Set forth below is the text of a comment that I recently posted to another blog entry at this site:
Rob,
If people really do support your ideas, why do we not see them participating here in the comments section?
You’re asking an intelligent question, Anonymous.
There are lots of people who have a great interest in the ideas. I’ve seen that at every discussion board and blog at which I have posted. I’ve seen that going back to the first day of discussions — May 13, 2002.
But you are right that people do not post comments here. And people do not stand up for me at other places when you Goons attack me. There have been a few exceptions to that general rule. But, even in those cases, people usually stick up for me one or two times and, when they see the attacks continue, retreat into silence.
I spend a lot of time thinking this over, trying to come to a better understanding of why people behave as they do.
One thing is that people are intimidated by the subject matter. People think investing is complicated. They don’t feel able to form their own assessments of whether the experts are shooting straight or not. They feel that they need to defer to the experts.
The few who don’t feel that way are generally Buy-and-Holders. That is, most people don’t feel they possess enough expertise to have their own opinions. And those who do feel that they possess expertise are generally Buy-and-Holders. Buy-and-Hold is known as the research-based approach. So people who devote some effort to learning the realities usually become Buy-and-Holders.
Another factor is that Buy-and-Hold does seem plausible. I don’t think that it really hangs together. But I acknowledge that it APPEARs to hang together. It is certainly logical. As an overall package, it seems to make a lot of sense.
A BIG factor is that academic researchers support it. That gives Buy-and-Hold a credibility that it would otherwise not possess. If it were only people who work for mutual funds who endorsed Buy-and-Hold, people would be more skeptical. People see that people who lack a financial interest support it and that gives them confidence that all is on the level.
Most people have a good bit of their life savings in stocks and the Buy-and-Holders are telling them that all of that money is real. That’s a more appealing message than the message that I deliver, that most of their bull market gains were comprised of Pretend Money and that we are due for a 65 percent price crash in the not-too-distant future. People are scared that they are not going to have enough money to retire and they don’t like hearing that they actually have less than they have been led to believe they have.
People are social creatures. All advertising is rooted in this reality. So people often go by what their friends and neighbors and co-workers say. Most people today believe in Buy-and-Hold. That’s a self-fulfilling prophecy. So long as most people believe, lots of people are going to believe because everyone around them believes. At some point, the doubters will grow to a large enough percentage of the population that more people will fell free to let themselves entertain doubts.
Many people are open to considering the merits of Valuation-Informed Indexing for so long as I do not criticize Buy-and-Hold or say that Buy-and-Hold is wrong or in error or represents a Get Rich Quick scheme or anything along those lines. I have seen this over and over. People HATE that. People’s minds close when I say that sort of thing.
People don’t like conflict. So, when you Goons bring your poison to the table, people lose interest in exploring the new ideas. There are lots of people who would be open to exploring the new ideas so long as there was no nastiness in evidence. But they leave the room when they see ugly stuff.
The biggest factor of all is how revolutionary a change Valuation-Informed Indexing is. If I told people that I had found a way to reduce stock investing risk by 10 percent, they would think it is wonderful. When I say that I have found a way to reduce stock investing risk by 70 percent, they lose interest. It doesn’t seem possible. So they tune it out.
People think I lack street cred. I did not go to investing school. I have never managed a big fund. People find it hard to accept that I know things about stock investing that people with much better qualifications in this field do not know.
The delayed-feedback thing is huge. Most people don’t like theory. They go by what they see with their own eyes, concrete results. Buy-and-Hold delivered amazing concrete results for many years. People were highly impressed by that. Valuation-Informed Indexing has worked through history in every 30-year time-period. But it takes a long time for 30 years to pass. People feel that it takes too long for VII to “come true” and that it is risky to put their confidence in it because it seems possible that it might not come true this time.
People look askance at explanations of how stock investing works that rely too much on examinations of human psychology. Numbers strike people as hard and real. Explanations of how stock investing works that are rooted in examinations of human psychology strike people as loose and vague.
VII hasn’t been around that long. It’s been 33 years. That’s not a short amount of time. But, given that investing has been around in some form for a long, long time, a model that is 33 years old is really just a baby. When I say something like “volatility is optional,” it strikes people as crazy. Volatility has been around for as long as stock investing has been around. It’s hard to accept claims that rules that have governed how stock investing works for hundreds of years have been turned on their heads.
The leaders among the Valuation-Informed Indexers are tentative in how they state things. Shiller is the perfect example of this. He pulls his punches on issue after issue. Buy-and-Holders don’t pull their punches. Buy-and-Holders speak with great authority. Valuation-Informed Indexers come off sounding as if their ideas are not that big a deal or as if they do not possess great confidence in the ideas. Valuation-Informed Indexing did not even have a name until I gave it one!
People LIKE the big-name Buy-and-Hold advocates. That’s another big one. Bogle is a very likable individual. So are most of the others.
Finally, people are more inclined to participate at a board or blog when they see lots of other people participating. There probably are people who pass through here from time to time who would in other circumstances come forward with comments or questions. They see either that there are no comments or that the only comments are angry ones and they decide to mosey on down the road.
Those are most of the explanations of the unfortunate phenomenon that you refer to that I have been able to come up as a result of my observations of the first 12 years of our discussions.
