“For 80% of Investors, There Is One Factor That Determines Whether They Obtain Good Results or Not & It Is a Factor to Which They Pay Close to Zero Attention. That Factor Is the Valuation Level That Applies When the Stock Purchase Is Made.”

Set forth below is the text of an answer that I posted to a question (How Does One Know Whether They Are a Good Investor Or Just Got Lucky?” posed at the Quora site:

This is a super question. The answer gets at the reason why so many humans (including most of the Big Shot “experts”) FAIL at stock investing.

With most endeavors, we look for feedback to determine whether we are going about things properly or not. If you do not know how to drive and yet still try to do it, you are soon going to receive some harsh feedback telling you that you need to enroll in driving school. It’s the same with cooking dinner or with hitting a baseball or with going on a date. With most activities, when you are doing things right, you obtain good results, and, when you are doing things wrong, you obtain poor results.

It does not work this way with stock investing. There is now 32 years of peer-reviewed academic research showing this.

There are a small number of investors (Value Investors — 20 percent of the population at most) who apply genuine skill to the task of stock investing and obtain good returns as a result. The rest are fooling themselves (according to the research). Nothing they do or fail to do makes much of a difference. For 80 percent of stock investors, there is one factor that determines whether they obtain good results or not and it is a factor to which they pay close to zero attention.

That factor is the valuation level that applies when the stock purchase is made.

There are long stretches of time in which it is almost impossible to fail as a stock investor. We were in one of those stretches from 1982 through 2000. There are other long stretches of time in which it is almost impossible to succeed. We have been in one of those stretches from 2000 forward. The difference is that in 1982 stocks were selling at one of the lowest prices at which they have ever sold. And in 2000 they were selling at what was BY FAR the highest price they have ever sold.

Stocks ALWAYS provide amazing long-term returns when they are selling at low or fair prices. There has never once been an exception in 140 years of stock market history. Stocks ALWAYS provide horrible long-term returns when they are selling at high prices. Again, there has never been one exception in 140 years of stock market history.

If you look at valuations when setting your stock allocation, you are a good investor. That one factor is 80 percent of the game. Do that and you can’t lose. Fail to do that and you can’t win. All the rest that people talk about will have only a relatively small effect.

All investors who do not take valuations into consideration and yet appear to be doing well just got lucky. But only for a time! To buy stocks at a high price and then do well means to end up owning not just overpriced stocks but insanely overpriced stocks. Those “lucky” investors end up losing all the gains that they enjoyed for a time.

Luck doesn’t matter much in the long term. What matters in the long term is whether you pay attention to price when setting your allocation or not.

The tricky part is that it can take decades for this eternal truth to reveal itself once again. Paying attention to valuations does not help you gain good one-year or two-year or three-year results. Valuations only help you in the long term (time-periods of ten years and longer).

So you cannot go by personal experience or what your friends tell you or what is written in magazines or on web sites. You MUST look at the entire 140 years of stock market history to see how this eternal truth reveals itself over and over again. It’s only peer-reviewed academic research that provides feedback worth listening to in this field.

Rob

 

Comments

  1. Rob says

    You’re the one going to prison for things you have said and done on the internet. I’m the one collecting a $500 million paycheck for things I have said and done on the internet. And I’m the one with mental deficiencies.

    That certainly makes sense, Pink.

    Hang in there, man.

    Rob the Mental Case

  2. The Pink Unicorn says

    You continued prison threats and fantasies about $500 million payouts does confirm your poor mental condition. You have wasted over a decade of your life and it has got to have considerable negative impact on your family. Seek the help you so desperately need.

  3. Rob says

    I’m so mean!

    Why should YOU go to prison?

    You’re not saying anything that the Wall Street Con Men haven’t been saying for years.

    It’s not FAIR!

    Rob

  4. The Pink Unicorn says

    Don’t worry, Rob. You are not alone. Your comments are of similiar grandeur as other people with mental conditions.

  5. Rob says

    The claim that what common sense tells us is 100 percent wrong and what 32 years of peer-reviewed academic research tells us is 100 percent wrong and what 140 years of historical data tells us is 100 percent wrong evidences zero delusions of grandeur.

