. Buy-and-Holders are not evil. But it is NOT true that Buy-and-Hold has been proven beyond any reasonable doubt. Fama won a Nobel Prize. So did Shiller. Both schools of thought are valid today. Every board and blog on the internet must be open to discussion of both schools of thought.

No one who comes to the table with a halfway reasonable mind is going to have a hard time working out details with me. I am 100 percent happy to bend over backwards to be reasonable and accommodating to my Buy-and-Hold friends. Put forward reasonable suggestions and we can lock this down in 24 hours.

It is NOT reasonable to expect me to sit in the audience for years while John Greaney pushes his retirement study on a daily basis and not say anything even though I am aware of the 33 years of peer-reviewed research showing that that study gets the numbers wildly wrong. I am not saying it that way as some sort of dig. I am saying it that way to make you aware of the very real problem here. You put me in an impossible situation when you apply intimidation tactics to silence me re something like that.

Greaney may well believe in the study. I believe that he does. Bogle may well believe in the investing strategy. I believe that he does.

But it is NOT the case that the Old School SWR methodology is beyond dispute proven. It is NOT that.

I have every bit as much right to advocate Valuation-Informed Indexing as Bogle has to advocate Buy-and-Hold. That right MUST be respected. There can be zero negotiation re that one.

Work with me and I will do everything I can to make things proceed smoothly.

Pull out intimidation tactics and I will call out your sorry ass on it. Every time. I am FAMOUS for it.

It has to be said that way because the bad stuff has been going on too long now for it to be ignored.

But, if you want to work together, I am 100 percent on board. I LOVE the good that the Buy-and-Holders have done, which is considerable. I care deeply about all of my Buy-and-Hold friends. It is my strongly held belief that VII is just a new version of Buy-and-Hold. We are not enemies. We are friends. We should be working together. It is a national tragedy that things ever got so far off track that there are people who today think of the two sides as working toward different purposes. We want the same things. And we can only obtain the things we want by working together.

I DO listen.

I listen to reasoned and civil arguments.

I do NOT listen to intimidation. Not ever. Intimidation tactics are a total and complete turn-off for me. My ears clog out when some Goon comes forward with dirty, smelly, disgusting intimidation tactics.

Your move.

Please THINK before posting your next words. We all have to live with the consequences of what you put forward. Please listen to that voice within you that is telling you to take things in a positive and constructive and life-affirming direction. If you listen carefully to that voice, you will see all good things come back to you in return.

Rob

Michael Kitces Writes a Fine Article on Valuation-Informed Indexing and the New School of Safe-Withdrawal-Rate Analysis

Michael Kitces has written a fine article on Valuation-Informed Indexing and the New School of Safe-Withdrawal-Rate analysis. It is called Shiller CAPE Market Valuation: Terrible for Market Timing, But Valuable for Long-Term Retirement Planning.

Juicy Excerpt #1: Nonetheless, the reality is that while Shiller CAPE has little predictive value in the short term, its correlation to market returns is far stronger over longer time periods; Shiller CAPE shows its strongest correlation to nominal returns over an 8-year time horizon, and is actually most predictive of real returns over an *18* year time horizon… supporting Benjamin Graham’s old adage that the markets may be a voting machine in the short run, but they are ultimately a weighing machine in the long run as valuation eventually takes hold. On the other hand, over very long time horizons (e.g., 30 years) Shiller CAPE once again begins to lose its value as other longer-term structural market factors take hold.

Juicy Excerpt #2:  Prior research from the May 2008 issue of “The Kitces Report” has shown that Shiller CAPE ratios have an astonishingly strong -0.74 correlation to safe withdrawal rates and can help predict a reasonable starting point for retirement spending; because the long-term sustainability of retirement spending is most sensitive to an unfavorable sequence of returns in the first half of retirement, Shiller CAPE’s predictive value aligns quite well and helps to provide valuable insight about whether the prospective retiree faces an important headwind or tailwind in the early years of retirement. Notably, the results indicate Shiller CAPE is more correlated to safe withdrawal rates than it is to market returns themselves!

Juicy Excerpt #3: Perhaps this distinction between valuation’s long-run-but-not-short-run predictive value was the very reason the Nobel Prize committee gave its award jointly to Shiller for his work on how stock returns can be predicted in the long run, while simultaneously giving it to Eugene Fama for his efficient markets research showing that stock returns cannot be effectively predicted in the short run!

Rob’s Comment: Thanks for writing the fine article, Michael. It is important and brave stuff. I don’t agree when you suggest in the headline that P/E10 is not a good tool for long-term market timing. I certainly agree that short-term timing doesn’t work. But there is now 33 years of peer-reviewed research showing that long-term timing ALWAYS works and it is important for people to know that. I understand why you don’t want to say openly that long-term timing always works. It upsets Buy-and-Holders when they hear that. But that is the case and it is a very, very big deal. The research that I did with Wade Pfau shows that investors can reduce the risk of stock investing by nearly 70 percent by giving up on Buy-and-Hold strategies and engaging in long-term timing instead. That’s a very big deal indeed.

