“Rob Can Be Exhausting & Perhaps Does Not Recognize Well-Supported Contrary Views As Well As I Wish He Would”

Set forth below are some words that Arty put to the comments section of a blog entry from last week:

Hi, Dripguy,

To the Rob quote you mentioned, above, I do agree, as would Shiller and many, that extreme far-right valuations represent “dangerous road conditions”. And I’d add that this might apply not just to “buy and holders”.

Every year I have some intermittent discussions with Rob, usually around holidays or when I am of from work. I do understand he is quite enthusiastic on his views. Indeed, he can be exhausting, and perhaps does not recognize well-supported contrary views as well as I wish he would. Rob knows that and I know this going-in.

I understand the frustration some might feel with Rob, and I believe he can do much better with his dialogue approach. But this is sometimes also said of me, and it is not upon me to teach anyone else better discourse methods. What would he say if I suggested thus? I assume others have already done this. Maybe you have.

Rob and I do agree on some basics, and that “valuations matter” is likely the main of them (of course, many experts do not dispute that.) In fact, I first discovered Shiller and PE/10 long ago because of Rob, which is why I have returned here occasionally to say “hi” and chat. I do read the various investing boards when I can, and have found some discussion of PE/10 there too. Rob and I also agree that emotions can matter greatly in investing, as looking at any discussion board, and even its leaders, will pointedly demonstrate.

Rob and I do NOT agree on some central points. I do believe there is a buy and hold approach that accomplishes much of what he (or Shiller) might intend with P/E 10, though I feel it lies in what we might call a more conservative approach to investing that recognizes the “fat tail” events of the bearish kind—the wealth killers. PE/10 seeks to avoid that with long range timing, of course. I am hopeful Rob can recognize the validity of this approach to buy and hold and I am not sure the approaches are mutually exclusive (especially at extreme levels). But I think he’ll likely pass. It’s OK.

While I think Shiller’s PE/10 concept and Rob’s tools that use them are fascinating, I am not sure if they are very useful beyond the extremes of valuations—the broad middle. I have tried to examine this, and have not been successful in finding acceptable solutions for their general use, either by me or elsewhere. Rob seems to feel committed to his views and solutions. Perhaps Shiller does too. Though, I have indicated that even Shiller is still waiting for a better time to buy than March 2009 (as per his own words). He waits still. And if I used the Shiller tool, I would never be wholly out of stocks.

I suppose had PE/10 a definite utility, its use would long since have been employed by experts whose livelihoods depend on outperformance. PE/10 would have “changed everything” in that area. It hasn’t. Though, there again, we might agree that institutional managers have other ways to make money from us and may not seem popular if they were lagging the market as a whole—something that a Shiller model must sometimes do.

My question to you is given your position about Rob, why do you return here ever and read his articles and posts? You clearly have some history with him.

Happy New Year!

Comments

  1. Investing for the Long Term says

    Do you have so little of substance to say that you have to republish comments made to earlier blog entries?

  2. azanon says

    Why wouldn’t Rob (and Shiller) have bought at least some stocks in March 09′? It was at a historic P/E 10 norm of 14. That would have provided for about 6.2% real return on a long-term basis according to Rob’s calculator, certainly better than the projected long-term return of bonds at that point. Shiller (and Rob) has no research to support that the market was any more likely to have continued falling after March 09′ than rise.

    Quite frankly, I believe neither Shiller and Rob have confidence in P/E 10 as an investment tool since neither made no stock investment in March 09′. There was nothing rational about not having put at least a portion in stocks at that time.

  3. Rob says

    I partly agree and I partly do not, Azanon.

    You are right that the P/E10 dropped to a level where the likely 10-year return on stocks was highly appealing. I said so on all the podcasts I recorded during that time. That’s the only time from 1996 forward re which it could be said that stocks offered a better deal than the super-safe asset classes.

    However, you’re wrong in your claim that there was no case to be made for having avoided stocks at that time. Huge bull markets ALWAYS cause economic crises. There is not one exception in the historical record. Economic crises do not take stocks down to fair value. They take them down to one-half fair value (a P/E10 of 7 or 8). Again, there is not one exception in the historical record.