    The Wall Street Con Men are a simple and humble folk. These multi-millionaire marketing men are the salt of the earth.

    My guess is that one of them will offer to serve your prison sentence for you, Pink. You’ve been so loyal for so long.

    Hey! It’s not a guess. I’m, like — so totally sure!

    Rob the Deluded One

  6. The Pink Unicorn says

    Rob,

    You have already been told by so many people (along with documentation) as to where and why you are wrong. As typical, you devolve into threats of prison and lawsuits because that is all you have left in your feeble argument.

    Seek mental help and get a life.

  7. Rob says

    I was wrong to report the safe withdrawal rate honestly and accurately.

    The Buy-and-Hold Mafia doesn’t like that.

    The con won’t work once it is exposed.

    I see now that I was wrong.

    I apologize.

    I’ll never do it again.

    I want to be rich too.

    No more honest posting on the last 32 years of peer-reviewed academic research from this fellow!

    The long, national nightmare is over!

    Rob the Relieved (and Soon-to-be-Rich Con Man)

  8. The Pink Unicorn says

    Rob,

    Your description of honest posting is different than mine. I believe every statement should be able to backed up by proof that does not include just linking to your own past comments.

  9. Rob says

    That’s because you are good and smart, Pink.

    The reason why I have been warning people about the errors in the studies we all use to plan our retirements and saying that those studies should have been corrected within 24 hours of the time the errors became public knowledge is that I am bad and dumb.

    Can you seriously not see that?

    Rob the Bad and Dumb One

  10. Anonymous says

    I have read many of Rob’s posts that really show how messed up he really is. However, Rob recently made a post that once again set another standard for pure lunacy. Here are the words directly from Rob:

    “I’ll certainly look into it, GW.

    It is because of opportunities like this that I know I will win in the end.

    I’ve known it since the afternoon of May 18, 2002, when John Walter Russell posted his sensitivity analysis of Greaney’s study.

    It’s all been playing out the string since then.

    I don’t want there to be so many lawsuits that it brings our system down.

    My guess is that we are going to need congressional action to limit the lawsuits against you Goons and against the sites that have permitted your posts.

    We’ll work that out as a nation.

    Just as we always have before when facing similar challenges.

    We survived the Civil War, GW.

    We survived the Great Depression.

    We survived Disco.

    We’ll survive the Lindaurheads and the Greaney Goons.

    Count it, my old friend.

    Rob the Confident”

    Just look at that mess of a post. Congressional action???? Civil war????

    REALLY?????

    Rob, you really are one messed up person.

  11. Rob says

    Have you watched the Ken Burns series on the Civil War, Anonymous?

    I watched it with my boys. There were parts that were hard to take, You see these photographs of thousands of injured men on the ground and you cannot stand to think of the pain they are in.

    So was it a bad thing? Should we have not fought the Civil War?

    That idea takes us to another bad place, does it not? The Civil War ended slavery. If you want to escape the pain of those injured men, you have to be willing to accept the pain of slavery. The human mind cannot accept that one either.

    We are not perfect creatures.

    That’s what it comes to.

    There is not one person alive who doesn’t want to be able to wave a magic wand in the air and make all the Buy-and-Hold ugliness go away. I obviously want that. My good friend Jack Bogle wants that. Heaven help us all, but I think it would be fair to say that Mel Lindauer and John Greaney want that.

    So why can’t we have it?

    We would need to have Jack stand up in front of a room and say the words “I Was Wrong.” We would have to acknowledge that all the money spent on stimulating the economy was wasted, that we could have brought this economic crisis to an end by permitting honest posting on SWRs and other critically important investment-related topics. We would have to correct the errors in the textbooks published in this field. Lots of powerful and rich people would need to acknowledge mistakes they have made.

    The rewards would be huge. We would enter the greatest period of economic growth ever seen in our history.

    But will those powerful and rich people go along? The evidence of the first 11 years of our discussions is that they are not inclined to do so with any great level of enthusiasm.

    These things get settled eventually, Anonymous. The History Train moves forward. It cannot be stopped by John Greaney or Mel Linduaer or Jack Bogle or anyone else.

    But it doesn’t always move forward without a lot of people getting hurt.

