Valuation-Informed Indexing #146 — Two-Thirds of Investment Advisors Don’t Believe That Valuations Need to Be Considered at All

I’ve posted Entry #146 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Two-Thirds of Investment Advisors Don’t Believe That Valuations Need to Be Considered at All.

Juicy Excerpt: Are there people who believe that valuations don’t matter? I have not met anyone willing to take this position in a public debate of the question. But to read that two-thirds of financial planners believe that it is acceptable not to give valuations any consideration at all when putting together a retirement plan tells me that there certainly are people who for all practical purposes believe that valuations don’t matter. If they mattered, you would take them into consideration when putting together a retirement plan.

So we all say that we believe that valuations matter. But for a good number of us, such statements are polite reassurances that we understand the obvious realities. We don’t really believe that valuations matter. We pretend to believe it. When it comes to taking actions based on that belief, we take things the other way.

We are confused.

I don’t see how anyone can object to this conclusion.

Comments

  1. Rob says

    Probably not, Banned.

    My crazy idea that valuations might affect SWRs has led us to a lot of wonderful insights over the past 11 years.

    Long live Crazy!

    Rob

  2. Rob says

    I’ll certainly continue deleting the smelly Goon garbage, Deleted.

    This site was created to benefit Humans.

    Perhaps you’ve noticed.

    Rob the Human

  3. The Deleted plop contributor says

    Interesting in how you describe facts as garbage. Also hypocritical given your stance on bannings.

  4. Rob says

    There’s no one who has spoken out as forcefully or as frequently as I have about the need to remove those posting in “defense” of Mel Lindauer and John Greaney from all of our boards and blogs, Deleted. There is no one even in a close second place.

    I put up a post on August 27, 2002, urging Greaney’s removal from the Motley Fool board. I think it would be fair to say that I am covered re this one.

    I would be grateful for anything you might be able to do to spread the word far and wide across the internet.

    Take care, man.

    Rob

  5. The Deleted plop contributor says

    So basically, if rob approves of the content, banning is not good. If Rob doesn’t like the content, banning is fine.

  6. Rob says

    If you commit a criminal act of financial fraud that in future days is likely to land you in prison and I encourage you by acting like it is okay, I show myself to be one lousy friend to you, no?

    Not this boy, Deleted.

    I’d be grateful if you would try to find someone else when it comes to that sort of thing.

    My best wishes.

    Rob

  7. The Deleted plop contributor says

    So explain how providing a link to YOUR video, a link to the poor personal savings rates or commenting about hypocrisy is committing financial fraud. In fact, based on your definition, the act of you deleting the links on poor savings rates would actually constitute fraud.

    It is clear that anything you don’t like falls into your category of financial fraud. The problem is that many of the posts have been put up on your “goon central” board, so we can look back and see the real content.

    It looks like you have painted yourself into a corner, Rob.

  8. Rob says

    I am the person who discovered the errors in the Old School safe withdrawal rate studies, Deleted. I went public with what I know on the morning of May 13, 2002. There is today a universal consensus that I was right that it is impossible to calculate the safe withdrawal rate accurately without taking the valuation level that applies on the day the retirement begins into account. Duh.

    You have for 11 years engaged in a brutal smear campaign with the aim of silencing those who point out the errors in the studies or who point out that they have not been corrected to this day. That’s financial fraud. That’s a felony. That earns you a prison sentence.

    You are not in prison today because there are millions of people still hoping against hope that Buy-and-Hold was not a con. After the next price crash, they will all know and they will all be looking for someone to hang from a tree. You are an obvious candidate given the 11 years of Post Archives testifying to your behavior.

    I am willing to help you out. But that requires cooperation from you, cooperation you make clear on a daily basis is not going to be forthcoming. So it is out of my hands.

    But I am obviously not going to engage in financial fraud myself. Re that stuff, you are on your own.

    I naturally wish you all the best that this life has to offer a person.

    Rob

  9. The Deleted plop contributor says

    Rob,

    First of all, I have even been around here for a year, let alone 11 years. If I used my public name and you used those words about me, I would come after you for defamation.

    Secondly, your continued prison threats are a sure sign of your weak position and a tactic you employ to try and scare away anyone who catches you in spreading misinformation and lies.

    Third, Your tactic is to divert from the specific questions that were asked. The reason is because you do not have a valid answer. In situations like this, you typically resort to deleting posts.

