I’ve posted Entry #220 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Our Emotional Attachment to Long-Believed Investing “Truths” Causes Us to Tune Out a Mountain of Evidence.
Juicy Excerpt: Klein writes: “One thing that comes clear when you spend much time reading inside the Gamergate community is the feeling of being misunderstood — and, for that matter, smeared — is very, very real. If you’re reading about Gamergate on the left, virtually all you’re reading about is the intense, horrifying harassment against women that’s happening under Gamergate’s banner. If you’re reading about Gamergate from inside Gamergate, virtually all you’re reading about is how the media is smearing Gamergate by equating it with harassers who don’t represent the movement’s real tactics or goals (some Gamergaters even believe the trolls are part of a false flag operation meant to discredit Gamergate). Gamergaters are furious that the media focuses on all the bullying happening under Gamergate rather than all the money Gamergaters are raising for anti-bullying efforts….Gamergate happens to be about video games but it could be about anything. Video games are the excuse for this fight, not the cause of it.”
He’s saying that people often do not try to settle differences through the use of reason. They choose up sides and then duke it out. All sorts of points are debated. But the points that are being discussed do not matter much to those doing battle. All that matters to them is what side they are on and what side is winning. Once we choose sides, we are not trying to learn, we are trying to win.
Academic Researcher Wade Pfau once made this point when he was advocating Valuation-Informed Indexing at the Bogleheads Forum. Wade was getting a hostile reaction from some of the Buy-and-Hold dogmatics at that board. At one point, he said (I am paraphrasing): “You see those who advocate market timing as snake-oil salesmen. I do not want you to see me that way.”
Evidence Based Investing says
Your VII column at ValueWalk usually posts on a Tuesday morning.
http://www.valuewalk.com/author/robbennett/
I don’t see one for this week. Do you know why that is?
Rob says
I was running a test to see if anyone would notice if it didn’t show up. Thanks for being such a loyal reader, Evidence!
The true story is that I usually post them about five days before they show up. This week it was in my head that I had posted one to show up yesterday but in reality I had not done that. I did not realize until last night when I went over to put up a link on Twitter. I could have written one up to appear this morning but I decided just to let it go until next week.
Will the world recover from the loss? That’s the big question!
Rob
Anonymous says
It is a big loss and I don’t think I will recover.
Rob says
It is a big loss and I don’t think I will recover.
We all have our crosses to carry through this Valley of Tears, Anonymous.
Rob
x says
Your column repeatedly mentions Valuation-Informed Indexers (plural) – is there another? Is there a Leia to your Luke?
Rob says
Anyone who follows Shiller’s research rather than Fama’s research is a Valuation-Informed Indexer, X. Another way of saying it is that anyone who changes his or her stock allocation in response to changes in valuation levels is a Valuation-Informed Indexer. Anyone who understands that “Staying the Course” means keeping your risk profile constant rather than keeping your stock allocation constant is a Valuation-Informed Indexer.
My assessment is that that is about 10 percent of the population of investors today.
We have discussed before how few investors are either pure Buy-and-Holders (who do not change their stock allocations in response to valuations at all) or pure Valuation-Informed Indexers (who use the historical return data as a guide to how much to change their stock allocations). Most are in Category C (non-dogmatic Buy-and-Holders) or Category D (non-dogmatic Valuation-Informed Indexers).
The biggest of the four categories is Category C. Most investors generally subscribe to Buy-and-Hold principles but in a non-dogmatic way.
There are more Category D investors than there are pure VIIers. Pure VII investors are rare. Wade Pfau is a Category D. He lowered his stock allocation significantly after working with me on the research we did showing the superiority of VII. But he didn’t go down to the 30 percent stocks allocation suggested by the historical return data. He went from about 70 percent stocks to 50 percent stocks.
I am a pure VII investor (with unusual personal circumstances that call for a lower stock allocation than would be proper for most investors). My sense is that not more than 10 percent of the population plays it as I do. The percentage would go higher than 20 percent if you counted the Category D people.
I hope that helps a bit.
Rob
laugh says
I think the real question is that are there any people in the world besides yourself who would identify themselves as VIIers? If so, who?
Rob says
You mean if you didn’t threaten to kill family members of theirs if they did so? Yes, in that case there would be millions of people who would today identify as Valuation-Informed Indexers.
You can can back to the earliest days of our discussions back at the Motley Fool board in May 2002 and you will see hundreds of community members saying “This is the most exciting discussion we ever had at this board — thanks so much for your contributions, Rob!” Those people were all good candidates for becoming Valuation-Informed Indexers. It obviously doesn’t happen in a day. They need to ponder things. They need to ask questions. They need to work the calculators. But a high percentage of those people would obviously become Valuation-Informed Indexers over time.
Death threats have an effect. Demands for unjustified board bannings have an effect. Tens of thousands of acts of defamation have an effect. Threats to get academic researchers fired from their jobs have an effect. Why do you think we have laws against financial fraud, Laugh?
How many people do you think will be saying they are Buy-and-Holders following the next price crash and following the announcement of your prison sentence? It won’t be many. And what strategy do you think those people will switch to once they realize how they have been conned out of most of their retirement money? Lots of those people became Buy-and-Holders because they like the idea of following a research-based strategy. I think it is fair to say that just about all of the ones in that group will be becoming Valuation-Informed Indexers.
If you didn’t think that Valuation-Informed Indexers would take over the world in six months once honest posting was permitted, you never would have committed a single criminal act, Laugh. The fact that you believe that VII is going to soon be taking over the world tells the story.
Intimidation tactics work in the short-term and get you thrown in prison in the long term. Yuck! And double yuck!
The people of the United States will win and you Goons will lose.
I am sure.
Rob
Evidence Based Investing says
I did not realize until last night when I went over to put up a link on Twitter. I could have written one up to appear this morning but I decided just to let it go until next week.
How long does it typically take you to write a VII article for ValueWalk?
Rob says
Usually an hour.
Rob