    Will someone who bought stocks in March 2009 end up doing well at the end of 10 years? I believe that the odds are strong that he or she will end up doing well. Will someone who bought stocks in March 2009 live through an emotional hell before he or she realizes that strong return? The historical data indicates that that is the most likely scenario. A drop to a P/E10 of 7 is a 65 percent price drop from where we are today. A 65 percent price drop is likely going to put us in the Second Great Depression. That’s heavy stuff.

    If we survive the Second Great Depression, stocks will take off. So the annualized 10-year return at the end of all this is likely to be very good. But can you say for sure that you can hold your stocks through all that? If you sell, the calculator numbers no longer apply, you could be stuck with big losses.

    My personal choice was to stay away until I could see more rationality in the discussions of investing being held throughout the internet. When we can discuss what the academic research says honestly and frankly, I think it will be fair to say that we are on the road to emotional recovery. That’s when I will feel comfortable buying stocks.

    We will be at a lower P/E10 level then than we are at today. It may be that we will be at the P/E10 levels that applied in March 2009 or even a bit higher. I have no problem whatsoever with those P/E10 levels if I see them appear at a time when honest discussions of investing are being held on the internet. But I did not feel comfortable about the atmospherics that applied in March 2009. Bogle and Malkiel and Buffett were out pumping stocks as if they had learned nothing from seeing how playing with investor emotions can lead to a global economic crisis.

    A P/E of 12 (I believe we went that low for a brief time) is a fantastic P/E10 level. Stocks are a mouth-watering long-term buy at those prices. But VII is not purely a numbers-based strategy. It is a HUMAN strategy. A core principle is that the numbers supply helpful guidance only for those willing to consider the MEANING of those numbers. Buffett and Bogle and Malkiel had obviously not learned the meaning if they were out telling people how stocks were “cheap.” We needed a more balanced message. Stocks at the time were indeed cheap but also dangerous. The right way to say it is to make both points (that’s what I tried to do in my podcast discussions).

    Stocks are not cheap for so long as the ban on honest posting remains in place. Stocks remain dangerous for so long as the ban on honest posting remains in place. People cannot make sense of what is going on if they cannot talk over with each other what is going on. The very fact that there is a ban on honest posting in place tells us all that we need to know about the merit of Get Rich Quick investing. My personal belief is that people should think long and hard about investing heavily in stocks until we see the ban on honest posting lifted at all internet boards and blogs.

    Once the ban is lifted, I see nothing that can stop us from entering the strongest period of economic growth that we have ever seen. The ban IS softening. I haven’t been banned anywhere in six months now. We are moving ever so slowly to a far better place than the place where we have been since The Stock-Selling Industry made its choice to turn Buy-and-Hold into the purest and most dangerous Get Rich Quick investing scheme ever concocted by the mortal mind.

    Thanks again for stopping by, Azanon.

    Rob

  4. LR says

    Hi Rob,
    It is certainly amazing that you have been able to have the discipline to stay out of the market so long (assuming since 1996) . Do you have any tips for the current investor on some things to look for to reintry into the equity side of the portfolio. I follow dshort who breaks the CAPE into quintiles . His top quintile is 20.6 to 44.2 . He also states in his updates that anytime the S&P drops to the 4th quintile, it eventually falls to the 5th quintile. Now he has the 5th quintile at 4.8 to 10.9 . Will we ever see this low area again or is somethiing happening in inflation or peoples expectations that has moved the general levels to higher resets? How do you deal with the daily market hype and fellow investors who are making tremendous gains while on the sidelines?

  5. Rob says

    A warm welcome to you, LR. You’ve asked some great questions.

    Dshort does good work. I certainly think you are on the right track in following his work.

    I don’t believe that anyone is able to say for certain what is going to happen in the future. However, the historical stock-return data shows three previous times when we went to insanely high valuation levels. On each of those occasions, we ended up at a P/E10 level of 7 or 8 (a 65 percent drop from where we are today).

