“Doing Away with Price Volatility Is Doing Away with Risk”

Set forth below is the text of a comment that I put to a recent blog post by Matthew Amster-Burton put to the Minto.com site and titled Timing the Market Using Stock Valuations.

I suspect Pfau and Kitces are onto something. If so, however, I suspect their approach will be less profitable in the future than it has been in the past, for the reasons Mike Piper laid out.

It’s super that you are writing about this, Matthew. My name is Rob Bennett. I am the person who developed the strategy being explored today by Pfau and Kitces (If you check the Acknowledgments page of Wade’s study, you will see that he credits me there and I have been in e-mail correspondence with Michael for years now). I invite you to check out the wealth of materials on Valuation-Informed Indexing available at my site. There are over 100 articles there on this approach. And 200 podcasts. And 5 unique calculators. And hundreds of blog entries. I also write three weekly columns on Valuation-Informed Indexing, which I believe is the future of stock investing.

I’ve also engaged in extensive discussions about this with Mike Piper. Mike’s point is valid. But he is missing something very, very, very important.

Yes, the huge edge that Valuation-Informed Indexers have held over Buy-and-Holders over the 140 years for which we have records will disappear when Valuation-Informed Indexing becomes well publicized. But consider how it is that that edge will be made to disappear!

When we all become Valuation-Informed Indexers, bull markets will be a thing of the past. If everyone gets it that the long-term value proposition provided by stocks drops with increases in valuations, people will lower their stock allocations when prices get too high. The sales of stocks will bring prices down. Then we won’t have overvaluation anymore!

Stock prices are self-regulating so long as investors are informed as to what is in their best interests. The trouble we are having today is a consequence of the fact that the research showing the effect of valuations had not yet been published at the time the Buy-and-Hold model was developed. So the people who developed Buy-and-Hold left out the part about investors having to change their stock allocations in response to big price swings.

Once we all become open to the idea of changing our stock allocations as needed to keep our risk profiles roughly constant, there can never be another bull market. Which means there can never be another bear market (every big bull market has led to a big bear market and there has never been a big bear market that was not preceded by a big bear market). Which means that in all likelihood we will never see another economic crisis (we have had four economic crises since 1870 and each and every one followed an out-of-control bull market — it is the huge financial losses suffered during bear markets that cause economic crises).

Yes, Valuation-Informed Indexers will only be earning the 6.5 percent real return provided by stocks once everyone learns about the benefits of Valuation-Informed Indexing. But they will be doing so by taking on only a tiny fraction of the risk that stock investors take on today. Once investors become able to invest in their own self interest (this was not possible until the research showing the effects of valuations was published), price volatility will be a thing of the past. Volatility is caused by investor emotion and investors acting in their own self interest are not emotional. It is price volatility that makes stocks risky. So doing away with price volatility is doing away with risk.

You are writing about something of huge importance for the history of stock investing, Matthew. Please feel free to contact me if you have questions about Valuation-Informed Indexing and would like to learn more. I have been working this full time for ten years now. We very much need more people helping us to get the word out!

Rob

Comments

  1. Rob says

    I speak out against Buy-and-Hold at that site on a daily basis, Visage.

    I encourage any community members who have any doubts re this point to follow the link you provide above and check things out for themselves.

    Rob

  2. visage says

    So what is one to make of your series of one-word, nonsensical responses on that site? I would really like to know why you chose to behave that way.

  3. Rob says

    The Lindaurheads and Greaney Goons employ intimidation and deception and personal attack in their posts as a means of blocking the conversations we all need to have to learn more about the 30 years of academic research showing how stock investing really works. All of us who built the communities have a responsibility to stand up in defense of our fellow community members when they come under attack.

    But we don’t want to get down in the mud with the sewer rats. We don’t want to engage in nasty, ugly stuff ourselves. Why not put forward one-word posts that show that we have taken note of the attacks and do not approve but that contain no ugliness? That sends a message that we are standing up for our fellow community members but that we are not lowering ourselves to engage in the tactics employed by the sewer rats.

