Set forth below is the text of an answer that I submitted to a question (“What Are the Best Tools for Learning About Finance and the Stock Market?) at the Quora site:
I am obviously biased but I believe that The Stock-Return Predictor is an essential tool for all stock investors. The calculator performs a regression analysis on the historical return data to reveal the most likely 10-year annualized return starting from any possible valuation level.
Knowing your return in advance takes most of the risk out of stock investing. Many view this tool as “too good to be true.” But it is backed by 32 years of peer-reviewed academic research. Wall Street doesn’t want people to know about it because it lets people know when stocks are so overpriced that they are not worth buying. But I think we all have a right to hear both sides of the story before putting our retirement money on the line.
Stock Valuation and Predicting Stock Returns
Rob
The Pink Unicorn says
Rob,
You claim to have been in TIPS and IBonds since 1996. Didn’t your little stock predictor tell you to buy stocks after the 2009 sell off? Since you are such a stock expert, why are you not a muti millionaire from investing by now?
Rob says
Didn’t your little stock predictor tell you to buy stocks after the 2009 sell off?
The Stock-Return Predictor showed that stocks offered a strong value proposition in early 2009. I reported on this in the RobCasts that I recorded at the time. I also mentioned it to a friend of mine at church, who made a good bit of money on the ride up.
I considered buying stocks at the time. I don’t make quick moves. Never. My approach is first to mention something to my wife and then to talk it over a bit and then to talk it over a second time and only then to make a move. I mentioned to her that stocks were offering a good deal. Before we had a second talk, prices began moving up again and the value proposition diminished and I lost interest.
I have not suffered in any way, shape or form as a result. There is now 140 years of historical data showing that there is no need for any investor ever to make sudden moves. Taking a short-term focus is a terrible mistake, in my view. I have never since 1996 rushed a move, and, if I am true to myself, I never will.
If I got out of stocks when prices again rose to insanely dangerous levels, I would be ahead. This is what my friend at church did. If I had had a guaranty that things were going to play out as they did, I obviously would have done the same thing. But there was no such guaranty available to my friend or to me or to anyone else. My friend was lucky. I am happy for him. But Valuation-Informed Indexing is not about getting lucky. It is about following research-based strategies. Luck is for lottery ticket buyers. (I of course told my friend that there was no guaranty as to how things would play out at the time I noted to him that stocks offered a strong long-term value proposition.)
Stocks went to a P/E10 level of 13 in early 2009. They could have gone all the way down to 7 or 6. If I bought at 13, that would have been a 50 percent loss for me. The question a Valuation-Informed Indexer always asks is — Given the price at which stocks are selling today, could I hold through a worst-case-scenario return sequence?
I think there’s a good chance that I could have held through a drop to 6 and then enjoyed the huge gains that would follow for years to come. But I also think there’s a chance that I would not have held. There was the potential for gains in 2009. That’s for certain. But there was also risk attached to making a decision to try to earn those gains. It was not a slam-dunk.
I elected to take it the other way. I will get in following the next crash. I will enjoy the huge returns that will be available to those who have not experienced the wipe-out. We are talking about the sorts of gains that an investor experiences once in a lifetime, the sorts of gains that permits an investor to retire 10 years sooner than Buy-and-Holders. How could it possibly be a bad thing for me to experience such gains? I don’t see it.
The gains that could have been experienced in 2009 were trivial in comparison. My friend is happy. Things happened to turn out in a favorable way for him. But, again, that was largely luck. Stocks did offer a strong long-term value proposition at the time. So what he did made sense. But ONLY if he was able to hold through a big crash. I presume that he felt that he could do so. We will never know for sure because events made this question moot.
I obviously could have did the same thing my friend did and I would be a little bit ahead today. But I am not sure that I could have held through a big crash. So I think I did the right thing holding off and waiting for the more certain value proposition to come my way.
That said, it was a close call. Had prices dropped to 12, I would have pulled the trigger. I made no mistake staying out of stocks in 2009. But I don’t think it would have been a mistake to have gotten in to a small extent either. Any time stocks are selling at 13 they are worth buying.
I hope that helps a bit, Pink.
Rob the Analytical
The Pink Unicorn says
In short, you have ended up underperforming those that bought and held.
