Set forth below is the text of a comment that I recently posted to another blog entry at this site:
You must be missing the literally thousands of valuation posts and Bogleheads and elsewhere.
I’m not missing them, Anonymous. I acknowledge that there are thousands of valuations posts. I say that it is not only the volume of valuation posts that matters. The RANGE of valuation recommendations matters too.
Say that millions of investors are counting on their portfolio values to be real at a time when stocks are priced at two times fair value. Posters who argue for lower stock allocation cause emotional distress for those millions of investors. An argument that one’s stock allocation should be low suggests that stocks do not offer a strong value proposition. Investors who are counting on the money in their stock portfolio to be real don’t want to hear that. There are all kinds of ways that those investors can impose social pressures to keep recommended stock portfolio percentages high.
Should those of us who believe that low stock allocations are appropriate at times of high valuations give in to those pressures? I say “no.” I say we hurt everyone when we do that. Those who really favor high stock allocations should of course say just what they believe. BUT SO SHOULD THOSE WHO FAVOR LOW STOCK ALLOCATIONS.
Say that social pressure in favor of high-stock-allocation recommendations causes us all to increase our recommended stock-allocation-percentage by 30 percentage points. Those who think 20 percent stocks is right say that they believe that 50 percent stocks is right so that they will win popularity points. Those who think 40 percent stocks is right sat that they believe 70 percent stocks is right to win popularity points. Is that a good thing? I think it is a HORRIBLE thing. You can’t trust what anyone says when everyone is upping their numbers so that they can sell more books or whatever.
Greaney recommends 90 percent stocks. All signs are that he is sincere in that recommendation. So good for him. But Greaney never faces any social pressure to lower his recommendation. I favor an allocation of 30 percent at today’s prices. I face ENORMOUS pressures to lower my recommendation. I am told that I will be banned if I don’t post dishonestly. I refuse to let the social pressures influence what I say. But how many of those who have grave doubts about the high stock allocation recommendations dare to stand up to those pressures? Most do not. So you don’t even know what the real range of opinion is. When you only hear recommendations from 50 percent and up, you can easily be fooled into thinking that that is the consensus view even though you would hear very different numbers if people felt free to post honestly.
Say that you are a liberal. Would you trust a conservative site to tell you the true story re a political development? Or the other way around? I wouldn’t. People are BIASED. We all are. With investing, the bias is not ideology-based but time-based. There is a huge bias in favor of stocks when stocks are priced as they are today. And then the bias swings in the opposite direction after prices crash. You are getting the wrong story at both times. People should be more negative about stocks when they are insanely overpriced and people should be more positive about stocks when they are insanely underpriced.
The reason why I fell in love with Buy-and-Hold a long time back is that Buy-and-Holders argue that we should use peer-reviewed research as a guide and doing that would permit us to escape from the emotional biases that does such harm to investors. I gave up on Buy-and-Hold when I saw that the claim that we should root our strategies in the research is a con.
Buy-and-Holders SAY that they like to take the research into consideration. But mention the 34 years of research showing that valuations affect long-term returns and they demand that you be banned. Once you do that, you lose any virtue there is in basing your decisions on the research. If you lie to yourself and others about what the research says, it no longer plays the role of keeping things objective.
We might as well not do any research if we are going to ban research that shows the dangers of our biases. Once you become selective about what research may be discussed, you turn the idea of rooting one’s strategies in research into a negative. Your information is all the product of subjectivity but you are fooling yourself into believing that it is objective. That’s the worst of all worlds.
It is not enough to discuss valuations. We must permit HONEST discussions of valuations.