    The reason is that bull markets cause a massive misallocation of resources (people think they are richer than they are for the length of a bull market and spend money they cannot afford to spend — then they become afraid to spend when the Pretend Money disappears and the widespread unwillingness to spend brings on an economic crisis).

    I expect that we have more hard times ahead. The other side of the story is that Robert Shiller’s insights into how stock investing works are the most powerful in the history of research in this field, in my assessment. Most people have been afraid to talk about the implications of Shiller’s findings because Buy-and-Holders often become enraged to hear them. But I believe that this will change as the economic crisis deepens. I have already seen a softening of the hate directed at non-Buy-and-Holders since the 2008 crash.

    If we open the internet to honest discussion of the implications of Shiller’s breakthrough insights, I believe that we will soon thereafter be enjoying the greatest and most sustained time of economic growth in our nation’s history. The new investing ideas are that important.

    The name of the investment strategy that I recommend is Valuation-Informed Indexing. The best way to learn about it is to play around a bit with The Stock-Return Predictor (see the tab at the left-hand side of every page). Then you might want to check out the RobCasts section (I have recorded 200 podcasts on different aspects of the VII approach). Then I would go to the Scenario Surfer, a calculator that permits you to follow a VII strategy over a 30-year time-period and compare how it does with how a Buy-Hold strategy does. The numbers make the case in a more compelling way than words ever could.

    I hope we hear from you again, LR. I wish you the best, my new friend.

    Rob

  6. Rob says

    How do you deal with the daily market hype and fellow investors who are making tremendous gains while on the sidelines?

    Sorry, I didn’t answer this one in my first response.

    I can honestly say that it has zero effect on me today, LR. That was not always so. It was certainly more of a problem in the late 1990s.

    The key is having confidence in your strategy. Confidence cannot be acquired in a day or a week or a month or a year. The more I have studied the VII concept, the more evidence I have seen supporting it and the more my eyes have become opened to the extreme emotionality of the Buy-and-Hold Model. At this point I have been at this so long that the temporary gains that Buy-and-Holders really do sometimes win for themselves have no influence on me. But I don’t think you can get there by reading a book. It just takes time for a belief in something to sink in deeper and deeper.

    My fear is that at some point I will become so confident of VII that I will start tuning out the Buy-and-Holders altogether. That would be a terrible mistake. The Buy-and-Holders are smart and good people whom I have learned much from and from whom I hope to learn much more from in days to come.

    We all face a temptation to give in to feelings of Know-It-Allism and arrogance. Many Buy-and-Holders have given in to those feelings and hurt themselves in serious ways. The Valuation-Informed Indexers make a tragic mistake to think they are above that kind of thing. No human is above that sort of thing.

    We need confidence to be effective long-term investors. But we need to avoid arrogance to remain effective long-term investors. We need to learn how to walk a middle path.

    Rob

  7. azanon says

    Ok, so you’re basically going well beyond simply using the P/E 10 valuation tool to predict long-term returns of the stock market. To the extent that you endorse the accuracy of this tool, we agree. I’ve read the research and have seen the correlation graphs, and they are quite stunning.

    I’d be inclined to be sympathetic about the alleged ban on honest posting if your own postings and opinions were not so readily available on the web both on this website and other websites. As for posting on forums owned by others, I think we’re all a little guilty sometimes of thinking that American democracy applies to privately owned forums. And to the extent that we think that is the extent that we error.

    But Rob, the funny thing about correlation, is that it neither cares nor considers other variables. We DID have an economic crisis in 2007, yet the market went up after March 07′ (and continues to go up). My 10-year return of 6.2% that was predicted in March 07 by your tool is WAY ahead of schedule. If you’re going to trust anything, at least consider trusting the very tool(s) that you’re endorsing.

    I respect, but don’t understand, your “personal choice” of at least not investing something at P/E levels of 12 (what you said was the the real bottom in March 07′). A least hedge your bets with something modest, like 20% stock! Understanding a valuable tool isn’t enough. You also need the ability to implement it effectively.

    You might get the opportunity for P/E 6 someday, but you still had an opportunity come and gone. I did indeed buy stocks at P/E 14 in 07′, and I just sold most of it last month. Those profits are locked in, whether we go to P/E 6 in the future or not. Your disagreement with me (and your own tool?) cost you.