Rob says
Since you are such a stock expert
It’s you who say that I am “such a stock expert.” That’s Goon Talk. It is not true.
What I say is that I know far more about how to invest effectively than people who are often referred to as “experts,” people like John Bogle and Bill Bernstein and Scott Burns and so on. I stand by that one.
Those people are all perfectly smart people. But they have fallen far behind me because they have not yet acknowledged their mistake in thinking that the market is efficient. Once they acknowledge the mistake, my presumption is that they will quickly catch up to me and perhaps even zoom past me. It won’t shock me if that happens. They have more training and experience than I possess. The only thing holding them back today is their stupid, phony pride, which causes them to be so reluctant to acknowledge mistakes they have made that have been uncovered by the academic research in this field.
The full reality here is that there is no such thing as an “expert” in this field today.
I believe that the discovery that the sun rather than the earth is at the center of our solar system was a big deal in our ability to understand Physics. Were there true experts in Physics at the time when everyone believed that the earth was the center? I say “no.” I suppose that people of the time thought of themselves as experts. But, judging things from what we know today, they didn’t know what they were talking about. I mean no insult. I have zero doubt that there were smart people around in those days. Knowledge in the field of physics simply was not yet sufficiently developed for anyone to claim (properly) to be a true expert at the time.
That’s where we stand in the investing realm today. The Buy-and-Hold Pioneers were responsible for huge advances. You certainly have never heard me say otherwise. But the full reality is that they came to know just enough to be dangerous.
They believed in Buy-and-Hold. And so they promoted it. Good for them. I admire them for that. But we now know that they were wrong. They need to acknowledge the error so that we all can move forward. There is no other way.
In relative terms, I am the #1 stock investing expert of today. People like Buffett obviously know hundreds of times more than what I know for how sophisticated investors should invest. But when it comes to the average middle-class person, I am today the King of Investing. Not because I am so darn smart. Because I gave up on Buy-and-Hold on the day Greaney threatened to kill my wife and children and I have been learning amazing things ever since, digging deeper and deeper and deeper into the realities.
I am a one-eyed men in a world of blind investing experts. In relative terms, I am an expert. But the full reality is that there are no true investing experts today. Our collective understanding of how stock investing really works remains in its formative stages. I have come up with scores of potentially very powerful ideas. But those ideas still need to be challenged by lots of other smart people. Until we have a national debate on these questions, I will not feel comfortable having 100 percent confidence in most of the ideas I have put forward over the past 11 years. (It would be fair to say that I am pretty darn sure about the SWR thing, however.)
Rob the (Kinda, Sorta) Investing Expert
Rob says
In short, you have ended up underperforming those that bought and held.
Research-based strategies have been trouncing the pure Get Rich Quick approach for 140 years now, Pink. There has never been a single exception to the rule.
Get Rich Quickers tell themselves all kinds of stories to ease the pain that follows when they abandon what their common sense tells them must be so and what the entire historical record confirms is indeed so. That’s you, my old friend.
I wish you the best of luck with whatever strategies you elect to follow in any event.
Rob
The Pink Unicorn says
Market timing is a get rich quick scheme. Those that bought and held the S&P out performed you.
Rob says
why are you not a muti millionaire from investing by now?
I did not have a significant amount of money to invest until early 1996. At that time, stocks were selling at insanely dangerous prices. The academic research of the past 32 years shows that the worst mistake an investor can make is to invest in stocks at such times. That one mistake will set an investor back by years on his hopes of financing a decent retirement. In some cases, it will set him back by decades. There has never been a single exception to this Iron Law (Bogle’s term) of stock investing.
Stock prices have never (except in the case of the 2009 exception discussed above) returned to reasonable levels since. So I have naturally continued to enjoy the huge edge experienced by those following research-based strategies and tried hard to tune out the relentless Buy-and-Hold Noise pushed so relentlessly by the Wall Street Con Men.
Buy-and-Holders seem to think that stock gains are distributed evenly over the course of an investor’s lifetime. Huh? Nothing could be farther from the truth. Stock gains are telescoped. Time-periods in which Buy-and-Hold becomes popular always end up being a massive wipe out for all Get Rich Quickers. It is the time-periods following the times when Buy-and-Hold is popular that all the money is made. Those following research-based strategies are able to buy up the shares of the Get Rich Quickers at a pittance and then enjoy the huge windfalls that follow when large numbers of investors are taken by the Wall Street Con Game.