Rob
People close their minds when you tell them that successful strategies that have worked for decades are wrong.
Many people are open to considering the merits of Valuation-Informed Indexing for so long as I do not criticize Buy-and-Hold or say that Buy-and-Hold is wrong or in error or represents a Get Rich Quick scheme or anything along those lines.
Yes, that’s correct. You have to be able to express your opinion (and that’s all it is) without denigrating the opinions of others. The bullying take-no-prisoners approach only works for small children.
Now –
There’s nothing illegal about your anti-social behaviors. You’re just going to find yourself like Elliot Rodger. Alone, ridiculed, and excluded from the group.
People close their minds when you tell them that successful strategies that have worked for decades are wrong.
That’s a nice, concise statement of the problem facing us as a society today, Anonymous.
Buy-and-Hold has never worked. The historical record shows us that price discipline has always been 100 percent required and that investors have always suffered horribly in the long run when they failed to exercise price discipline. Buy-and-Hold (ignoring price when setting your stock allocation) has always dramatically increased risk while also dramatically diminishing return. Every time in U.S. history when Buy-and-Hold “strategies” became popular, they have caused collective losses so large as to bring on an economic crisis. There has never been a single exception and it is not possible for the rational human mind even to imagine how there ever could be an exception. Buy-and-Hold (Great Rich Quick) is truly foul stuff.
But most people do NOT perceive this to be the case today. Even most Valuation-Informed Indexers do not perceive this to be the case. To take the thought as far as it can be taken, even I did not perceive this to be the case until The Great SWR Debate had been swirling about us all for a number of years (and even Robert Shiller — the fellow who got the ball rolling in this direction — does not appear to fully perceive this to be the case).
People think that Buy-and-Hold “worked” in the past because they know that large numbers of people have followed these ideas in the past and they know that we have had a well-functioning economy in the past and that we have been a prosperous people in the past and that stocks have offered a strong value proposition in the past. If all those things are so and if all those things were so during times when large numbers of people were following Buy-and-Hold strategies, how bad could Buy-and-Hold really be?
The answer, it turns out, is — Pretty darn bad!
But most people (including most “experts”) never bother to check the historical record for themselves. To see how detractive a force Buy-and-Hold has been for 140 years now, you MUST look at the historical return data. There is no other way. The damage done by investors failing to exercise price discipline has always been counter-intuitively great. The only path that I know of that leads to people having this all click for them is having them study the historical return data and think through the meaning of what they see.
Consider the Great Depression.
The obvious cause was the high P/E10 value we saw in 1929. We have had an economic crisis every time we have gone to 25. In 1929 we went to 33! A P/E10 of 33 was OBVIOUSLY going to bring on a depression given that a P/E10 of 25 always causes an economic crisis.
BUT WHAT IS OBVIOUS TO THE PERSON WHO HAS THE BENEFIT OF 33 YEARS OF PEER-REVIEWED RESEARCH SHOWING THE DANGERS OF BUY-AND-HOLD WAS NOT AT ALL OBVIOUS TO PEOPLE WHO DID NOT POSSESS THAT BENEFIT.
Historians have not generally attributed the Great Depression to the popularity of Buy-and-Hold strategies during the 1920s. There are references to the runaway bull market of the time in most accounts of the onset of the depression. There is a foggy understanding out there that the price crash played a role. But people did not have access to Shiller’s “revolutionary” (his word) findings when they put together their tentative (but not always described as such!) explanations of what caused the Great Depression.
Now we know.
Or do we?
The reality is that 33 years after publication of Shiller’s research most of us still do NOT know the true cause of the Great Depression or the true cause of today’s economic crisis or the true cause of the stagflation of the 1970s or the true cause of the economic crisis of the early 1900s. We know intellectually. We have access to all the materials and findings we need to make sense of things. But we have not yet permitted ourselves as a society to talk through the IMPLICATIONS of Shiller’s finding. So you don’t often hear people saying this stuff out loud. As a result, we don’t really “know.” We know and don’t know at the same time. Knowledge that we are so afraid of does not provide us real-world benefits because it remains hidden from us for so long as we fear it too much to talk it through.
People THINK that Buy-and-Hold has been successful in the past. They cannot point to any research showing this because no such research exists or ever can exist. The idea that a Buy-and-Hold strategy could ever work for even a single long-term investor is of course a logical impossibility.
But people do not see that today.
Or do they?
The full reality is that they DO see it. Just on a different level of consciousness than the level on which they refuse to see it.
We know AND we do not know. Both things are so.
That’s why we are at one and the same time insanely defensive about Buy-and-Hold and intensely confident about it. We are so confident that we don’t feel a need even to permit discussion of the 33 years of peer-reviewed research showing that there is precisely zero chance that it could ever work for even a single long-term investor. But that’s of course not evidence of a true confidence. Defensiveness is evidence of a LACK of confidence. We deny ourselves access to discussions of the realities because it is only by suppressing discussion of the realities that we can continue to live in the fantasy world in which all of the laws of stock investing will be turned on their heads and we will see this “strategy” finally work out well for one or two long-term investors.
People’s minds are closed. That much is so.