    My job is to try to set things up so that as few people as possible get hurt. I take that responsibility seriously.

    But there are millions of people unemployed today as a result of the 11-year cover-up. After the next crash, that number is going to explode.

    So, yes, we are dealing with a problem that in magnitude is comparable to the Civil War. What do you think happens to support for our political system when the unemployment rate skyrockets from its already high levels?

    We are the luckiest generation of investors who ever lived. We are the first generation of investors to have available to us the peer-reviewed academic research needed to reduce the risk of stock investing by 70 percent.

    When great advances like that come along, rich and powerful people who benefit personally from continued promotion of the old superstitions join together to make sure that those advances are not achieved. That’s the way of the world, Anonymous. We are men, not angels.

    If you know of a way for us to achieve these gains without experiencing political turmoil equivalent to what we saw during the Civil War, I think we all would be grateful to hear about it.

    If you cannot think of anything, I think it would be fair to say that you might want to take enough time out of your day to send up a prayer for all of us, Buy-and-Holders and Valuation-Informed Indexers alike.

    I wish you all the best that this life has to offer a person, my old friend.

    Rob

  12. Anonymous says

    Rob,

    Thanks yet again for making another post that proves my point as to how messed up your really are.

    Really……….sit back and read what you wrote. You are one REALLY messed up dude.

  13. The Pink Unicorn says

    Yes, Rob continues to make even more outrageous posts as time goes on. How about the post where Rob compares himself to Rosa Parks. I am waiting for his comparison to Ghandi or perhaps Job.

  14. Rob says

    You are one REALLY messed up dude.

    My view is that it is the Ban on Honest Posting that is messed up, Anonymous.

    A big part of the problem we have is that we all know that it is messed up to deny people their right to post honestly on investing matters. So those of us who have posted in “defense” of Mel Lindauer and John Greaney naturally feel shame for having done so. And the shame grows greater the longer the Ban continues and the more human suffering it causes.

    It’s a vicious circle that can be broken only by responsible people stepping forward.

    I wish you all good things, in any event.

    Rob the Messed-Up Dude

  15. Rob says

    I am waiting for his comparison to Ghandi or perhaps Job.

    There’s a quote from Ghandi in the “People Are Talking” section of the site. And John Walter Russell compared my trials to the trials of Job a good number of years back. So those bases are covered.

    I believe that the best comparison was one that I made in a post directed to Wanderer at the old FIRE board. Wanderer said something about how my stuff was not winning much applause and yet I was sticking with it all the same. I pointed out that Dylan was booed when he picked up an electric guitar to play “LIke a Rolling Stone.” Today, there are many who consider that the best song ever written in the Rock genre.

    Valuation-Informed Indexing is a powerful new idea. It takes time for powerful new ideas to supplant dead ideas that once attained popularity. That’s just the way of the world.

    Our society is a dynamic one. In a dynamic society, powerful new ideas prevail over failed ideas that can only be kept alive through the use of death threats and board bannings and defamation and threats to get academic researchers fired from their jobs.

    Buy-and-Hold died on the evening of August 27, 2007. That was when Greaney put forward his first threat to kill my wife and children if I continued to post honestly on safe withdrawal rates. Greamey had every reason in the world to want to put forward a data-based case in support of Buy-and-Hold. The fact that he could not come up with one tells a tale about the true nature of this “strategy.”

    My warmest wishes to you and yours, Pink.

    Rob, the New Dylan

  16. The Pink Unicorn says

    “My view is that it is the Ban on Honest Posting that is messed up, Anonymous.”

    Rob, there is no ban on honest posting. It continues on every day. There is the right for boards to moderate and make decisions about banning people that demonstrate bad behavior.

    The comment on Ghandi and Job are somewhat sarcastic, but even then, in your deluded mind, you think you are even in the same league. Meanwhile, you family is left to suffer.

  17. Rob says

    The comment on Ghandi and Job are somewhat sarcastic, but even then, in your deluded mind, you think you are even in the same league.

    Ghandi and Job were never put in a position where they had to stand up to the sorts of individuals who have posted in “defense” of Linduaer and Greaney, Pink. So we just cannot say for sure whether they would have passed the test or not.