There is no research-based strategy that provided anything close to the gains I have enjoyed with Valuation-Informed Indexing from 1996 forward.
I could have earned more going with lottery tickets or following Buy-and-Hold strategies and hoping that through some mystical process I would know just when to abandon the Get Rich Quick fantasy. But buying lottery tickets and following Buy-and-Hold approaches are not investing. That stuff is gambling.
Not with my retirement money.
Not this boy.
Please try to find someone else.
No can do.
I’m afraid that that sort of thing is really not my particular cup of tea.
Rob the Particular Tea Drinker
Rob says
Market timing is a get rich quick scheme.
Long-term timing is the exercise of price discipline.
It is the failure to exercise price discipline that is the ultimate Get Rich Quick scheme.
Rob the Advocate of Research-Based Investing Strategies
Rob says
Those that bought and held the S&P out performed you.
All Get Rich Quickers brag about how they can beat research-based strategies. I have never known a single exception to the rule.
Yet somehow 32 years of peer-reviewed academic research has accumulated showing that the pure Get Rich Quick approach is a stone cold loser in the long term.
I wonder why.
Rob the Research-Informed Commentor
The Pink Unicorn says
And what you are peddling is market timing, Rob.
Rob says
And what you are peddling is market timing, Rob.
I advocate long-term market timing because there is 32 years of peer-reviewed academic research showing that there is zero chance for any investor to achieve good long-term results without practicing long-term market timing.
If I say that I am promoting research-based investing strategies while in reality promoting the one strategy (Buy-and-Hold) that the last 32 years of peer-reviewed academic research shows has zero chance of ever producing good results for even a single investor, I am guilty of financial fraud, Pink. That’s a felony. That means I get a prison cell next to yours and Bernie’s.
Not interested.
Please try to find someone else.
I can’t go for that.
Rob the Non-Fraudulent
The mentally stable Pink Unicorn says
Market timing is a get rich quick scheme, Rob. That can get middle class investors in trouble and you will ruin their retirements. That will result in you getting sent to prison. The peer reviewed Academic research says that market timing cannot beat the buy and hold index investing and you are committing fraud. While you are sitting in a jail cell next to Bernie, I will be accepting my Nobel prize and people will be sending me checks out of guilt. I will probably collect $1 Trillion dollars. You need to admit your guilt by close of business today in order to reduce your prison sentence.
Once all this takes place, world peace will break out and the world will come together.
Rob says
That all makes good sense, Pink.
Rob, the One Lacking Sense
bannwd plop contributor says
Bennett:
I considered buying…
I mentioned…
I lost interest…
I have not suffered
I would be ahead…
If I had…
I obviously would have…
I told…
I noted…
If I bought…
would have been…
I think…
I could have…
I also think…
I would not have…
I elected to [not do anything]…
I will get in following the next crash…
I will enjoy the huge returns….
I presume…
We will never know…
I obviously could have….
I would be…
I am not sure…
I could have…
I think…
I would have…
I made no mistake…
I don’t think…
………
This is the person who claims to know the most about stock investing on the planet. Correct?
LOL
Rob says
That is correct, Banned.
My best wishes to you and yours.
Rob the Investing King
The mentally stable Pink Unicorn says
Rob,
Let’s just skip right to the end result. I expect that you will be the replacement for Ben Bernake, right?
Rob says
The insights we have developed in the Retire Early and Indexing communities over the past 11 years will certainly inform Bernake’s decisions following the lifting of the Ban on Honest Posting, Pink.
The first step to ending the economic crisis is forming a proper understanding of its cause.
It was the promotion of Buy-and-Hold strategies that caused the economic crisis. We created $12 trillion worth of Pretend Money and, when that money disappeared, consumers were not able to spend enough to keep the economy going.
Shiller’s research did not just point to a huge advance in our understanding of how investing works. It pointed to a huge advance in our understanding of how a free-market economic system works.
Bernake will be learning amazing things along with all the rest of us once we decide as a society that it is okay for Jack Bogle to admit mistakes and that we want our economic and political systems to survive.
My best wishes to you and yours.
Rob the Bernake Advisor
The mentally stable Pink Unicorn says
And it had nothing to do with the mortgage industry as well as mortgaged backed securities. Hey Rob, I hear the phone ringing. That must be the White House looking for you.
