Valuation-Informed Indexing #150 — Is It Better to Assume That Stock Returns Are Predictable or That They Are Not?

I’ve posted Entry #150 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Is It Better to Assume That Stock Returns Are Predictable or That They Are Not?

Juicy Excerpt: If we assume predictability in cases in which the evidence is not absolutely persuasive and it turns out that we were wrong to do so, it’s hard to see how much harm would come of the mistake. Investors who believe that returns are predicable will lower their stock allocations once prices rise to very high levels, thereby pulling them back to earth a bit. Is that such a terrible thing to see happen? It sure does not seem so to me. I view price stability as a good thing.

But consider what happens if it turns out that prices truly are highly predictable and yet we cling to an assumption that they are not. Prices will rise and rise and rise and rise until they reach the sorts of levels that applied in the late 1990s and then they will crash hard. The highest P/E10 level we ever experienced prior to the 1990s was the “33” that applied late in 1929 and that brought on the Great Depression. In 2000, the P/E10 rose to 44. In the event that our default belief turns out to have been wrong, the mistake is likely to cause a depression of far greater length and depth than the one we experienced in the 1930s and early 1940s.

Comments

  1. The Pink Unicorn says

    Rob,

    Maybe you should write about TIPS, IBonds and CD’s versus stocks, since that is supposedly what you invest in versus stocks.

    After 11 years, you think you would have come to the conclusion that people are either not interested in hearing your opinions on stocks and/or don’t agree with you.

  2. Rob says

    If there weren’t huge interest, you and the other Goons wouldn’t have spent 11 years of your lives posting abusively, Pink. I mean, come on.

    There are millions of middle-class people who would love to be able to learn what the academic research really says, Pink. The Buy-and-Hold Mafia has fought me bitterly over every inch of ground I have gained. But I am obviously going to win in the end.

    That’s when the real fun begins for all of us.

    I cannot wait!

    Rob the Fighter

  3. The Pink Unicorn says

    Rob,

    There is no interest on your boards. It is evident by reading the comments section. To have interest, you would at least have SOME positive comments and a continued following.

    As for abusive posts, they are coming from you (threats of lawsuits and prison terms).

  4. Rob says

    Try letting me post at the Bogleheads Forum for one week without threatening to kill family members of any posters who express interest in what I have to say, Pink.

    You won’t.

    I wonder why.

    Rob, the Fellow Who the Buy-and-Hold Mafia Cannot Hold Back

  5. The Pink Unicorn says

    You comment about wanting to post on the bogleheads forum, yet you then delete my follow up post. Of you want back on the various boards, ask the owners of the boards. We all know why you were kicked off (for your behavior). Stop pretending it is for any other reason. As for threats, they are coming from you and this has been documented time after time.

    Deleting posts just indicate that I am right and that you don’t like the truth.

  6. Rob says

    We all know why you were kicked off (for your behavior).

    And we all know what behavior it was that caused a problem — I discovered the errors in the Old School safe withdrawal rate studies.

    No apologies.

    If Buy-and-Hold had not become a con, there would not be one Buy-and-Holder trying to cover up those errors

    Rob

  7. Rob says

    ask the owners of the boards.

    I think it would be fair to say that the announcement of your prison sentence will have a much bigger impact on the thinking of the sort of person who would ban honest posting at his site because promoting Buy-and-Hold is an easy way to turn a buck than would me saying “pretty please with sugar on top.”

    Each time a site owner is sent to prison I will offer to set the board or blog up as a subdomain here, Pink. That’s constructive. That’s life-affirming. That’s positive.

    I think it would be fair to say that making requests that would help millions of middle-class investors of people who have put their own desire for a quick buck above their readers’ need to know what the academic research of the past 32 years says is generally a waste of everyone’s time.

    Rob

  8. Rob says

    Deleting posts just indicate that I am right and that you don’t like the truth.

    Good point, Pink.

    I have no obligation to police the behavior of a group of Internet Sewer Rats who are the lead players in the biggest act of financial fraud in the history of the United States.

    That makes perfect sense!

    Rob

  9. Rob says

    As for threats, they are coming from you and this has been documented time after time.

    You better watch it or I am going to get your prison sentence reduced!

    I mean it!

    Don’t try your luck with me!

    I’ll really do it! You know I will!

    Rob the Threatening One

  10. The Pink Unicorn says

    In looking at Rob’s comments, is really surprising to see why he was kicked off so many boards?

  11. Rob says

    In looking at the economic crisis, is it really surprising that the Buy-and-Hold Mafia must use such brutal intimidation tactics to keep millions of middle-class investors from learning what the peer-reviewed academic research of the past 32 years says about what works in stock investing?