    Finally stocks were not “cheap” in March 09′ according to P/E 10 ratios, regardless of the reason (What you said you’re looking for). But they WERE fairly priced, and even when fairly priced, they are always the best long-term investment. That is, unless you know of an investment that can be predicted to give better than 6.2% real in 10 years. If “roller coaster volatility” is an issue for you, I’d advise you to actually never buy stocks. Case and point, if you want to see some massive stock volatility, go back to 1932 when P/E 10 was 6. It was plenty volatile moving forward into 1933-. But it also went up quite a bit too.

  8. Rob says

    As for posting on forums owned by others, I think we’re all a little guilty sometimes of thinking that American democracy applies to privately owned forums.

    Motley Fool and Morningstar and all the other site owners promised to protect me and all others posting honestly at the various Retire Early/Indexing boards from the abusive tactics of those who have posted in “defense” of Lindauer and Greaney, Azanon. They did this because they wanted to make a buck. They make money from those boards and they know that they couldn’t get decent and intelligent people to post at them if they didn’t promise to prohibit the tactics employed by the internet sewer rats.

    I think it is fair to say that the reason why the site owners did not honor their promises is that there is a buck to be made in the promotion of Get Rich Quick investing schemes and that Buy-and-Hold is the most dangerous Get Rich Quick scheme ever concocted by the human mind (not intentionally, but the financial effect is the same regardless of intent).

    Personal integrity matters in this field, Azanon. You give that up and you have given up something important. I think it is fair to say that, if you permit defamation and internet harassment and threats of physical violence at your web site despite promises to protect your community members from such garbage, you have given up your personal integrity in a serious way by doing so.

    John Bogle has posted at Bogleheads. So has Bill Bernstein. So has Larry Swedroe. So has Rick Ferri, Is it a good thing to have these big-name experts associated with what I think can fairly be described as a corrupt enterprise? We are living in scary economic times, Azanon. What do you think the millions of middle-class investors who have had their retirement dreams crushed by the reckless promotion of Buy-and-Hold are going to think when they learn that big-name experts were lending their reputations to corrupt enterprises in the service of further promotion of this long-discredited investing strategy?

    It is going to be my job at that time to argue in defense of these people to the extent that that is possible. It doesn’t help the case that we are going to need to make to hold this country together to have Post Archives that show the low behavior that has evidenced itself at so many of our boards and blogs. You’re not thinking this through carefully enough, in my assessment.

    I am saying that site owners should honor their word. I spent years of my life building up the various Retire Early and Indexing boards. The sites that promised me that they would protect me from the sewer rats made a buck from my work. Why should I not expect them to honor their end of the bargain?

    Here’s a link to an article at which I quote 101 community members who have expressed a desire that honest posting be permitted at our boards:

    http://www.passionsaving.com/investing-discussion-boards.html

    Are you saying that these good people, the people who BUILT the darn boards in the first place, should have zero say over what happens to them? I don’t buy it. And every site owners says he doesn’t buy it either when he posts site rules saying that the tactics that have been employed in “defense” of Lindauer and Greaney will not be tolerated at their sites.

    Rob

  9. Rob says

    I’d be inclined to be sympathetic about the alleged ban on honest posting if your own postings and opinions were not so readily available on the web both on this website and other websites.

    I am banned at every large investing board and I am blacklisted at most of the major personal finance blogs, Azanon. How many people do you think come to this site every day versus the number who go each day to Motley Fool or Morningstar or the Get Rich Slowly blog? When a site owner or a blog owner makes a decision to ban or blacklist someone solely because that person has pointed out the dangers of Get Rich Quick investing, that site owner or blog owner makes it impossible for his readers to learn the realities of stock investing.

    Yes, my material is available on the internet. It now needs to be widely PUBLICIZED if it is to do good for the millions of middle-class people who need to gain access to accurate and honest investing advice if our economic and political systems are to survive much longer. I built those boards for the PURPOSE of publicizing the work product of the communities that congregate at them. Why should I not be permitted to use the boards for that purpose given that that is the purpose for which the boards were founded in the first place?