Rob says
And it had nothing to do with the mortgage industry as well as mortgaged backed securities.
These may have been secondary factors, Pink. When you have $12 trillion of Funny Money sloshing around, it gets used to finance all sorts of bad ideas. But, no, it is not the bad ideas that got financed that were the primary problem. The primary problem was the $12 trillion of Funny Money.
You don’t see anybody showing reluctance to talk about mortgage backed securities, do you? When something happens that people are ashamed of, they don’t want to talk about it. It’s the thing that people don’t feel comfortable talking about that is the real problem.
We have to talk about the real problem sooner or later. There is no other option available to us. Stretching it out increases the pain, that’s all. I am the one trying to bring the pain to an end. I am the one trying to help every single person involved.
Don’t let the bad guys get you down, man.
Rob the Pain Reliever
Rob says
That must be the White House looking for you.
I’ll jump to take the call if it comes, Pink. That’s the only part in my control.
Democrat or Republican makes no difference. We’re all in the same boat re this one.
Rob the Non-Partisan
The Pink Unicorn says
Rob,
No one is ashamed to talk about anything. Anything and everything is discussed by rational people and also by crack pots. You have had plenty of opportunity to have your say and people have responded. You just don’t like the answers. You got kicked off a bunch of boards for acing like an ass and all of your activities since then are like a child throwing a temper tantrum.
Rob says
No one is ashamed to talk about anything.
That explain the death threats.
It’s funny that I didn’t see it that way going back to the first day.
Rob the Slow-to-Get-It
The Pink Unicorn says
Well, we still want you to explain the threat you made:
on Oct 13th, 2005, 7:23am, hocus wrote:
After reading this article, I think we should be looking into the idea of killing the reporter who wrote the article as well. Does anyone know if we can figure out her address by having our researchers do a little bit of work searching the internet. I think that if we killed a few reporters, it might send the right signal to others. What do you all think?
We also should kill ES and Dory 36, in my view. Both of these site owners failed to ban Rob Bennett from their sites when he first starting reporting accurately what the historical data says re SWRS. They contributed to the problem in a big way by acting so irresponsibly. I seem to remember Dory36 putting up a photo of his grand-daughter at his web site. He seems to love her a lot. Any chance that we could find out where she lives, and go to her house with a baseball bat and kill her? That would send a message to that Bill Sholar individual, I bet.
We need to get more serious about the Campaign of Terror if we are to stop these lies. If too many lies are repeated too many times, people are going to start believing they are true. Our words are often ignored. Our threats often do the trick. I think the way to protect the REHP study at this point is to put forward a lot fewer words and a lot more death threats.
Any thoughts from fellow researchers?
Rob
Rob says
If we had killed Dory36’s grand-daughter at the time I made the suggestion, I bet that Wade Pfau fellow would never have gotten so uppity.
Am I right or am I right?
Rob the Killer
The Deleted plop contributor says
You are one sick person, Rob Bennett. Get the help that you so desperately need.
Rob says
Will do, Deleted.
Rob the Sicko
The Pink Unicorn says
Rob said:
“I don’t pay any attention to the market value of TIPS, Dab. It makes zero difference.
What I pay attention to is whether the TIPS pay the amount they promise to pay on the face of the certificate.
They do!
So long as that is so, and so long as the amount they pay is greater than the amount stocks are priced to pay, it makes sense to be in TIPS.
When the day comes (and it will) when stocks are priced to pay MORE than TIPS, it will make sense to sell the TIPS and use the money to buy stocks.
This is what has worked for 140 years. There has never been one day in that 140 years when common sense did not provide far better results than Buy-and-Hold (or any other pure Get Rich Quick approach, for that matter).
And of course there has never been even a tiny sliver of academic research giving any reason to believe that that ever might change.
I naturally wish you the best of luck with whatever investing strategies you elect to follow in any event.
Rob the Noise Ignorer”
So Rob, you don’t pay attention to the value of TIPS, yet here you are talking about the value of stock. Of course it was already shown to you how the S&P has outperformed your TIPS and Ibonds strategy.
So now you focus on what it pays out. Well, if that is what you want to look at, we can look at a whole host of stock that pay a higher dividend.
