Set forth below is the text of a comment that I recently put to another blog entry at this site:
if you have a single instance of an academic or professional agreeing with your claim that 1) your strategy is one that can and should be adopted by all stock investors; and 2) that once that happens stocks will provide a fixed real return of 6.5% year after year, I for one would live to see it.
There are many big names who agree with me that investors should take price into consideration when buying stocks just as they do when buying anything else. It would not be possible to list the names of all these people. Some of the lead proponents of this idea are: Rob Arnott, Andrew Smithers, Jeremy Grantham, and Ed Easterling. You will on many occasions even find big-time Buy-and-Holders like Jack Bogle and Bill Bernstein and Larry Swedroe mixing in honest and accurate stuff in with the smelly Buy-and-Hold garbage for which they are better known. I learned about the errors in the Old School safe-withdrawal-rate studies by reading one of the honest and accurate research-based passages in Bogle’s book.
I am not aware of anyone else ever saying that volatility in stock prices will go away once we open the internet up to honest posting on the peer-reviewed academic research of the past 33 years. I think it would be fair to describe that one as being a Rob Bennett original.
It does follow. But it doesn’t obviously follow. You need to spend some time thinking about this stuff to see how it follows. I have been working through how Valuation-Informed Indexing works for 10 hours per day and seven days per week for 12 years now. So I have had the opportunity to think about thing that no one else in this field has yet been able to think about. I am very proud of all that I have come up with as a result of putting so much sustained effort into the project. It’s largely because I keep finding exciting new implications to Shiller’s “revolutionary” (his word) 1981 insight that I keep drilling down deeper and deeper. Developing powerful new investing insights is what it is all about, in my assessment.
I think it’s possible that there is someone else out there who today possesses a vague understanding of this insight but who has not yet developed it fully enough to feel comfortable going public with it or who is afraid to go public with it because he knows how the Buy-and-Hold Mafia will react if he does. I have wondered at times whether Shiller has already written a sequel to Irrational Exuberance and is just holding back on publication of it until he feels that it would be safe to share more of what he understands about how stock investing works with the rest of us.
That’s speculation, of course. It is possible that Shiller and all others have told us all that they know. I certainly did not have that insight right off the bat. It came to be after lots of work trying to understand and explain to others the implications of Shiller’s findings.
Insights don’t just pop out of nowhere, in my experience. They come about sort of in the way in which songs come to songwriters. If you spend all of your days trying to write new songs, you might go a long time without having one come to you. Then one day something just clicks. It works that way with investing insights. If I stopped working this ground, I doubt that I would experience more insights. It is by forcing myself to come to terms with the sorts of challenges that people like you put to me that I cause my mind to go over lots of ideas and form them into new combinations and see things that follow from them.
It’s work. When the insight comes, it seems easy and obvious. But you never get to that point unless you work it and work it and work it, preparing the ground. One of the reasons why I engage with you Goons (lots of people think I am nuts to do so) is that I want to be challenged. I obviously don’t approve of the manner in which you present your challenges. You make things ten times harder than they need to be for every single person involved by the manner in which you choose to interact with me. But there’s some sort of legitimate point being made in perhaps one in twenty of the Goon posts. The insights that I can develop as a result of responding to that one genuine point can often make it more than worth my time to endure the ugliness and smelliness of the other nineteen comments.
I would flip it on you. You point out that there is no one else who has said that volatility would go away if we were to open the internet to honest discussion of the implications of Shiller’s “revolutionary” (his word) findings. It’s a fair point. But it is also a fair point for me to note that there is no Buy-and-Holder in 12 years who has been willing to make a case for why this insight is not a legitimate one. Why not?
The Return Predictor lets investors know what stock allocation is in their best interests. If every investor had access to a tool like the Return Predictor, why would all investors not ACT in their best interests? If all investors acted in their best interests, you could never again have a situation like the one we had in 2000, where stocks were paying a likely annualized long-term return of a negative 1 percent real and a risk-free asset class (TIPS) was paying a positive 4 percent real. Stock will never again reach those valuation levels once we supply a means for investors to apply the brakes to runaway overvaluation. Please point out to me the weak link in the logic chain if you see one.
If you want to say that there will always be some overvaluation and some undervaluation, I won’t argue with you. That could well be. But it seems to me that we are going to see a very big change once we supply investors with the tools they need to act in their best interests. If volatility is not eliminated altogether, it is certainly going to be diminished to a very big extent.
Is this a huge change? It is. I acknowledge that.
But have we not seen huge changes in other fields of life endeavor? I mentioned the introduction of the polio vaccine above. Was that not a huge change? Was the ending of slavery not a huge change? Were the advances we have seen in recent decades in computer technology not a huge change? Did the introduction of the birth-control pill not bring about huge changes? Did the harnessing of electricity not bring about huge changes?
If you want to be skeptical of claims re huge changes, that makes perfect sense. There are probably 20 claims of huge changes for every legitimate huge change. I have zero problem with a healthy skepticism. But death threats? Unjustified board bannings? Tens of thousands of acts of defamation? Threats to get academic researchers fired from their jobs? I have huge problems with that sort of thing.
There are two possibilities.
One is that I am wrong re my claim that price volatility will become a thing of the past once we open the internet up to honest posting re the findings of the last 33 years of peer-reviewed academic research. If I am wrong, smart people will obviously be able to say why without engaging in abusive practices. So I will come off looking like a fool. I have more than a little bit of a hard time thinking that that would break your heart, Curious.
The other possibility is that I am right. In that event, we are looking at achieving the biggest advance in our understanding of how stock investing works in our history. That’s pretty darn exciting stuff.
So there’s huge potential upside in permitting honest posting and zero potential downside. I wonder how we should play this one.
Anyway, no, I am not aware of anyone else saying today that price volatility will disappear once we open the internet up to honest posting on the last 33 years of peer-reviewed academic research and the implications that follow from it. But I sincerely believe that to be the case and I will continue to say that that is what I believe when the question is put to me.
My best wishes to you, Curious.
Rob
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