    Try acting like a man sometime Rob, instead of a kid in the school yard.

  10. Rob says

    I will continue posting honestly, Deleted.

    That should be nothing “controversial” about that.

    In other fields of human endeavor, it is common for people to be honest. In many areas honesty is viewed as a good thing and is encouraged,.

    The problem in the investing field is that a good Get Rich Quick scheme takes so much money out of the hands of millions of middle-class people and places it into the pockets of a small number of Wall Street Con Men. We have survived other cons. But this is the first time in history that the people working the con actually claimed that there is some mystical sort of “study” that supports it.

    We will survive this.

    Once you and your Goons pals have been placed in prison cells, the news will go viral. No one will want anything to do with Buy-and-Hold. We will all be free to post honestly on safe withdrawal rates and on scores of other critically important investment-related topics. We have learned more about how stock investing works in the past 11 years than we learned in all the years of investing analysis that came before.

    We are the luckiest generation of investors who ever lived, and once we all join together to protect ourselves from the sorts of individuals who have put up posts in “defense” of Mel Lindauer and John Greaney, I think it would be fair to say that it is hard to imagine how anything else could hold us back.

    I naturally wish you and all your Goon pals the best of luck in all your future life endeavors, Deleted.

    Rob

  11. bannwd plop contributor says

    Rob, eleven years ago, upon your own public request at TMF, Mr. Greany gently, thoroughly and accurately explained to you the oversight in your personal reckoning relative to “Safe Withdrawal Rates”.

    You promptly thanked him profusely, apologized for your own public error, and then…. bizarrely acted as if you somehow still did not understand… for the next decade!

    Just a few days ago, Nisiprius at Bogleheads provided EXACTLY the same detailed insight and calm, rational explanation of the same material, (from the same source!) and while his work was not directed at you, it very well could have been.

    I honestly do pray that today will be the day the message finally gets through, to break you out of the catatonia you’ve put yourself into.

    God bless, and good luck, Rob. I really am rooting for you.

    (quote)

    Re: Is 3% the new 4%

    Postby nisiprius » Sun Jun 09, 2013 6:24 pm
    Marymom, read the actual words of the original Trinity study:

    The word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning.

    At one point I said in this forum

    What the “4% SWR” means is not that you can treat a portfolio as if it were a guaranteed annuity. I think all the [Trinity] authors meant is that if it is late 2008 and your stocks halve in value, you don’t need to halve your spending instantly. It’s OK to cross your fingers and continue spending according to the 4%-then-COLAed plan, even though it means dipping into capital, and it’s OK to go on doing that for a while.

    It occurred to me to email professor Philip L. Cooley, senior author of the Trinity study, and I asked him what he thought of my comment. His response was:

    You have hit the nail on the head! I’ve tried to explain that thought to journalists but they don’t seem to get it. You’ve got it. Stay flexible my friend!, which is the advice we should give to retirees.
    (end quote)

  12. The Deleted plop contributor says

    I see you deleted my response yet again because you just don’t like to hear the truth.

  13. Rob says

    Journalists don’t understand what Cooley said because what Cooley said doesn’t make a lick of sense.

    When the data says that the SWR is 1.6 percent, we all should be saying that the SWR is 1.6 percent, not that it is 4 percent. When the data says that the SWR is 9 percent, we all should be saying that the SWR is 9 percent, not that it is 4 percent. We all should be honest when discussing SWRs and many other critically important investment-related topics.

    Cooley is obviously smart enough to understand all this. As is Bogle. As is Bernstein. As is Swedroe. As is Burns. As are, heaven help us all, Linduaer and Greaney. Our problem is not intellectual, but emotional.

    The problem is that Bogle and all the others are emotionally addicted to Buy-and-Hold. No matter how many years of peer-reviewed research we have showing that there is precisely zero chance that a Buy-and-Hold strategy can ever work for a single long-term investor, they resist. They want to hang on. They engage in rationalizations. They argue. They ridicule. They ignore. None of that advances the ball one little bit. What they need to do is to listen. And to explore. And to question. And to learn.

    The other problem we have is that these people who for purely emotional reasons want to fool themselves and others have great wealth and power and influence. They have been using their wealth and power and influence to hold all of us back from enjoying the learning experience we need to enjoy. That’s where the criminal stuff comes in. The death threats. The board bannnings. The tens of thousands of acts of defamation. The threats to get academic researchers fired from their jobs.