    The better solution is of course for the site owners to honor their promises to protect us from the garbage. When that happens, there will be no more abusive posts and thus no need to respond to them in any way. We aren’t there yet. We need to persuade more community members to work with us to give the sewer rats the boot. Until that happens, I think the one-word-post strategy makes sense.

    Rob

  4. Rob says

    He posts there nearly every day — sometimes he posts there as if he wants desperately to be taken seriously. And yet, how would one ever do that when he follows it up with such childishness as he is seen doing at the same place?

    I want to bring the economic crisis to an end. I want to help middle-class investors learn how to invest effectively. That much is certainly fair to say.

    I don’t put up one-word posts as a means of teaching how stock investing works. I put them up only in response to the abusive tactics of the Lindaurheads and Greaney Goons. Who is it behaving in a non-serious manner then? It is the site owner who permits those posters access to the board despite published rules prohibiting their participation. And, in cases where the site owner is not following the rules and a large number of community members is not demanding that he do so, those community members are behaving in a non-serious way.

    The purpose of a Retire Early board is to learn about early retirement. The purpose of an Indexing board is to learn about indexing strategies. These are serious purposes. Community members shouldn’t come to such boards if they have no interest in those subjects. If they do have an interest in those subjects, they should be willing to help us deal with the problem of abusive posting.

    It is the people pretending that the sewer rats do not exist who are behaving in a non-serious manner, not the people putting up one-word posts in response to their acts of ugliness. The one-word posts serve a constructive purpose. It wouldn’t be necessary to put up such posts if the rules were being enforced. But in the circumstances that prevail, putting up one-word posts is the best we can do until the site owners work up the courage to honor their promises.

    Rob

  5. Rob says

    He posts there nearly every day

    The suggestion here is that there is no value in reading the posts of the Internet Sewer Rats or in responding to them. I do not agree.

    There are two RobCasts that I recorded in response to comments made by Drip Guy. I wrote a column in response to a comment by Schroeder. I have written an article in response to a comment made by Greaney.

    The Internet Sewer Rats are Investors in Pain. I certainly don’t approve of their behavior. I have been saying for 10 years that the site owners should take actions that protect the entire community. That INCLUDES the sewer rats! When we act on behalf of the entire community. we act on behalf of the part of the community playing the role of sewer rat. I am the best friend that any of the sewer rats have. They don’t see it that way. But it is so all the same.

    There is not one person alive who longs to be an ineffective investor. No one wakes up in the morning saying to himself “I think I’ll go find myself a Get Rich Quick scheme in which to deposit my retirement money.”

    The sewer rats want to learn how to invest, just as the rest of us do. The difference is that they have less control over their emotional impulses. Our job is to help them, by removing them from the community or by bringing lawsuits against them or whatever. When the community acts as a community, their intimidation tactics are no longer effective. So their self-destructive impulses are ineffective. So they learn, which is what the better part of themselves has wanted for themselves all along.

    There are no two sides in this debate. We are all on the same side. We all benefit from learning and becoming better investors.

    There appear to be two sides only because we are divided against ourselves. Our Get Rich Quick desires conflict with our learning desires. That’s the battle being fought.

    The behavior of the Goons evidences this battle in compelling fashion.

    I am not saying that this makes the behavior of the Goons a good thing. We would be better off without them. But it is an ill wind that blows no good. The Goons are in great emotional pain as a result of their decision to devote their life energies to the promotion of Get Rich Quick investing strategies. To the extent that we can learn something from the Goons, we add to their dignity and self-respect by doing so.

    I have learned from the Goons. I am grateful for the things I have learned from my conversations with them. I think of the Goons as my friends (I of course understand that the feeling is not mutual).

    I will continue to engage in constructive conversations with my friends the Goons to the extent that is possible. No one is 100 percent Normal or 100 percent Goon. All of the Normals are guilty of sin (goonishness) from time to time. All of the Goons are capable of tapping into a human spirit from time to time. I have enjoyed those moments when my Goon friends have been able to drop the mask of hate and anger and contempt and to permit their humanity and love and reasoning ability to shine forth for a few moments. I encourage them to do so more frequently and with greater fervor.