And people profess a belief that Buy-and-Hold can work, or at least that it is not so terrible a strategy that it cannot at least kinda, sorta work.
But people do not truly believe these things, Anonymous.
People who truly believed that a Buy-and-Hold strategy could work would have zero problem with permitting discussion of the last 33 years of peer-reviewed research.
People know that Buy-and-Hold can work. And people ALSO know that it cannot work. People possess both a Get Rich Quick urge AND common sense. The two are always at war. That’s the cardinal rule of investing analysis.
So long as we acknowledge that we are just playing games when we pretend that a Buy-and-Hold strategy can work, things more or less work out okay. But there have been four times in history when we have elected as a society to start taking the smelly Get Rich Quick garbage a little too seriously and have let bull markets go on long enough to crater the entire economy in their aftermath.
Did we know that that’s what we were doing?
Sure.
But we didn’t know too. Just as an alcoholic both knows that he has a problem and denies that this is so with every fiber of his being whenever he is challenged on the point.
Can we get over our alcoholism?
I say “yes.”
Having 33 years of peer-reviewed research showing us how stock investing really works will make a difference.
Once we collectively give ourselves permission to reap the benefits of our good fortune of being the luckiest generation of investors ever to walk Planet Earth!
Take good care, old friend.
Rob
Yes, that’s correct.
I am happy to see that we agree at least on this much, Anonymous.
You have to be able to express your opinion (and that’s all it is)
Yes and no.
The findings of peer-reviewed research are more than the expression of opinions. Research is rooted in data, which is objective.
But you are right that there is an opinion element to the story even when the story is a research story. Shiller’s research is rooted in the same data as Fama’s research and yet Shiller and Fama have come to opposite conclusions about how the stock market works. How did that happen?
Research doesn’t interpret itself. Humans interpret research. And humans are subjective creatures. So, while the research itself is objective in nature, the conclusions drawn from the research have a subjective element to them.
I could be wrong in everything I say.
Or Bogle could be wrong in everything he says.
Either of those things could be so even though we both root what we say in data-backed research findings.
without denigrating the opinions of others.
Bogle “denigrates” the opinions of every Valuation-Informed Indexer when he says that there is never a need for an investor to lower his stock allocation by more than 15 percentage points. We have looked at the research and concluded that a change of 60 percentage points is sometimes required. How dare he “denigrate” us in this way! Does he think we are liars?
The historical data cannot objectively prove two different things, Anonymous. If I fail to “denigrate” Bogle, I am calling myself a liar and thereby “denigrating” myself.
I think the answer might be for both Bogle and me to state our sincere views and for Bogle to stop reacting in so hypersensitive a manner as to view the expression of a viewpoint other than his own as “denigration” of him.
He believes what he believes and I believe what I believe. The one thing that I have said about Bogle that is truly denigrating is that he has failed to take action re the Lindauer matter. Bogle’s association with you Goons is deeply shameful stuff. It is financial fraud. It is a crime. It is a felony. That behavior has nothing to do with data or research or with interpretations of data or research. It has to do with a cover-up. It is an ETHICAL matter and the behavior we have seen from his re this aspect of the question does not reflect well on my good friend Jack. As his friend, I implore him to knock off the funny business.
The bullying take-no-prisoners approach only works for small children.
I’m the one who threatened to kill family members of anyone who posted honestly on the SWR matter. Good point, Anonymous. I forgot.
Alone, ridiculed, and excluded from the group.
I’ll take that over a prison sentence every day of the week and twice on Sundays, my old friend.
Hang in there, man.
Rob
Yes people are put off when you spend more time attacking Buy and Hold than trying to advance your own opinions. This makes it clear that you have a personal axe to grind. Also there is the fact that Buy and Hold has millions of success stories whereas the only practitioner of VII is you and you have yet to really have any success. On top of this you aren’t really adhering strictly to your VII strategy as revealed by your past decisions.
This leads to one of the major flaws of VII it has no clear implementation strategy. Just the blanket statement “buy more stocks when they are cheaper based on PE10″. You expect Joe Schmo to be able to implement this? There are not even rough guidelines of what level of allocation for what PE10. You have to admit Buy and Hold is 100x more clear and easy to implement.
Lastly there is this gem of irony…”Buy and Hold is a get rich quick scheme, listen to my VII it will allow you to retire 5-10 years earlier!!!!”
Yes people are put off when you spend more time attacking Buy and Hold than trying to advance your own opinions. This makes it clear that you have a personal axe to grind.
It doesn’t. But I think you may be right that many people hear it that way, Tron.
Buy-and-Hold (price indifference) is what makes stock investing risky. There is no way to tell people how to manage risk without talking about the thing that makes stock investing risky. And it is the “idea” that price indifference might work that causes risk. Trying to tell people how to invest effectively without telling them about the dangers of Buy-and-Hold is like trying to tell teenagers not to drink and drive without ever mentioning the possibility that they might get hurt in an accident. If you leave that out, you are leaving out what matters most!
Also there is the fact that Buy and Hold has millions of success stories whereas the only practitioner of VII is you and you have yet to really have any success.
It’s true that Buy-and-Hold has lots of short-term success stories. All Get Rich Quick strategies do! No one would follow ANY Get Rich Quick strategy if its promotors could not point to lots of short-term success stories.