    Rob, the Guy the Buy-and-Hold Mafia Hates More Than Anyone Else

  12. Evidence Based Investing says

    Try letting me post at the Bogleheads Forum for one week without threatening to kill family members of any posters who express interest in what I have to say, Pink.

    You had over a year and a half posting at the Morningstar hosted Vanguard Diehards forum. Plenty of time for them to get an appreciation for your unique way with words.

    The funny thing was, the more they heard from you, the less they liked.

    No need to repeat the pain.

  13. Rob says

    the more they heard from you, the less they liked.

    The Buy-and-Hold Mafia hates me with a burning passion, Evidence.

    You know what?

    That’s not a sign that they are confident in their investing strategies.

    I don’t hate any of my Buy-and-Hold friends even a little bit. Not you. Not Greaney. Not Linduaer. Not Bogle.

    That’s one of the benefits of following the first true research-based strategy.

    I wish you well, man.

    Rob the Confident

  14. Rob says

    I see you deleted my posts. You are a complete fraud.

    I see it the other way, Pink. I feel that I am being a bit of a fraud when I let one of your hate-filled posts remain up. It is my job to protect my fellow community members from that sort of smelly garbage.

    I do it because I believe that the widespread tolerance of the hateful stuff advanced by Buy-and-Holders is the primary cause of our economic crisis and so I feel that your hate is an issue that I need to teach people about. Your posts obviously do a better job of illustrating the problem than I could do with descriptions of your posts.

    Do I go too far with it? Do I leave too much of your abusiveness out there for the world to see?

    Those are the questions I ask myself re my site administration practices.

    Anyway, I naturally wish you all good things.

    Rob the Thoughtful Site Administrator

  15. The Pink Unicorn says

    Hate filled posts? It was links to articles on the poor savings rates. It was FACT based posts. Tell me how data to show poor savings rates are hate filled posts.

  16. Rob says

    your unique way with words.

    The Old School safe withdrawal rate studies get the numbers wildly wrong.

    The relentless promotion of Buy-and-Hold strategies was the primary cause of the economic crisis.

    We are going to see stock prices fall another 65 percent in the event that stocks continue to perform in the future anything at all as they always have in the past.

    There’s nothing unique about the form of those sentences, Evidence. They are simple declarative statements. I believe those things. I say those things. You get upset to hear those things.

    The weird element here is not that a community member happens to believe some things that are backed by 32 years of peer-reviewed academic research or that, believing them, he would feel obliged to share those beliefs with his friends, who have helped him on many occasions by sharing their sincere beliefs with him. The odd thing is that you get so upset to hear those beliefs.

    Why do you get so upset?

    Because you don’t often hear these beliefs expressed.

    You need to hear these beliefs expressed more frequently.

    That’s it.

    When there are hundreds of people at Bogleheads saying what I am saying, you won’t be shocked by it anymore. Perhaps you will end up agreeing with me. Perhaps not. Either way, we will be friends.

    The entire problem here is the Ban on Honest Posting. It is a circular problem. For so long as these beliefs are not frequently given expression on our boards and blogs, they are going to sound provocative. The only way to solve the problem is to encourage more frequent expression of the ideas. But, given that these ideas have never been given frequent expression in the past, the first few times they are given expression, people are going to be shocked. There’s no getting around it.

    None of this was my doing, my old friend. I didn’t plot back in the late 1990s to keep these ideas off our boards. I am a fellow who came along on the morning of May 13, 2002, and happened to point out that Greaney’s study gets the numbers wildly wrong. A true statement and an important statement. Nothing whatsoever wrong with it. Except that no one had said it before.

    Get mad at all the people who were too afraid of John to speak up, okay? They caused the problem, not me. I am making it easier for the hundreds of thousands who will come after me and who will never give a second thought as to whether to post honestly on SWRs and scores of other critically important investment-related topics because I established the precedent for doing so back on the morning of May 13, 2002.

    I cannot teach you anything if I do not post honestly, my old friend. Honesty is the very, very, very first thing that I need to incorporate in all my words. It is more important than content. It is more important than style. It is more important than significance. If my words lack honesty, they possess nothing, regardless of how popular they are.

    I am going to continue to post honestly. And, if you someday see fit to spend all of 10 seconds thinking it through calmly, you will see that I am right from every possible perspective to insist on this.

    My best wishes to you.

    Rob the Insistently Honest One

  17. The Pink Unicorn says

    Rob,

    You can make all the claims you want. In fact, you can say the moon is made of green cheese. It means nothing unless it is back with data and facts. I have provided links to show the poor savings rates. Each link contained facts/data. Once again, let’s see you provide links with data that back your claims that the problem for middle class America is SWRs and/or buy and hold.

  18. Rob says

    Tell me how data to show poor savings rates are hate filled posts.