Just funny how you try and twist around to suit a story.
Rob says
So Rob, you don’t pay attention to the value of TIPS, yet here you are talking about the value of stock.
The two things are different, Pink.
TIPS pay the amount noted on the certificate.
Stocks do not have a return printed on the certificate!
To know what the return on stocks is going to be, you need to look at valuations. There is no other way.
That’s the only reason I do it. I don’t look at valuations because I want to make you mad. I look at valuations because I want to know what my return is going to be, I want to know whether stocks are worth buying or not. There is no other way to know!
Rob, the Informed Consumer of Stocks
Rob says
if that is what you want to look at, we can look at a whole host of stock that pay a higher dividend.
But you don’t necessarily get that amount as your return. Say that a stock pays a 5 percent dividend and the price of the stocks drops 65 percent. Is your return 5 percent? It is not.
A TIPS paying 3.5 percent real really gives you a return of 3.5 percent real. That’s a big difference.
Rob, the Fellow who Looks at All the Angles
Rob says
Just funny how you try and twist around to suit a story.
The idea that there is something “controversial” about looking at the price of stocks before deciding whether to buy them or not is 100 percent insane, Pink. I don’t say that YOU are 100 percent insane. I’d be five dollars that if we were talking about anything other than stocks, you would agree with me that the person making a purchase must consider price. If someone told you he paid whatever the dealer asked when buying a car and never once checked whether the price made sense or not, you would say he was a fool. But that’s what you do when you buy stocks.
I understand why the Wall Street Con Men think it’s a good idea if you never check the price when buying their product. What I don’t get is how it could ever work out well FOR YOU. You are the one being taken here.
Rob, the Fellow Who Does Not LIke to See His Friends Be Taken by the Wall Street Con Men Pushing Buy-and-Hold “Strategies”
The Pink Unicorn says
Rob,
You are spinning in circles to try and fit a story to the circumstances. You are now going back to total return and as stated already, we see that those that bought and held the S&P did better than you.
If you are to look at the drop in selling price of the stock, then you must look at the current market value of the TIPS as a fair comparison. As pointed out by Dab, that value took a major dump just recently. If you want to compare pay outs, then make the same comparison. You can’t just pick and choose.
Rob says
we see that those that bought and held the S&P did better than you.
This is of course a false statement.
Wade and I spent 16 months working on the peer-reviewed academic research showing that Valuation-Informed Indexing strategies have now beaten Buy-and-Hold for 140 years running — and not by a little bit. The response of you Goons was to threaten to send defamatory e-mails to Wade’s employer in an effort to get him fired from his job. People who are confident of their “strategies” do not behave in this way, Pink.
Rob, the Fellow Who Does Not Need to Commit Criminal Acts to Make the Case for His Investing Strategies
Rob says
If you are to look at the drop in selling price of the stock, then you must look at the current market value of the TIPS as a fair comparison.
Did my good friend Jack Bogle pass a law, Pink?
This is 100 percent silliness.
If the asset class provides a guaranteed return, the obvious think to do is to look at what the obvious return is when determining whether the asset class is worth buying or not.
If the asset class does NOT provide a guaranteed return and the return depends on the valuation level that applies at the time the purchase is made, the obvious thing to do is to look at the valuation level that applies at the time the purchase is made.
I understand why the Wall Street Con Men spend hundreds of millions of dollars in marketing expenses seeking to persuade you that doing this might not be necessary. But I am not personally interested in making the Wall Street Con Men rich. I am more interested in making myself rich. I am confident that to do that, I need to spend less time listening to the Get Rich Quick fantasies spun by the Wall Street Con Men and more time looking at what the last 32 years of peer-reviewed academic research has to say on the subject.
Good luck with whatever strategies you elect to pursue, Pink.
Rob, the Fellow Who Is Not Too Big on Accepting What the Wall Street Con Men Say Without Question
The Pink Unicorn says
“This is of course a false statement.”
No it is not, Rob and you have already been given the proof. Deleting posts does not change facts.
Rob says
Please take good care, Pink.
Rob, Friend of the Goons
The Pink Unicorn says
“If the asset class provides a guaranteed return, the obvious think to do is to look at what the obvious return is when determining whether the asset class is worth buying or not.