What VII has is 140 years of historical returns that show that it has always been far superior to Buy-and-Hold. I wonder if it is that 140-year track record that causes the Wall Street Con Men to go so nuts when people use the internet to spread the word about what the last 33 years of peer-reviewed research says re these matters? You don’t think there might be some funny business going on here, do you?
You expect Joe Schmo to be able to implement this?
Joe has somehow managed to figure out how to take price into consideration when buying cars and bananas and sweaters. I think he could figure this one out too if it were not for the brutally abusive abusive tactics employed by the Wall Street Con Men and their Internet Goon Squads. Yes, I do!
You have to admit Buy and Hold is 100x more clear and easy to implement.
Throwing all your money on the floor and putting a match to it would be easier yet. That one step would do away with all that nasty math by making sure that you would never again have anything to count!
Lastly there is this gem of irony…”Buy and Hold is a get rich quick scheme, listen to my VII it will allow you to retire 5-10 years earlier!!!!”
People hear that as a Get Rich Quick pitch. You are right about that one, Tron.
There’s nothing I can do about it. That’s what the research shows. My whole gig is to report honestly on what the research says. So I am not going to lie about this aspect of the question. But you are right that many people see VII as too good to be true. I know because people whom I respect have told me this. Whachagondo?
Rob
“It’s true that Buy-and-Hold has lots of short-term success stories.”
Someone working for 20-30 years making a modest salary and still being able to retire a millionaire because of Buy and Hold is not a short-term success story. There are literally countless examples of this actually occurring. People have lived, retired on the back of buy and hold, had a good retirement, and died. Their story is over so you can’t say that it was only short-term success the term is over. All you can possibly argue is that another method could have been more successful. There is honestly no room for debate and until you realize this you will have zero credibility. When you tell people who are currently retired with large nest eggs completely cashed out of stocks that Buy and Hold can’t succeed it is like telling a marathon runner who has already crossed the finish line that his training program will not work.
“Joe has somehow managed to figure out how to take price into consideration when buying cars and bananas and sweaters.”
This is actually a terrible example. Joe knows those things are overpriced only in comparison to other identical offering of that product. I have no idea what goes into creating a sweater or what a fair price is for those things I only know how much every store is selling them for. In the case of your theory all stocks are overpriced at the same time. There is never a time where Joe decides that all sweaters in the world are overpriced. This notion would be ludicrous and that is exactly what you are suggesting Joe does with stocks. Certainly if 10 people were selling stocks of MSFT for $40 and then one person was selling it for $100 Joe could make this value decision. What you suggest is the equivalence of Joe understanding intricacies of making a sweater from labor, to cost of fabric, shipping, etc.
“Throwing all your money on the floor and putting a match to it would be easier yet.”
Again a childish and ludicrous comparison. Buy and Hold is a proven system with LONG-TERM success stories that is incredibly easy to implement. You are arguing in favor of what may be a superior system but it is much more difficult to implement. So much so that you are incapable of laying out principles of how to do so and are incapable of actually following the system yourself.
I like your comment, Tron. Most of the points you make in it are reasonable and real. I am going to run this comment as a stand-alone blog entry. I wish that we could see more comments of this nature, comments in which you VII critics stick to your guns but generally avoid the nasty stuff in favor of making points that would strike many community members in the middle as thoughtful.
Rob
Someone working for 20-30 years making a modest salary and still being able to retire a millionaire because of Buy and Hold is not a short-term success story. There are literally countless examples of this actually occurring. People have lived, retired on the back of buy and hold, had a good retirement, and died. Their story is over so you can’t say that it was only short-term success, the term is over. All you can possibly argue is that another method could have been more successful. There is honestly no room for debate and until you realize this you will have zero credibility. When you tell people who are currently retired with large nest eggs completely cashed out of stocks that Buy and Hold can’t succeed it is like telling a marathon runner who has already crossed the finish line that his training program will not work.
I think that most middle-class Americans would agree with what you are saying here. I do not. I’ll try to explain why.
The U.S. economy has for a long time been a highly productive economy. And stocks are an awesome long-term asset class. I believe that most of the successes that you are pointing to are the product of those two realities and NOT the product of a decision not to exercise price discipline when purchasing stocks.
If Shiller is right, it logically follows that it was the popularity of Buy-and-Hold strategies that caused each of the four economic crises that we have seen since 1870. We survived the first three of those economic crises. But we would all have been a lot better off had we not experienced them. If most people had simply exercised price discipline when buying stocks, just as they do when buying every other good and service they buy, they would have received all the same gains that you claim for Buy-and-Hold without experiencing the economic crisis that was caused by their unwillingness to act in their own self-interest. My view is that Buy-and-Hold adds nothing and subtracts a great deal.
Capitalism is generally viewed as a good economic system. If there is one thing that many people do not like about it, it is these darn boom-and-bust cycles. Why not do away with them now that we have the opportunity to do so? If we provided people with tools to let them know when it is in their best interests to sell stocks, they would be happy to sell stocks at times when prices had gotten out of hand. The sales would pull prices back to reasonable levels. Please tell me what you see as the downside, Tron.