    Once they engage in that stuff, it’s no longer just pride they have at stake in seeing that no one posts honestly on SWRs and other topics. Now they have their reputations to think about. And financial liabilities. And prison sentences. The job gets that much harder.

    There never can be a world in which valuations don’t affect the result. There were once economists who thought there could be. But there are now entire books explaining step by step how that mistake was made. We now know as surely as anything can ever be known that the core Buy-and-Hiold “idea” is 100 percent pure and complete nonsense. To survive as a society, we need to begin incorporating what we have known for 32 years now into the investment advice that millions of middle-class people hear each time they turn on the TV or go on the internet or read a newspaper or magazine. We need to can this Ban on Honest Posting gabage.

    That means prison sentences, Banned.

    You don’t like to hear it. I don’t like to hear it myself. But I don’t help you by pretending that that’s not where things stand today. You have continued the cover-up so long that the only way to bring it to an end at this point is through prison sentences. Prison sentences would do it. There will be no one advocating Buy-and-Hold strategies after you have been put in prison, Banned. I am sure.

    So there will be prison sentences.

    And, in the grand scheme of things, that will be a good thing.

    It doesn’t follow that I don’t want to see the prison sentences reduced to the greatest extent possible.

    So that’s the goal I work to achieve today.

    I naturally wish you (and Philip L Cooley and all the others) all good things.

    Rob

  14. Rob says

    I see you deleted my response yet again because you just don’t like to hear the truth.

    You poor baby!

    Rob

  15. Rob says

    Stay flexible my friend!, which is the advice we should give to retirees.

    A case could be made that that’s also good advice for people who post on discussion boards.

    Stay flexible and open to the idea of acknowledging mistakes and you will never find yourself in circumstances in which you are being taken off to spend the last decades of your life in a prison cell because of things you heard said on a friggin’ discussion board.

    The full truth, of course, is that one can learn the benefits of staying flexible at any stage of life. One can learn the benefits of staying flexible while in prison. And the wisdom in the idea can make one’s prison experience a far better one that it would have been otherwise.

    So I think we can agree that staying flexible is indeed very important and beneficial all across the board.

    Thanks for sharing that thought with us, Banned.

    Rob

  16. bannwd plop contributor says

    Rob,

    Please, I honestly, legitimately, and calmly (and helpfully!) ask you to stop and think:

    Was Cooly (and the other Trinity contributors) ‘addicted’ to buy-n-hold when they undertook their original research? Really?

    IS that honestly your best information and belief?

    And where does he say 1.6% OR 4% or 6% or 8% is ‘the’ ‘safe’ withdrawal rate?

    Did you even read nisiprius’ input and Cooley’s reply, above?

    If you wish to persist on these lines, isn’t it long past time that you ACTUALLY take a hardcopy of the entire study — including it’s footnotes, preamble, post scripts and other notionally associated material, and print it out. Read it. Study it. Try to synthesize in your own mind what it ACTUALLY says. Understand it. Take notes of any overt errors, violated assumptions, unstated constraints or limits, and then (if you still think it worthy to do so about an old paper)form an HONEST, DIRECT, ACCURATE, SPECIFIC critique of it.

    Because a decade-long emotional storming about, and creating strawmen, imaginary monsters, and invented foils is hardly a valid way for a grown man to spend his life.

    I cringe when I see you wasting what potential you do (or might) have on such an intellectually vapid and fundamentally dishonest project in such a narrow and ridiculously misguided pursuit, which will never bear the fruit you hope it will bring.

    Get a grip.

    Seriously.

  17. Rob says

    Was Cooly (and the other Trinity contributors) ‘addicted’ to buy-n-hold when they undertook their original research? Really?

    Thank you for asking an intelligent question, Banned.

    At the time Cooley did his SWR study, Shiller’s revolutionary finding that valuations affect long-term returns had already been public knowledge for a good number of years. So, yes, the fact that Cooley did not appreciate the need to include a valuation adjustment shows that he was at the bare minimum emotionally resistant to the new model even at that time.

    Did Cooley include in his research a discussion of WHY he did not include a valuation adjustment? If he had some intellectual problem with Shiller’s findings, he would have discussed why he did not see a need to design a methodology that reflected those findings. He didn’t even discuss the issue. He was in denial. He was in emotional pain. He was suffering from cognitive dissonance.