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

    Rob the Test-Passer

  18. The Pink Unicorn says

    So, Rob, we all know that the real suffering is really from your own mental disorder and, yes, I would imagine your family does suffer. In the case of Job, we know from the Old Testament that Satan took Job’s children, his servants, his material wealth and his health. Are you saying that your mental disorder has caused more harm to your family than what Job experienced?

  19. Rob says

    Trying to think up ways to spend the $500 million has us all more than a little bit on edge, Pink. I think that much would certainly be fair to say.

    Rob the Big (But Not Hardly Big Enough!) Spender

  20. what says

    Haha, I wonder if Rob actually buys things and thinks to himself ‘Well, it is no big deal I am broke and can’t afford this …I have 500$ million coming to me!’

  21. Rob says

    I know that my site is the most important site on the internet, What. I know that if our free-market economic system is to survive, we have to get accurate and honest information about what the peer-reviewed academic research in this field really says out to millions of middle-class people and that my site is the only site that has been exploring these questions in depth for 11 years now.

    So I know that I will be bringing in a whole big bunch more than $500 million if we elect as a society to survive and then to enjoy the greatest economic boom in our history.

    I acknowledge that there’s a chance that we will not elect that, that there’s a chance that our fear of the ruthlessness of the Buy-and-Hold Mafia has grown so great that we will never work up the courage to turn things around. I put the odds of that at about one in three. If it happens, I will be very sad. But there’s nothing I can do about it. So I just better accept it. And I at least will have the small comfort that will come from knowing that I did everything that possibly could be done.

    Do you do things and think to yourself “Well, this may be the last time I will ever go to the beach or to the mountains or to the baseball park because I will be in prison following the next price crash?”

    That’s the alternative for me. You have made it clear that the Mafia will be happy to have me back on all the boards if only I would be willing to post dishonestly on safe withdrawal rates and all other critically important investment-related topics. That’s financial fraud, right? That’s a felony, right? That gets me a prison cell right next to yours, right?

    That’s better?

    I don’t see it.

    I believe in my good friend Jack Bogle. He’s a hero of mine. None of the work I have done over the past 11 years would have been possible without Jack having first laid the groundwork. I learned about the errors in the Old School SWR studies by reading Jack’s book.

    I think Jack is going to be horrified by the human suffering he has caused when we go into the Second Great Depression. I think that is going to melt the guy’s heart. I think he is going to work up the courage to say the words “I” and “Was” and “Wrong” and I think we are going to see the biggest economic boom in our history. No one is going to be posting in “defense” of Campaigns of Terror in those days!

    We’ll see.

    I don’t know the future, What. I don’t have a crystal ball.

    I know that I need to act with love in my heart. Of that I am 100 percent sure.

    I need to show love for BOTH the Buy-and-Holders and the Valuation-Informed Indexers and even for you Goons. I do that. Every day.

    And then I let it go. Once I have shown love to you and you have spit at the person showing the love, my work is done. At that point it is out of my hands. I have to pray that there is some spark of goodness or kindness or hope for the future or fear of your prison sentence that will at some point help you to feel some little bit of compassion for the millions of middle-class workers whose lives have been destroyed through your efforts.

    We were good friends at one time. So I believe that spark of love resides within you. I know it does! I will continue hoping.

    Anyway, that’s about where things stand. I didn’t start down this road with the thought of earning a $500 million payday. I am of course happy and proud that I have been given the opportunity to do work that has led me to a place where I can realistically expect a payday much larger than that (while being willing to settle for that amount if it helps bring this economic crisis to an end a bit sooner). Money is not the #1 driver for me. It’s helping millions of middle-class people achieve financial freedom many years sooner that gets my bells ringing.

    That said, I have no complaints about the $500 million payday. It’s certainly not something I ever imagined even vaguely possible as a boy growing up in Northeast Philadelphia and eating tomato pie at Tony’s Place!

    My warmest wishes to you, my old and dear friend.

    Rob the Truly Rich (In More Than Just the Most Obvious Sense of the Word)

  22. Rob says

    Haha

    A little strategy tip.

    This is not a good way to start out a post if you are aiming to suggest confidence in your position.

    My best wishes.

    Rob the Internet Strategist

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