Without the booms and the busts, most of the risk of stock investing disappears. That’s a huge plus.
Without the booms and busts, financial planning becomes much easier because investors always know the true size of their portfolios. That’s a huge plus.
Without the booms and busts, we don’t see millions of workers thrown out of their jobs. Unemployment wastes talent. Why have it if it has become optional? Cutting back unemployment is a huge plus.
Without booms and busts, tens of thousands of entrepreneurs don’t see their businesses fail. That’s a huge plus.
Without booms and busts, we don’t see millions of failed retirements and all the social problems that result. That’s a huge plus.
It’s not just that Valuation-Informed Indexing is good. It’s that Buy-and-Hold (price indifference) is bad.
I obviously don’t say that the Buy-and-Hold Pioneers intentionally made Buy-and-Hold bad. The idea that price discipline is not required was a mistake. Still, it has done a lot of damage. The mistake should be corrected.
Do you really believe that Buy-and-Hold is a plus, Tron? Or can you just not bear to acknowledge that you were taken in by a strategy that does not stand up to scrutiny?
If you were confident that Buy-and-Hold is a plus, why would it bother you to hear that others have a different viewpoint?
If If were a Cardinals fan and someone said that the Cardinals are not going to the World Series, it wouldn’t bother me. I would have enough confidence in my team that I would be able to just blow the comment off.
But if I were a Phillies fan and someone said that the Phillies are not going to the World Series, I think it would be more likely that I would get upset. It’s hard to have confidence in the Phillie’s chances. Someone expressing doubts re their prospects might get under my skin.
That’s where I am coming from re this one, in any event. I acknowledge that people have successfully retired prior to 1981. I would argue that they managed to do so despite Buy-and-Hold rather than because of it. As someone who believes that an investor must be open to changing his stock allocation in response to big valuation shifts in order to keep his risk profile roughly constant, I have a hard time accepting that a vow NOT to change one’s stock allocation in response to big valuation shifts could ever be a good thing.
What does the vow not to adjust one’s stock allocation as needed add to the equation, Tron? This is what I do not get. Isn’t it better to be open to doing whatever is needed to obtain good long-term results?
Rob
This is actually a terrible example. Joe knows those things are overpriced only in comparison to other identical offering of that product. I have no idea what goes into creating a sweater or what a fair price is for those things I only know how much every store is selling them for. In the case of your theory all stocks are overpriced at the same time. There is never a time where Joe decides that all sweaters in the world are overpriced. This notion would be ludicrous and that is exactly what you are suggesting Joe does with stocks. Certainly if 10 people were selling stocks of MSFT for $40 and then one person was selling it for $100 Joe could make this value decision. What you suggest is the equivalence of Joe understanding intricacies of making a sweater from labor, to cost of fabric, shipping, etc.
You are right that all stocks are overpriced at the same time, Tron. You are wrong (in my assessment!) to suggest that one would need to know intricacies to identify when stocks are overpriced. Stocks are overpriced when the P/E10 value is above 15. That’s all there is to it, Tron. It’s almost too easy. It’s certainly not too hard!
The reason why this strikes people as odd is that for many years buying stocks meant buying individual stocks. Most of what we think we know about stocks comes from analyses that became popular during the era when buying stocks meant buying individual stocks. That era is over! Indexing changes everything.
With indexing, you do not need to look at the intricacies you are referring to here. All of the intricacies are priced in. Indexing is an advance. The old rules no longer apply!
The mistake that Bogle and the other Buy-and-Hold Pioneers made was in jumping to the conclusion that EVERYTHING is priced in. ALMOST everything is priced in. But not quite everything is. There is one thing that can NEVER be priced in. That thing is mis-pricing (overvaluation or undervaluation). How the heck could mis-pricing be priced in? If it were priced in, the mis-pricing would not exist. It is a logical impossibility that mis-pricing could ever be priced in.
Determining the true value of our stocks is a two-step process. You first must look at the nominal price. Then you must make an adjustment for the overvaluation or undervaluation that applies at that point in time. Then you have the true, accurate value.
PLEASE DON’T ACCEPT THIS ON MY SAY-SO. TEST IT. LOOK AT THE PEER-REVIEWED RESEARCH IN THIS FIELD. The Bennett/Pfau research shows that what I am saying here is so. Learning that is a huge advance. Learning that changes every strategic consideration.
I wish that you could stop fighting me on this. We are talking about a major advance for ALL investors. All investors includes you, Tron. Why not enjoy your good luck at being alive at a time when for the first time in history we know how to determine the true value of our portfolios? Isn’t that a good thing? Why not reap the rewards instead of fighting, fighting, fighting?
You are right that it is weird that all stocks are overvalued at the same time. Do you want to know why that is? It’s because we today possess only a primitive understanding of how stock investing works. We are in the early days of figuring out how this stuff works. We do not today possess enough knowledge to make the stock market work in the way it should work to become a market like all other markets.
When you buy a car, there is one party to the transaction seeking a high price (the seller) and one seeking a low price (the buyer). We don’t have that with stocks. Retirees, who are in the process of selling down their portfolios, cheer high prices. So do young investors, who are in the process of accumulating stocks. The stock market is the only market in which the people buying the item being sold root for high prices. That’s insane. But that’s what people do, isn’t it? Have you ever heard a young investor rooting for price drops?