    Rob

  6. Visage says

    So Rob, what you are saying is that there is value in reading the posts of the “Internet Sewer Rats” but your actions say they are worthy of only nonsensical responses.

    I am not sure what you are accomplishing beyond diminishing your credibility.

  7. Rob says

    There’s value when they reach down deep and come up with something human.

    When they don’t do that, it’s best not to get down in the mud with them.

    Rob

  8. Rob says

    I am not sure what you are accomplishing beyond diminishing your credibility.

    I was worried about being attacked when I put forward the May 13, 2002. post, Visage. I obviously didn’t have any way of anticipating one-ten-millionth of what we have seen. But I did expect something. I loved the community and the subject matter enough that I worked up the courage to push the “Submit” button.

    Do you think that one hurt my credibility any? We wouldn’t have gained access to any of the hundreds of powerful insights of the first ten years if I had not worked up the courage to advance those words.

    A doctor makes a bloody mess when he performs an operation that saves a patient’s life. It’s not that the doctor likes the idea of causing a bloody mess. It’s that he wants to help that patient and causing a bloodly mess is the only way the deed can be accomplished.

    If humans were angels, Greaney would have corrected his study by the close of business on May 13, 2002.

    Humans ain’t angels. Someone Alert the Media!

    Rob

  9. Drip Guy says

    You don’t consider calling people “sewer rates’ and ‘goons’ to be abusive on your part, but when someone asks you a simple question regarding your own voluntary, and often repeated fantastical claims, you somehow consider that to be ‘abusive’?

    [asked on the other board, but only answered with one word responses by Rob:]

    Regarding your outlandish and literally laughable claim that there is some “ban” across the internet on ‘free-n-open posting’ regarding SWRs…

    Can you name one other person — JUST ONE — besides yourself who has looked at the evidence and will second that claim?

  10. Rob says

    You don’t consider calling people “sewer rats’ and ‘goons’ to be abusive on your part

    No.

    I don’t believe that any human being should degrade himself or herself in the manner in which the Lindauerheads and Greaney Goons have degraded themselves in their efforts to block discussions of what the past 30 years of academic research says about how stock investing works in the long run.

    We all have a goonish side to us, Drip Guy. We are all flawed creatures. So I am sympathetic to the Goons. But I don’t think it is an act of sympathy to sit back and watch while they destroy themselves. To the extent that any of us care about the Goons (and I am confident that many of us do care), we should be demanding (NOT merely asking!) that the site owners enforce the site rules.

    Those rules reflect the wisdom of thousands of years of civilization. There is a reason why every board requires that we all agree to follow those rules before we are permitted to participate in community discussions. It’s because thousands of years of experience show that reasoned, civilized discussion is not possible in communities that do not adopt even minimal standards of behavior.

    We know what’s right. That’s why none of us are willing to post at boards that do not impose reasonable restrictions on the behavior that will be tolerated by those participating in our discussions. Now we need to work up the courage to INSIST that those rules be enforced in a reasonable manner.

    It’s the best thing for the Normals. It’s the best thing for the Sewer Rats. It’s the best thing for the site owners. It’s the best thing for our entire society.

    Are you able to imagine any possible downside? I sure am not.

    Rob

  11. Drip Guy says

    “none of us are willing to post at boards that do not impose reasonable restrictions on the behavior that will be tolerated by those participating in our discussions. ”

    So, by that logic, the Greany Board is a GOOD board. You post there. And your vile and ridiculous attacks on the other people who do so, remain just what they appear to be — unprovoked lashing out by a mentally ill internet troll to anyone who dares disagree with him on either his tactics or his facts.

  12. says

    So, by that logic, the Greany Board is a GOOD board.

    I’m confident we could build it into something good if we could persuade Greaney to permit honest posting on the subject of how to achieve a successful early retirement. Why the heck couldn’t we? We’ve seen at numerous communities that there is a big interest in this topic.