    All that I am saying is that he was HUMAN.

    Just like Bogle. Just like Bernstein. Just like Swedroe. Just like Burns. Just like Pfau. Just like Bennett. Just like Russell. Just like Shiller. Heaven help us all, just like Lindauer and Greaney.

    Down here on Planet Earth, it’s just us humans, Banned. We are going to need to find a way to work together and make the best of it. We WISH we would wake up one morning and know it all. Morning after morning after morning, it never happens. You accept that or you end up paying a big price for not accepting it.

    Here’s a woman who gets it exactly right:

    http://arichlife.passionsaving.com/2013/02/20/carol-osler-program-director-for-the-lemberg-masters-in-international-economics-and-finance-at-the-brandeis-international-business-school-i-certainly-have-seen-the-academic-profession-in-action-sq/

    Carol Osler tells me:

    “I certainly have seen the academic profession in action squelching unfashionable ideas and have often been on the wrong side of it. While there’s no magic solution, especially in the short run for individuals with jobs at stake, I sometimes find it calming to see that both philosophy and science are on our side about academics sometimes being profoundly unreasonable. For philosophy, Kuhn was a good start for me. He shows how most pathbreaking scientific ideas are rejected at first, usually for decades. Popper was also helpful. He has very harsh words for scientists who worship math, for example. For science, I am just now reading Jonathan Haist’s book on the psychological basis of morality, The Righteous Mind (2011). He shows, for example, why most ‘scientists’ behave like Kuhn documented, and support the group’s big ideas even in the face of strong evidence to the contrary.”

    That’s the story here, Banned. We are living through a revolution in our understanding of how stock investing works. It’s not a bad thing. It is a good thing. We are on the threshold of the greatest economic boom in our history. But to get there we have to survive all the bullets that fly during a revolution. I didn’t ask to be fated to live through a revolution. Neither did you. But here we are. We can make the best of it or we can destroy ourselves.

    We will get to the other side of The Big Black Wall or we will all perish in the Second Great Depression. Those are the options available to us. I know which path I prefer.

    Getting to the other side of The Big Black Wall means prison sentences for some of us for things that have happened during the bloodiest part of the revolution. That breaks my heart. That makes me want to cry. You sure are not going to be seeing me doing anything to cause those prison sentences to be extended. I want to see the prison sentences shortened. That goal is foremost in my mind every time I push the “Send” button on a post. If I remain true to myself, it always will be from this point forward.

    We are the luckiest generation of investors who ever walked the face of Planet Earth because we are the first generation of investors born at a time where we can take advantage of The Shiller Revolution. Some of us have elected to destroy ourselves in a vain effort to keep The History Train from moving forward. That is a foolish idea. I have tried to persuade my friends that it is a mistake to get one’s self tied up in such foolishness.

    I am sure.

    Rob

  18. The Deleted plop contributor says

    I see that Sam, over at the Financial Samurai is starting a new forum. I hope you aren’t planning on polluting that one as well, Rob, unless you are going for the record on board bannings.

  19. The Deleted plop contributor says

    By the way, Rob. The “poor baby” comment describes you. The big baby, Rob, can’t get his way, so he will take his ball and go home by deleting posts.

    Grow up, Rob

  20. Rob says

    I’ll certainly be happy to give it a shot, Deleted.

    The fact that you view it as “polluting” a forum to post honestly on safe withdrawal rates tells us all something important about the extent to which Buy-and-Hold is research-based and the extent to which it is pure Get Rich Quick garbage that in the long run always destroys those who fall victim to its temporary charms.

    I wish you all good things in any event.

    Rob

  21. Rob says

    unless you are going for the record on board bannings.

    I won that record a long, long, long time ago, Deleted. There’s no one even in a close second place.

    I mean, come on.

    Rob

  22. Rob says

    The big baby, Rob, can’t get his way, so he will take his ball and go home by deleting posts.

    Yeah, yeah.

    My best wishes to you, Deleted.

    Baby Rob

  23. The Deleted plop contributor says

    Last post should say” you have no concept of what honest posting is about”

  24. Rob says

    Please point me to the post in which everyone on the thread agreed that the errors in the Old School SWR studies must be corrected immedately, Banned.