That’s why our market is so messed up. That’s why we are in an economic crisis. That’s what needs to change.
We are almost there, Tron. We have to take Shiller’s findings and incorporate them into Fama’s findings. Then we have a model for understanding how stock investing works that really does the trick. Our learning experience did not stop in 1965. We all have to acknowledge that it continued until at least 1981.
The stock market doesn’t work like other markets today. It should. We need to make the changes needed to make the dream a reality. We need a functioning stock market. The market cannot become functional until investors accept their responsibility to ALWAYS, ALWAYS, ALWAYS exercise price discipline when buying stocks. Price discipline is the magic that makes markets work.
Rob
You are arguing in favor of what may be a superior system
I take these words as an encouraging sign, Tron. Thanks for putting them forward.
but it is much more difficult to implement.
VII is not more difficult to implement than BH.
There’s only one difference between the two models. Buy-and-Holders believe that risk is stable and Valuation-Informed Indexers believe that risk varies with changes in the valuation level. All else is the same.
Jack Bogle cannot tell every investor what his or her stock allocation should be. He says that you have to consider the investor’s particular financial goals and the investor’s particular age and the investor’s particular risk tolerance. All those things are so. The fact that all those things must be considered makes it impossible for Bogle to specify one stock allocation that works for all investors.
All of this is so for Valuation-Informed Indexers as well. The only difference is the addition of one more factor — investors must also take into consideration the valuation level that applies on the day the allocation decision is made. No one allocation can be specified for all, of course. It would be silly to think that such a thing might be possible. But there is no added complexity.
There is a small amount of added complexity that comes from considering an additional factor. But that small amount of added complexity is dwarfed by the reduction in complexity that comes from reducing the risk of stock investing by 70 percent. The worst portfolio drawdown ever experienced by a Valuation-Informed Indexer is 20 percent. For Buy-and-Holders, it is 60 percent. It is the huge portfolio drawdowns that are associated with the Buy-and-Hold strategy that cause investors to panic at the worst possible times for doing so. Feelings of panic make the investing experience far more complicated than it needs to be. Those feelings are avoided by investing in a rational manner (that is, by exercising price discipline in an effort to keep one’s risk profile roughly constant).
Rob
Bogle “denigrates” the opinions of every Valuation-Informed Indexer when he says that there is never a need for an investor to lower his stock allocation by more than 15 percentage points.
No, he simply expresses a different opinion from your own in a civil way. Which is why he gets to join the discussion.
The historical data cannot objectively prove two different things, Anonymous.
Historical social science data prove nothing about an unknown future.
Bogle to stop reacting in so hypersensitive a manner
This only occurred in your warped mind, Rob. Remember to keep those fantasies at bay when discussing this topic.
(further descent into Hocomania)
Yeah, I was really here to discuss withdrawal rates. Not your schoolboy butt hurt. Might be time to dust yourself off and move forward at some point. It’s what adults do.
No, he simply expresses a different opinion from your own in a civil way. Which is why he gets to join the discussion.
That explains why I’ve sent my good friend Jack three e-mails re The Linduaer Matter and he has not yet responded to any of them. That makes perfect sense, Anonymous.
Historical social science data prove nothing abut an unknown future.
It permits certain claims and prohibits others. When there is 140 years of historical return data showing that exercising price discipline when buying stocks is of critical importance, it is okay to say: “Presuming that stocks continue to perform in the future at least somewhat as they have always performed in the past, investors who practice long-term timing will continue to do better than investors who refuse to do so.” And when there is 140 years of historical return data showing that the safe withdrawal rate is a number that VARIES depending on changes in valuation levels, it is NOT okay to say “a 4 percent withdrawal rate is 100 percent safe regardless of the valuation level that applies on the day the retirement begins.”
This only occurred in your warped mind, Rob. Remember to keep those fantasies at bay when discussing this topic.
You’re the one going to prison, Anonymous, not me. I can’t help but wonder why.
Yeah, I was really here to discuss withdrawal rates. Not your schoolboy butt hurt. Might be time to dust yourself off and move forward at some point. It’s what adults do.
Backatcha, old friend.
I will continue to post honestly re safe withdrawal rates and re scores of other critically important investment-related topics. Non-negotiable.
Following the next price crash, we’ll meet on the other side of the river to compare notes as to who has fell and as to who has been left behind.
I naturally wish you the best of luck in all your future endeavors regardless of what investing strategies you elect to pursue.
Hang in there, man.
Rob
Rob said: “The U.S. economy has for a long time been a highly productive economy. And stocks are an awesome long-term asset class. I believe that most of the successes that you are pointing to are the product of those two realities and NOT the product of a decision not to exercise price discipline when purchasing stocks.”
I could not fail to contact you to say “Attaboy”, now that you have finally posted something that is 100% accurate, in the phrases quoted above!
Way to go Rob! Awesome job!
Now, if only you would REALLY understand the implication inherent to the words you wrote, it would be a blessing to both you and to your much-beleaguered family:
Only if an investor believes in the strength of the economy, and in the ability of shares of equity to pass some of that overall boon on to investors, in the form of dividends and/or price appreciation, should anyone even think of getting into the market. But once they do believe those things, then attempting to time entry and exit in order to optimize returns is foolhardy, and a great way to foul up the whole personal inve3sting process.