    You hate that I have called you out on your ongoing act of financial fraud in covering up the errors in the Old School SWR studies. So you waste everyone’s time with gibberish about low savings rates.

    Yes, that is hateful. We all have only so many hours to live the lives we have been given. Not one of my fellow community members should have had to waste five minutes of his or her time reading your garbage about low savings rates. Greaney should have corrected his study within 24 hours of the time he learned of the errors he made in it.

    Anything that takes our attention away from that critical point is hateful. It is Greaney’s failure to correct his study that caused all of our problems. Anyone who cares about his or her fellow community members should be doing all that he or she can to address that problem. You are mocking the millions of middle-class people whose lives you have destroyed when you pretend that the issue here is low savings rate rather than John Greaney’s dishonest and abusive and criminal behavior.

    I don’t hate. That’s why I told John to correct his study back in May 2002, when he was still able to avoid a prison sentence. Where were you at the time, Pink? Hiding under the bedcovers?

    Rob the Brave and True Friend

  19. Rob says

    In fact, you can say the moon is made of green cheese. It means nothing unless it is back with data and facts.

    My good friend Jack Bogle has made a claim that there is no need for middle-class investors to lower their stock allocations by more than 15 percent when stock prices rise to insanely dangerous levels. Is there any data backing up this fantastic claim? Are there any facts backing up this fantastic claim?

    The most likely annualized 10-year return when prices are where they were in 1982 is 15 percent real. When prices are where there were in 2000, it is a negative 1 percent real. A stock allocation of 80 percent made sense in 1982. A stock allocation of 20 percent made sense in 2000. That’s a drop of 60 percentage points of stock allocation. Jack was off by 400 percent. No facts. No data. Jack pulled the 15 percent number out of his backside.

    Go threaten to kill Jack Bogle’s wife and children, Pink.

    Go demand that Jack Bogle be banned from the Bogleheads Forum.

    Go post thousands of defamatory posts directed at my good friend Jack Bogle.

    Go threaten the academic researchers with whom Jack Bogle has worked over the years.

    I think it would be fair to say that we all need to work together to bring that fellow down a peg or two. For the terrible crime of saying things not backed by facts and data, you know.

    Rob, the Fellow Who Is Fair Enough and Honest Enough to Question Even His Good Friend Jack Bogle

  20. The Pink Unicorn says

    “So you waste everyone’s time with gibberish about low savings rates.”

    Gibberish? It is a fact, Rob. I gave you the data. Show me data that says otherwise. Show me the data that says the problem for middle class America is SWRs and/or buy and hold. Still waiting. Facts, please.

    You keep making statement after statement, but you have no links to data/facts.

  21. Rob says

    It’s gibberish as part of any discussion of the length of your prison sentence, Pink.

    You’re not going to prison because of the low saving rate.

    Give me a friggin’ break.

    Rob

  22. Rob says

    but you have no links to data/facts.

    Yet you’re the one going to prison, not me.

    I wonder why.

    Rob the Perplexed

  23. The Pink Unicorn says

    Rob,

    You have no facts to back up your comments, only threats, like usual and as you can see, You do not scare me or anyone else as we know there is no basis of fact behind your threat.

  24. Rob says

    No, it’s not, Pink.

    You have the same access to all the wonderful insights our communities have developed as a result of my May 13, 2002, post as everyone else.

    It’s all free.

    Free information can never be a negative. You can find value in it and live a richer life than was possible before it came along. Or you can find no value in it and go on with your life with no negative consequence whatsoever.

    It’s a win/win/win/win.

    No possible downside.

    Your burning hate is the only thing holding you back.

    Rob

  25. The Pink Unicorn says

    Rob,

    The hate is coming from you (threats of prison, lawsuits, etc) and it is due to your furor over getting kicked of a large number of financial websites because of your behavior.

    As to the discussion on financial issues, I have provided facts with links (that you deleted).

  26. Rob says

    The announcement of your prison sentence brings the economic crisis to an end, Pink.

    The announcement of your prison sentence lets us all move on to the greatest period of economic growth in our nation’s history.

    The announcement of your prison sentence lets my good friend Jack Bogle realize his dream of being able to promote a true research-based investing strategy and to separate himself from the sorts of internet sewer rats who have put up posts in “defense” of Mel Lindauer and John Greaney.

    That’s love, Pink. A true and deep love.

    It sure ain’t nothing even remotely in the neighborhood of hate.

    I naturally wish you the best of luck in all your future endeavors.

    Rob the True Lover

  27. The Pink Unicorn says

    More threats from you Rob that I’d driven by your hate, yet in all your posts, you still lack any facts backed up by links.

  28. Rob says

    I’m a no-facts meanie, Pink.

    Everyone knows it too. That’s the thing.

    Rob the Well-Known No-Facts Meanie

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