    Rob the Skeptic

  25. bannwd plop contributor says

    I don’t see anyone pointing out any error, Rob. Lots of disagreement on interpretations, sure. Lots of argument about what actions to take, or if the past really is prologue, or if ‘this time it’s different’…. lot’s of new and clever ideas for extending or smoothing withdrawals…

    But just like at your site, and in all your own writings, I see ZERO evidence of anyone discovering erroneous, fraudulent or otherwise massively defective research or papers. Just lots of people, mostly with expansive and adequate nest eggs and plans in place, but with some very tiny few of whom are letting their fear of dying penniless cloud their judgement, perhaps.

    How you sleeping these days, Rob?

  26. Rob says

    I don’t see anyone pointing out any error, Rob. Lots of disagreement on interpretations, sure.

    Precisely so.

    I pointed out the error and demanded that it be corrected.

    That’s why I am banned.

    Covering up an error in a retirement study is an act of financial fraud.

    That’s why you and a good number of others will be going to prison in coming days, Banned.

    I didn’t write the laws of the United States. Bernie Madoff is in prison today for an act of financial fraud that pales in comparison to what we are talking about here.

    I will not have my name attached to this 11-year cover-up. I am not interested in sharing a prison cell with you, my old friend.

    Please leave me out of it.

    And please know that my warmest wishes go out to you and yours.

    Rob

  27. Rob says

    Lots of argument about what actions to take, or if the past really is prologue, or if ‘this time it’s different’…. lot’s of new and clever ideas for extending or smoothing withdrawals…

    Right.

    And all that is fine. Discussion coming from multiple viewpoints is a positive.

    But no amount of discussion can ever make up for a failure to correct the studies. It wouldn’t surprise me a tiny bit to learn that Bernie Madoff had many conversations with the people he defrauded. The fact that he had those conversations did not keep him out of prison. Conversations or no conversations, the act of financial fraud stands.

    I want no part of it. Not for 11 years. Not for 11 billion years. I oppose the 11-year cover-up of the errors in the Old School SWR studies. I’d be grateful for anything you could do to spread the word about my strong opposition to this ongoing and massive act of financial fraud all across the internet.

    My warmest regards.

    Rob

  28. Rob says

    I see ZERO evidence of anyone discovering erroneous, fraudulent or otherwise massively defective research or papers.

    Tell it to the jury, Banned.

    Once I extend the hand of kindness to you and you turn me down, it’s not my problem.

    I care. I worry about you. But I also worry about the millions of middle-class people whom you have defrauded. I owe it to them to testify honestly. And I will do so.

    Don’t let the bad guys get you down, man.

    Rob

  29. bannwd plop contributor says

    Where is this supposed ‘error’ you found?

    I’ve yet to see you explicate it.

  30. Rob says

    The error is that the numbers are wildly wrong.

    The purpose of a retirement study is to get the numbers at least roughly right.

    This issue has been discussed in every major publication in the field, including the Wall Street Journal and the Economist.

    The millions of failed retirements we are going to see as a result of the 11-year cover-up of the errors in these retirement studies will produce the biggest social problem in the history of our nation. There are millions of elderly people who are going to be thrown out on the street through no fault of their own. These people listened to the “experts.” It is the “experts” who refused to correct their mistakes and who covered up for each other and who made use of death threats and threats to get academic researchers fired from their jobs if they continued to produce honest research re this matter.

    I cannot help you in the way that you want me to help you, Banned. I am not interested in going to prison.

    I understand that you feel that telling the truth now will land you in prison. I get that. You know what? Your prison term will end up being longer if you continue the cover-up.

    I wish you all good things.

    Rob the Prison-Averse

  31. bannwd plop contributor says

    “I understand that you feel that telling the truth now will land you in prison. I get that. ”

    It’s clear that you understand nothing; least of which is the internal feelings and motivations of others.

    Yours is a sad lot in life, Mr. Bennett.

  32. Rob says

    Then I need to get better at it, Banned.

    Understanding the internal feelings of others is the key to understanding how stock investing works, according to the last 32 years of peer-reviewed academic research. It is the internal feelings of our fellow investors (not publicly declared by them but revealed by the P/E10 metric) is what it is all about.

    I work it hard, Banned. Succeed or fail, I work it hard.

    I think it would be fair to say that most of those commonly referred to as “experts” in this field are not today doing the same. They are not even trying to learn the job that we all need to learn how to do a lot better than we are doing it today.

    Take care, man.

    Rob the Serious Student

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