You need to chart your own individual course, which is why the market is random, with billions of people and decisions influencing it as they enter and exit based on their own unique needs at that time, and their estimate of the value provided. All traders (which is what YOU recommend everyone become) are notorious for UNDERPERFORMING the broader market, both as individuals, and also the supposed professionals.
So, come on Rob. Wise up. You are no spring chicken any longer. You are too old to still try and pretend that you and you alone have somehow found “the” magic formula, and that it’s based on just one of many possible value metrics (PE10).
We disagree, X.
It’s of course not only me who has discovered the “magic formula.” The entire human race has found it. Just as the entire human race has discovered that the earth is round and not flat and that the earth circles the sun rather than the other way around and that bleeding patients is not good medicine. Things change, X. Humans learn new things as time passes. Like it or not, that’s the way it goes. In investing analysis as well as in every other field of human endeavor.
I pointed out the errors in the Old School SWR studies on the morning of May 13, 2002. Not one person in the 12 years since has been able to identify any place in the Greaney study in which he makes an adjustment for the valuation level that applies on the day the retirement begins. I wonder why. Actually, I am beginning to develop a hunch as to why no one has been able to point to such an adjustment for all these years. I am beginning to wonder if maybe I was right all along, that there IS no such adjustment in the study and that in fact I was right all along and Greaney got the numbers that my friends used to plan their retirements wildly wrong. Call me madcap.
Greaney doesn’t really disagree. He huffs. And he puffs. And he tries to blow our discussion-board houses down. But he doesn’t really disagree. If he really disagreed, he would point to the valuation adjustment in the study. But he knows that the study lacks one. That’s WHY he huffs and puffs. If he thought that there were some rational case that could be made for the way he set up that study, he would present it. But he knows. So he engages in all this huffing and puffing nonsense instead.
And it’s the same with Linduaer.
And it’s the same with the authors of the Trinity study.
And it’s the same with Jack Bogle.
And it’s the same with Robert Shiller.
And it’s the same with Wade Pfau.
And it’s the same with everyone else.
We humans messed up.
It’s not the first time that such a thing has happened. We have a long history of messing up re all sorts of things.
But messing up on the numbers that people use to plan their retirements is different. Mess up re that one and you cause a huge amount of human misery. So we are ashamed. So we have gone into cover-up mode and change-the-discussion mode.
And so we worry about lawsuits that will be brought against us to recover the financial damages we have caused with our mistakes and with our cover-ups of those mistakes.
And so we worry about the prison sentences we will be serving when word gets out about the 12-year cover-up of our mistakes and about the thousands of acts of financial fraud that we engaged in to keep that cover-up going.
And of course it is all going to come out in the end anyway.
So we are going to need to make a decision a a society to stop destroying and to start rebuilding.
We are not there today.
Perhaps we will be there following the next price crash.
That’s how I think this will play out.
But I am not God. I obviously could be wrong about that.
It’s what I believe. So I am going to continue saying it. And I am obviously going to continue doing what I can to keep the prison sentences of my Goon friends as limited as possible. That’s what friends do. That’s the concept.
But to know for sure how it all turns out, we are just going to have to wait and see.
There is no other way.
When we all get to the other side of the river, we will trade notes and see who has fell and who has been left behind.
I hope that works for you, X. Because I don’t see any other way.
In any event, I naturally wish you all the good things that this life has to offer a person.
Don’t let the bad guys get you down, man.
Rob
When there is 140 years of historical return data showing that exercising price discipline when buying stocks is of critical importance,
Your opinion. We know price data affects about 40% of the variation in historical stock returns over the period we have good data for (80 years or so). I wouldn’t call that “critical”.
“Presuming that stocks continue to perform in the future at least somewhat as they have always performed in the past, investors who practice long-term timing will continue to do better than investors who refuse to do so.”
Your opinion. In my opinion (and the opinion of many people smarter than yourself) holding a fixed allocation based on your risk tolerance works better.
The fact that you’ve maintained a fixed allocation over the last 20 years, despite the extreme valuation highs and lows of the market, shows what you really think IMO.
Following the next price crash, we’ll meet on the other side of the river to compare notes as to who has fell and as to who has been left behind.
Sounds reasonable. You predicted a 65% price crash in 3 year a year ago. Since then the market’s up 30%, and all the respectful posters on Bogleheads are celebrating. We’ll compare notes in two years and see who was right.
We know price data affects about 40% of the variation in historical stock returns over the period we have good data for (80 years or so). I wouldn’t call that “critical”.
A 40 percent factor is huge.
If someone did a statistical analysis showing that having good pitching is 60 percent of what it takes to win at baseball and that having good hitting is 40 percent and a team’s owner said that he was going to ignore hitting, I would say that that fellow was a fool. No one should ever pass up a chance to improve on a factor that is 40 percent of the game.
And in this case the 40 percent factor is the only factor under control of the investor!
The short-term ups and downs of the market (the other 60 percent) are not under our control. But whether we change our stock allocations in response to big valuation shifts sure is!