    Lindauer and Greaney are using the boards to promote Get RIch Quick, are they not? Why don’t those promoting Get Rich Quick do so only at their own sites? They don’t do it because it doesn’t do any good to write material at a site if that material cannot be effectively marketed. Those posting honestly on Retire Early issues have every bit as much right as those posting dishonestly on Retire Early issues to post at Retire Early boards. Those posting honestly on indexing have every bit as much right to post at indexing boards as those posting dishonestly on indexing issues.

    I mean no personal offense but to argue that only those posting dishonestly and abusively have a right to post at our boards is INSANE. How can the boards possibly achieve their potential if people of intelligence and integrity are not permitted to participate? It makes zero sense to ban honest posting. I think it would be fair to say that that is why the rules of every board prohibit the tactics that have been employed in “defense” of Lindauer and Greaney. I mean, come on.

    Rob

  10. Rob says

    about the alleged ban on honest posting

    “Alleged,” Azanon? Excuse me?

    There are Post Archives. If you have any doubts, you can check.

    My understanding is that you posted at the Early Retirement Forum. If that is so, then you were there in person to see for yourself.

    Please do not insult my readers with use of the word “alleged.”

    If you are afraid of what the internet sewer rats will do to you if you post honestly on the process questions, I understand. I am thrilled to have your contributions on the substance side, which help us all sort out these important matters.

    But please do not insult my readers with use of the word “alleged” when describing the tactics employed by the internet sewer rats who through their dishonesty and abusiveness have brought on the second worst economic crisis in U.S. history. There are thousands of smart and good people in our communities. It is an insult to them to suggest that they would be tolerating the most vicious smear campaign in the history of the internet (by a factor of 50) if there were anything “alleged” about the threats of physical violence put forward by Lindauer and Greaney and those posting in “defense” of them.

    The threat that Greaney put forward to have my wife and two boys killed in the event that I continued to post honestly on the safe withdrawal rate matter was not “alleged,” Azanon. The mother of those two boys did not view those threats as “alleged.” Neither did the office of the congressman (Rep. Frank Wolf) to which I reported them. Neither did the Purcellville police department. Neither did the special internet crimes office to which I was referred by the police department and which has opened a file on this matter.

    I intend to bring legal actions against the internet sewer rats and against the site owners and blog owners who have tolerated them despite their clear promises to protect community members posting honestly from these sorts of individuals. There will be nothing “alleged” about the financial damages that these people will be paying in days to come. Many, many people have been hurt in very serious ways by the actions of the internet sewer rats (including the internet sewer rats themselves, to be sure). There is nothing even a tiny bit “alleged” about any of this.

    Posts put to internet boards and blogs are recorded in Post Archives, Azanon. Please do not insult the intelligence of my readers by pretending that you do not know this. Any time you experience any doubts about any of this, you have Post Archives that you can check. Here is a link to the discussion board run by John Greaney, the author of one of the discredited SWR studies:

    http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?board=HOCO

    That material is not “alleged.” It appears on the computer screen of any person who clicks on the link above. I know. I have checked.

    Rob

  11. Rob says

    We DID have an economic crisis in 2007, yet the market went up after March 07? (and continues to go up). My 10-year return of 6.2% that was predicted in March 07 by your tool is WAY ahead of schedule.

    Short-term timing does not work, Azanon.

    The Stock-Return Predictor is not able to predict short-term results. I make no claim that it can.

    I believe that you are likely (the statistical odds are 90 percent, according to the tools available to us today) to see 10-year returns within the range of returns predicted by the calculator for the index funds you purchased in March 2007. I have no idea what sort of 10-year return sequence is going to apply to produce that 10-year return. I don’t pretend to have any insight whatsoever re that question.

    Rob

  12. Rob says

    I respect, but don’t understand, your “personal choice” of at least not investing something at P/E levels of 12 (what you said was the the real bottom in March 07?). A least hedge your bets with something modest, like 20% stock!

    Fair enough, Azanon.

    I in turn respect without entirely understanding your position re this one.