    It sure would be worth a try, in any event. No?

    Rob

  13. Rob says

    You post there.

    I do.

    And I comment regularly that we need to open the board up to honest posting if it is to achieve its potential.

    There are Post Archives, Drip Guy.

    Rob

  14. Rob says

    And your vile and ridiculous attacks on the other people who do so, remain just what they appear to be — unprovoked lashing out by a mentally ill internet troll to anyone who dares disagree with him on either his tactics or his facts.

    Outstanding comment.

    Rob

  15. Drip Guy says

    “I’m confident we could build it into something good if we could persuade Greaney to permit honest posting on the subject of how to achieve a successful early retirement. ”

    Has Greany edited or removed any of your many, many, many many posts there (as you often do here, without notice ore rationale other than something angers you), or are you currently restricted in volume or number of posts there in any way?

    NOTE — just a yes or no will do, Rob.

  16. Drip Guy says

    Correct — res ipsa loquitur — and scanning the site, it appears you are a most prolific and free-wheeling poster — one who makes no claim of being limited, censored, or otherwise constrained at all from… why, from free-n-open posting of whatever strikes your fancy, including SWRs!

    That is why your election to do so many one word non-sequitur posts would be strange, if only your M.O. were not already established at so many places.

  17. Rob says

    one who makes no claim of being limited, censored, or otherwise constrained at all from… why, from free-n-open posting of whatever strikes your fancy, including SWRs!

    The words themselves don’t help people to learn how to invest, Drip Guy.

    We need to bring in thousands of people with an interest in the subject to make the place swing. To do that, we need to open the site to honest posting on SWRs and dozens of other critically important investment-related topics. There is no other way.

    I think it would be fair to say that the first thing people notice when they enter that place is the funny smell. How many hamburgers do you think McDonalds would sell if they didn’t do anything to keep the bathrooms clean?

    We can’t get people to hang around and talk about early retirement until we do something about that awful smell. I mean, come on.

    Rob

  18. Drip Guy says

    Ah! It’s kind of scary, but maybe I’m making sense of a tiny bit of Hocomania:

    “Free-n-open posting” does NOT equal mere… free and open posting.

    No, “Free-n-open posting” means someone forces thousands of people to be your own personal captive audience.

    Do I have that right, Rob? That seems to be the gist of your argument.

  19. Rob says

    Free-n-open posting” means someone forces thousands of people to be your own personal captive audience. Do I have that right, Rob?

    No, you don’t have it right, Drip Guy.

    The rules of every board permit honest posting. There’s not one board where the rules require that anyone be held captive.

    I have checked the historical data myself. So I know that the numbers in the Old School safe withdrawal rate studies are wildly wrong. I have both a right and a responsibility to tell my fellow community members. So that is what I have been doing since the morning of May 13, 2002.

    Thousands have expressed great interest in learning more about what the historical data really says and in how Wall Street goes about tricking us into believing it says very different things. There is obviously no problem with this group. This group loves it that I talk about these issues.

    There’s another group that demands a ban on honest posting. Those are the troublemakers, the Goons, the Internet Sewer Rats. Are they being held captive if they follow the rules of the boards? They are not. They are obviously free to skip any posts that cause them discomfort or dismay or emotional pain, right? That’s the answer, Drip Guy. Skip the posts that cause you distress. Everyone is A-OK with you doing that.

    You cross the line when you put forward a death threat or engage in an act of defamation or deception or intimidation. That stuff is not permitted among civilized people. But it it absurd for you to claim that you are being “held captive” because you were required as a condition of entering our board communities to refrain from advancing death threats. That just doesn’t follow.

    If you cannot follow our rules, you are going to have to find other communities to which to direct your posting energies, communities at which you won’t feel that you are being held “captive” by agreeing not to advance death threats. We just don’t need the business that bad.

    The way it is, my old friend.

    Non-negotiable.

    Rob

  20. Visage says

    All I can says is Wow….I think I prefer your one or two word responses to this nonsense about bans on honest posting and death threats

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