Please put me down as wanting to take full advantage of the huge benefits that come from paying attention to that 40-percent factor, Anonymous.
My best wishes to you.
Rob
In my opinion (and the opinion of many people smarter than yourself) holding a fixed allocation based on your risk tolerance works better.
There are many people who hold this opinion.
And many of those people are very smart.
I give you those two.
But why are these people so defensive?
Death threats? Unjustified board bannings? Tens of thousands of acts of defamation? Threats to get academic researchers fired from their jobs?
Huh?
The smartest fellow in the world becomes a dummy when he falls under the spell of a Get Rich Quick scheme and lets his emotions override his common sense and his knowledge of what the peer-reviewed research teaches us all.
My take.
Rob
holding a fixed allocation based on your risk tolerance
Risk CHANGES each time valuations change, Anonymous.
How can anyone hold a FIXED allocation based on his risk tolerance when the riskiness of stocks VARIES with changes in valuations?
Huh? This I do not get.
Rob
The fact that you’ve maintained a fixed allocation over the last 20 years, despite the extreme valuation highs and lows of the market, shows what you really think IMO.
I got out of stocks in the Summer of 1996. That’s 18 years. Stocks have been at very high or insanely high price levels for that entire time-period.
The one exception was a few months in early 2009. And I included a statement at the beginning of every RobCast I recorded during that time-period that stocks offered a strong long-term value proposition when purchased at those prices.
I wonder why you feel the need to engage in deception re this point over and over and over again.
Science!
Rob
Since then the market’s up 30%, and all the respectful posters on Bogleheads are celebrating.
They are celebrating because dangerously high prices became even more dangerous.
Makes sense!
Rob
Since then the market’s up 30%, and all the respectful posters on Bogleheads are celebrating.
They are celebrating because the cost of financing their retirements has gone up.
Makes sense!
Rob
We’ll compare notes in two years and see who was right.
Of course.
I wish you well, Anonymous.
Rob
Several years ago, I was diagnosed with a melanoma. If not caught in time and completely removed, it can often lead to certain death. I chose my surgeon very carefully. I could have used by dermatologist for a procedure known as a WLE (wide local excision), but this was not a procedure he performed on a regular basis and he did not have stats that I could review. Instead, I went with a highly experience surgeon at a local teaching hospital. I was able to review data that showed me the specific outcomes from his team treating other melanoma patients. Further, I could look at the pathology reports once the procedure was done to see the outcomes (clean margins). Treating melanoma is a serious thing as it can mean life or death.
Saving retirement is a serious thing. It could mean the difference between providing my family with their needs, or spending my final days struggling to survive. Track record and results mean everything when it comes to serious things such as this. I go with what has been proven. I am sure you would describe my strategy as buy and hold. The numbers don’t lie and they are superior. This strategy has gone through up markets and down markets. You can lie all you want about how you think it will crash, but that doesn’t mean a thing. You comments are not factually based. You have been given the data before, yet you delete it. Obviously, the truth of this goes against what you say, but that does not change the facts. To the opposite, you can sit here all day and claim to have research backing your position. What you lack is results. You have no real world example of your strategy. Even you don’t follow it. This is like a primary care doctor telling you that he has researched how to remove a melanoma and that he has read more books than anyone else alive on the subject. However, he has not put it to practice.
I will go with proven outcomes every day of the week versus someone that just talks about it.
you can sit here all day and claim to have research backing your position. What you lack is results.
The last 33 years of peer-reviewed research reports on the results obtained over the 140 years for which we have records, Anonymous.
The difference between the stuff that you are referring to and the research is that the stuff you are referring to is all short-term stuff. I acknowledge that Buy-and-Hold/Get Rich Quick can do well in the short term.
When I say that it never works, I am referring to the long term.
That’s the only difference between us. You are caught up in short-term emotional thinking. It gives you comfort that there is short-term data that in your mind supports your strategy. I don’t take any comfort from what happens in the short term. I want to know what works in the long term. To know that, you need to look at the peer-reviewed research.
The losses that a Buy-and-Holder suffers are telescoped. They all occur in the time-period in which valuations are headed down, down, down instead of up, up, up.
You should ask yourself why you are so argumentative.
Do you want to know what works?
If you did, you would want to hear what I say. You might be persuaded or you might not be persuaded. But you certainly wouldn’t be angry.
The anger is a tell. It reveals that you have doubts about Buy-and-Hold on one level of consciousness.
That’s my sincere belief, in any event.
I naturally wish you all good things.
Rob
A for the doctor, there was a time when doctors bled their patients.
Science is a good thing. But we don’t start out knowing everything.
Buy-and-Hold was developed with good intent. But it has been discredited by the peer-reviewed research of the past 33 years.
We don’t bleed patients today. And in not too long a time, we will not have experts in this field telling people that it is okay to ignore price when buying stocks.
Yes, there was a time when lots of smart people believed that a Buy-and-Hold strategy could work.
But we have gone past that.
That is yesterday’s science. It was an idea that was tried and that didn’t stand up to scrutiny.
We just happen to be living in the days when the dangers of Buy-and-Hold are in the process of achieving public recognition.
Hence all the excitement.
Rob