    We all come from different life experiences. I don’t think it is always possible for us to understand entirely the views of those with different opinions. If we can respect those with whom we disagree, that goes a long way toward permitting us all to get along in a spirit of peace and harmony. Which I believe is what pretty much all of us really want deep down inside.

    I certainly agree with you that a 20 percent stock allocation would have been an entirely “modest” one at those prices. I was saying in the RobCasts that I recorded at the time that I thought that allocations of 50 percent stocks or perhaps even a bit more made sense for many investors at those prices. Those are mouth-watering prices. according to the historical stock-return data.

    I have a friend at church who talked to me about stocks at the time those prices prevailed. I told him what the numbers said and he went to a healthy stock allocation based on what I said. He’s very pleased with me today! So it certainly can pay off to invest in stocks at those prices. I certainly do not say different.

    Rob

  13. Rob says

    You might get the opportunity for P/E 6 someday, but you still had an opportunity come and gone.

    This part is not right, Azanon.

    I have my money invested in TIPS and IBonds paying 3.5 percent real. If the P/E10 level drops to anything in the neighborhood of 6 within the next few years, the return I would have obtained by moving that money to stocks would be less than the return I obtained in TIPS and IBonds. If I have more money at the time the P/E10 is 6, I have more money to invest in stocks at a time when the likely long-term return is in excess of 15 percent real.

    We don’t know everything, Azanon. We don’t know what returns sequence is going to pop up. It is possible to imagine sequences where going into stocks at those prices pays off and it is possible to imagine sequence where going into stocks at those prices does not pay off. In those sorts of cases, the investor needs to look to his Life Goals, his financial circumstances and his risk tolerance to determine how to play it.

    There is never a case where one stock allocation is right for every investor. It is a logical impossibility that there could ever be such a case. March 2009 was not such a case. It WAS in a general sense a good time to invest in stocks.

    Rob

  14. Rob says

    I did indeed buy stocks at P/E 14 in 07?, and I just sold most of it last month. Those profits are locked in

    You’re practicing short-term timing, Azanon.

    I wish you luck with it. I know many very smart people who practice short-term timing. Perhaps it really does work and I am missing out by not employing it. That is certainly a live possibility.

    Still, the reality remains that I do not personally believe that short-term timing works. I have to go with what I believe, don’t I? It is my belief that short-term timing will fail you more often than it pays off for you. Again, I do not say that dogmatically. It is possible that I am wrong.

    In that case you are the smart one and I am the dummy. The possibility that that may turn out to be the case is the reason why I am such a believer in permitting honest posting on discussion boards and blogs. None of us see our own weaknesses. If we saw them, we would fix them! We need to count on our fellow community members to point them out for us.

    You are helping out here by making a case for a strategy contrary to what the site owner here personally believes works. I salute you for it! It is important that all meeting here listen to this other point of view. I sincerely thank you while continuing at least for the time being to believe what I have long believed.

    You never know what tomorrow will bring, however!

    Rob

  15. Rob says

    If “roller coaster volatility” is an issue for you, I’d advise you to actually never buy stocks.

    I don’t mind upward volatility even a tiny bit, Azanon,. It’s extreme downward volatility that I am not so crazy about.

    A P/E10 of 12 in isolation is a great opportunity. On that we agree.

    Where we disagree is on short-term timing.

    The historical data indicates that we are likely going to see a P/E10 of 7 or 8 over the next few years. That drop is likely to bring on the Second Great Depression.

    I believe that we will recover from the Second Great Depression and that in its aftermath we will see the greatest period of economic growth in our history. But I don’t see a need to rush in and buy stocks in advance of the Second Great Depression. I feel that I can afford to be patient.

    Honest posting is permitted on hundreds of different topics. We permit honest posting on sports and music and politics and gardening and space travel and novels and on and on. We don’t today permit honest posting on investing. Does that not scare you? It sure scares me!

    I cannot see getting involved in an enterprise where even major players (Morningstar and Motley Fool are major players) do not permit honest posting. This tells me that the level of emotion present among stock investors is totally off the charts.