If the asset class does NOT provide a guaranteed return and the return depends on the valuation level that applies at the time the purchase is made, the obvious thing to do is to look at the valuation level that applies at the time the purchase is made.”
So now you ONLY want to look at guaranteed return. Okay them Rob. Stop talking about stocks.
We see that better returns have been made with the buy and hold of the S&P versus your purchase of TIPS and IBonds. Then you decided to just look at what it pays out (such as interest or dividends) and we know that you can get higher payouts from Dividend stocks. Therefore, you now change the story to “guaranteed” payouts. Okay, so why don’t you just provide advice to little old ladies on CD’s and Bonds and leave it at that. We also see that you have failed in performance and understanding when it comes to total returns on stocks.
Rob says
So now you ONLY want to look at guaranteed return. Okay them Rob. Stop talking about stocks.
I don’t only want to look at guaranteed returns. And I ALWAYS consider stocks.
Stocks are my favorite asset class. So long as stocks are priced to provide a return that is competitive with the safer asset classes, I go with stocks.
But why should I go with stocks when they are priced to provide far lower returns than TIPS or IBonds or CDs? That’s the part I don’t get, Pink.
It’s when I see you saying that it is better to be in stocks even when far higher returns are available from TIPS and IBonds and CDs that I say you have been taken in by the claims of the Wall Street Con Men.
That’s where I am coming from, in any event.
Rob the Rational Investor
Rob says
Okay, so why don’t you just provide advice to little old ladies on CD’s and Bonds and leave it at that.
It is this sort of statement that causes me to conclude that Buy-and-Hold is 100 percent emotional mumbo jumbo.
You are suggesting here that it is okay to invest in stocks when they are priced to provide returns far less than those available from TIPS and IBonds and CDs because, hey, at least stocks are more risky.
Huh?
I seek to avoid risk, not to take it on when when doing so means locking myself into an asset class that pays far smaller returns.
Are you saying that these old ladies are making a mistake going with the higher-return asset class?
Won’t these old ladies be able to buy more stocks after the next crash, when stocks will again be priced to provide far higher returns than the super-safe asset classes?
They will be the ones able to invest heavily in stocks and you will be the one going to a zero stock allocation because of the huge hit you took. It seems to me that they are the more pro-stock investors in the long run. Is that not so?
I’d rather own more stocks and obtain far higher returns and experience far less risk than enjoy whatever pathetic thrill you get from investing heavily in an asset class of insanely high risk and very small returns while calling all those who follow research-based strategies “old ladies.”
My take.
Rob the Defender of Smart Little Old Ladies
The Pink Unicorn says
Rob,
Your response and strategy is what is emotional. You want less risk, so you bought TIPS and IBonds. Others of us focus on return and we see that we have done better.
Rob says
That makes sense, Pink.
Rob, the Emotional One
The Pink Unicorn says
Rob,
You are such an expert………at deleting posts.
Rob says
Thank for you your kind words, Pink.
Rob the Goon Slayer
what says
I thought your whole theory was based on stocks having a guaranteed 6.5% long term return?
(As ridiculous as that is)
Rob says
No.
That comment makes no sense, What. You are letting your emotions influence your thinking.
There is no guaranteed return. 6.5 percent real is the return that has applied for 140 years now. Starting today and going forward, it could be 6.4 percent or 6.6 percent. There is no way of knowing.
Could it be 30 percent or 40 percent?
Anything’s possible. A standard deviation analysis shows that there is a 1 in 140 chance that this will be the first time in history that a Buy-and-Hold strategy will work. It could happen. No one has a crystal ball.
That said, I think it would be fair to say that those pushing Buy-and-Hold strategies are focused on what brings in the most money to them, not to you, the investor. What works best for you the investor are research-based strategies. That’s been so for 140 years now.
If you hear someone say that he thinks the going forward return may be 6.4 percent real or 6.6 percent real, I would listen to the rationale that he puts forward and see whether it makes sense to you or not. If you hear someone pushing wild-eyed Buy-and-Hold “ideas” suggesting that you should count as real gains of 30 percent or 40 percent, I would run, not walk, in the other direction. There’s a lot of money to be made in this field pushing smelly Get Rich Quick garbage. You don’t want it to be yours.
My best wishes to you.
Rob, the Most Severe Buy-and-Hold Critic Alive on Planet Earth Today