Goon Poster to Rob: “No One Else Sees One Gimmicky P/E10 Metric as Gospel for Valuation. There Are Hundreds of Technical Metrics That Can Be Used That Perhaps Have Correlation With Previous Lows and Highs But They Don’t Suggest Causation and They Don’t Ensure Anything About the Future Value of Stocks. It Is Just Not as Revolutionary As You Believe And It Is So Bizarre That You Are So Attached To It Since You Are Such an Insignificant Contributor.”

Set forth below is the text of a comment recently posted by one of the Goons to another blog entry at this site:

All of your 30 redundant points can be answered by the simple fact that no one else sees one gimmicky PE10 metric as gospel for valuation. There are hundreds of technical metrics that can be used that perhaps have correlation with previous lows and highs but they don’t suggest causation and don’t ensure anything about the future value of stocks.

Even the people who came up with this metric (not you) don’t suggest using the metric to actually influence your exposure to stocks.

Your problem is you have become absolutely fixated on one metric, one bit of research, that you had an incredibly small part in like 15 years ago. The actual brains and true contributors to those things have long since moved on to further their research and careers yet you compulsively dwell on this tiny contribution you had to someone else’s long forgotten research. It is not a conspiracy to cover it up, it is just not as revolutionary as you believe and it is so bizarre that you are so attached to it since you are such an insignificant contributor.

“The Fact That Only Goons Comment Here Does Not Show That These Blog Entries Are Unimportant. It Shows That They Are SO Important and So Far-Reaching in Their Significance That Most of Us Don’t Feel Comfortable “Getting Involved.” The Leverage That Comes With Opening the Entire Internet to Honest Posting on the Last 33 Years of Peer-Reviwed Research in This Field Is Nothing Short of Mind-Blowing.”

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

Without posts from the people you call “goons”, you wouldn’t have any content. When do you expect to actually post something original?

The Goons are the story today, Anonymous.

We have known intellectually what works in stock investing for 33 years now. That knowledge has been suppressed for 33 years now because it causes the Buy-and-Holders psychic and financial pain to acknowledge their mistake. We cannot continue like this indefinitely. We are destroying millions of dollars of wealth EVERY DAY as a result of our unwillingness to acknowledge the mistakes of the past and move on. The total losses are now in the TRILLIONS of dollars.

Something that cannot be continued eventually comes to an end. No?

You are simply wrong when you say that I do not post original content here every day. The process stuff is both original and important. The 12-year cover-up of the errors in the Old School safe-withdrawal-rate studies is the most important finance-related story in the history of the United States. We all need to come to terms with the human misery we have caused by not following the laws and traditions of the United States. My daily blog entries help us to come to terms with what has gone down. The fact that only Goons comment here does not show that these blog entries are unimportant. It shows that they are SO important and so far-reaching in their significance that most of us don’t feel comfortable “getting involved.”

I’ll switch back to content-oriented stuff when the Ban on Honest Posting has been lifted at every investing discussion board and blog on the internet. I obviously love that stuff. I have already written HUNDREDS of content-oriented articles and HUNDREDS of content-oriented column entries and THOUSANDS of content-oriented blog entries and THOUSANDS of content-oriented discussion-board and blog comments and SCORES of content-oriented podcasts and FIVE unique and powerful calculators. And I obviously have only scratched the surface of what can be done by those exploring the implications of Shiller’s “revolutionary” (his word) findings of 1981.

So there is going to be tons and tons of content-based stuff in coming days to add to the tons and tons of content-based stuff already available. But the process-oriented stuff is ten times more important today. Once the Ban on Honest Posting is lifted, we will be seeing honest investing advice with Jack Bogle’s name on it on a daily basis. We will be seeing honest investing advice with Bill Bernstein’s name on it on a daily basis. We will be seeing honest investing advice with Scott Burns’ name on it on a daily basis. And on and on and on and on and on.

The leverage that comes with opening the entire internet to honest posting on the last 33 years of peer-reviewed research in this field is nothing short of mind-blowing. Holy moly!

I would be failing to honor my responsibilities as a journalist to write about anything else until the Ban on Honest Posting has been lifted, Anonymous. I do make one exception. The majority of my entries for the Value Walk column relate to matters of substance. I like to keep those focused on substance as a way of forcing me to spend some time each week looking for new insights of a substance-oriented nature. So I allow myself that little luxury. Other than that, though, I mostly write today about the need to open every board and blog on the internet to honest posting as I see that as being the area in which the long-term leverage benefits are greatest by far.

Does all of that make good sense to you, my long-time abusive posting friend?

It certainly makes good sense to me.

Rob