    That’s not going to last. Get RIch Quick investing always burns itself out. There is not one exception in the historical record.

    Why not wait until it burns itself out a bit before getting invested heavily in stocks? What is the rush?

    I have been beating stocks with my TIPS and IBonds for 14 years now. I know that I won’t be able to beat stocks with super-safe asset classes once stock investors are free once again to engage in honest discussions of what works. But we are not there yet. We are seeing a softening of the ban in recent years but the ban remains in place at all of the major boards.

    When stock investing is sane again, I will be back in stocks heavily. There is no other investment class comparable to stocks when stock investing is sane. The other side of the story is that there is no investment class more dangerous than stocks at times when Get Rich Quick strategies dominate. I believe that we will be opening all the boards to honest posting in days to come and I believe that Rob Bennett and thousands of my fellow community members will be obtaining wonderful returns from stocks in those days.

    My take is that those days are not quite here yet. I do acknowledge that there have been some positive signs in recent years. We are making slow progress. We are on our way to a better place but we are not there yet, in my assessment.

    Rob

  16. LR says

    Hi Rob,
    On reading Azanon’s post I did not see his strategy as being short term timing.
    If one has a strategy based on the level of the CAPE and the previous level falls from a high level to the level where one determines that an action is to be taken, then one should take the action. If at level CAPE of 12 one’s strategy is 50% equity then that is the planned strategy. It would not be the fault of Azanon’s strategy if the market then goes to CAPE of 23 or if it had gone to CAPE of 6. Both outcomes would be possible . If luck would have it that at level CAPE of 22 Azanon then goes to equity 15% then he would be selling at this stage and locking in profits. He happens in this case to have made a big change based on his planned action points and it is the market forcing his timing . This could have been a short cycle or a long cycle. It just happens to be a short cycle this time. He may end up holding this new allocation and watch as the CAPE goes to 44 but he may not further act depending on his strategy.He then misses out on further hugh returns. I think it just depends on the action points one decides to take. Shiller says his is 10 . Azanon says he was 14. One has to personally choose a point or points and since there is no firm studies to guide one these action levels have to be made based on a personal risk level . I feel both your strategy and Azanon’s are both valid and follow the VII philosophy . Today there is not a very good risk free ruturn such as you were so prescient to realize and you can confortably afford to set a lower action point and stand aside from these volatile times. Present investors standing aside will have to spend capital as risk free returns will not support a reasonable SWR and “hope” the wait will pay off with higher SWR at some future point.

  17. LR says

    Just a follow up from the last post.

    I have read a few article from Tomlinson one of whick I include below

    http://www.advisorperspectives.com/newsletters09/36-shiller2.php

    I think he is trying to usefully use the CAPE to help his clients and is doing some meaningful studies.
    I am not sure if you have commented on these studies . If so you could direct me to your comments.
    Thanks again for your dedecation to this important topic

  18. Rob says

    On reading Azanon’s post I did not see his strategy as being short term timing.

    You’re right, LR (and Azanon). I’m wrong. I’m grateful to you for pointing that out.

    Rob

  19. Rob says

    I think he is trying to usefully use the CAPE to help his clients and is doing some meaningful studies.

    That’s a super link, LR. N, I have not commented on his work, I was not aware of it.

    I have had a number of financial planners write me or call me and let me know that they use valuation-informed strategies when advising their clients. It gives me great comfort to find out about that sort of thing. I do not have a background in this field (I am a journalist, not an investing expert). Given the reaction that I have seen from Buy-and-Hold advocates, I worry at times that I may have missed something obvious. When I see that there are a good number of professionals already putting these ideas to us, that makes me feel better and gives me confidence that our economic future is going to be better than our recent economic past.

    I will write Tomlinson and let him know about John Walter Russell’s work. If you have not checked out John’s site (John was co-developer of all the calculators at this site), you might want to pay a visit over there (it is not being updated — John died in 2009 and the site was passed to me). John did a lot of amazing research (I am not capable of doing research, I can only report on research done by others).

    Here’s a link to John’s site:

    http://www.early-retirement-planning-insights.com/index.html

    It’s always great to hear from you, LR.

    Rob

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