Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
What you need to think about is that 10 years ago you probably said ‘I will give this up if in 10 years it looks like I am wrong’. And you probably believed yourself then. Yet here you are.
It reminds me of listening to a compulsive gambler tell me something to the effect of ‘I did what I had to do’. When I asked ‘Why exactly did you have to do it?’, he just got angry.
I have had a portfolio of stocks and bonds and a few other things that has adjusted slowly over time over the past 3 decades. I guess I don’t see any of the problems you are talking about. The return on my personal money in my long term portfolio has been about 11% CAGR nominal. I purchased a huge amount of financial services stocks when they hit very low ‘Armageddon’ prices during the financial crisis but I measure that return separately from my long term portfolio.
I think it depends on what time-period you look at, Laugh. You are going by what has happened over the past 30 years. I am going by what has happened over the past 145 years. I see my approach as being more scientific than yours because I am not looking at one time-period that I just happen to be living through. I believe that by looking at the entire historical record I am better able to ground myself in objective realities and to thereby look beyond what might be the subjective impressions of a particular time and place.
I do acknowledge that I could be wrong. I have said that and I believe that. But it’s one thing to say “I could be wrong” and something very different to say “I AM wrong” in circumstances in which I do not believe that to be the case. The first thing is the practice of humility, the second is the practice of deception. I believe that I could be wrong because I have played the role of the gambler you describe in earlier times in my life. But I am not today persuaded that I actually am wrong. I see a big difference between warning my readers that I could be wrong and that they had better be cautious in considering anything I say versus lying to my readers by telling them that I believe that I actually am wrong. One is on the right side of the line in my eyes and one is not.
One of us is playing the role of the gambler that you describe, I think that much is fair to say. Only time can reveal with certainty which one of us it is. Heaven help us both, you know? We are both flawed humans. We both have to face this scary world with limited brains and fragile bodies every day we wake up to it. My heart goes out to you. Believe it or not, I believe that there’s some tiny part of you that you keep hidden deep within in which your heart goes out to me too. If I didn’t believe that, I am not sure that I could get up in the morning.
As for what I would have done had I known 10 years ago what I know today, there’s no way to say. You are right to suggest that I didn’t think a P/E10 of 8 was more than 10 years away 10 years ago. That one is an objective reality. But it’s not possible to compare the 2006 version of me with the 2016 version of me directly. I have learned more through all the work I have done over the past 10 years. So, yes, I have seen things over those 10 years that have caused my confidence in Valuation-Informed Indexing to be diminished a bit. But I have also seen things that have caused my confidence in VII to grow stronger. Overall, my confidence is today stronger.
It could be that I am lying to myself because I have so great an emotional investment in this strategy. That sort of thing really does happen with the humans. All the time. I don’t know what I can do about it. That reality is just part of what it means to be one of those darned humans. Imperfectly designed creatures can never know for sure. It’s a frustrating reality. But there it is all the same, you know?
I voted for Walter Mondale and I voted for Mitt Romney. Given the differences in what these two people believe, it seems to me when I try to think things though objectively (as if I could!) that I must have made the “”wrong” choice in one of those two elections.But whatchagonnado? I gave it my best shot both times. Maybe in November I will flip back and vote for Hillary. Maybe I will go Libertarian. Maybe I will turn the Romney thing up a notch and vote for Trump. Who the heck knows what one of the crazy humans is going to do next? We wake up in the morning and we give it our best shot for 16 hours and then we go to bed and get rested to give it another try after another eight hours or so.
Some of us say a prayer or two before drifting off to sleep. Are we sure that there’s a Big Guy in the Sky to hear them? My personal guess is that not too many of us are perfectly sure. We might say we are. The ones who say they are most sure are probably the ones who are less sure (they are trying to convince themselves more than they are trying to convince others). I feel sorry for these people (people like me!). They are doing their best. And yet they have to live through all this damned uncertainty. And of course it is pretty much the same on “the other side.” Those who don’t say the prayers are kinda, sorta but not really 100 percent sure too. Those who don’t say their prayers are scared too, just of somewhat different possibilities.
We are all in this together, my old friend. That’s my bottom line assessment when I look at the millions of words that have been spilled (please don’t ask me to provide a precise count!). We all want to know for sure and not one of us does know for sure, no matter how “stridently” we express ourselves. My rock is my belief that, if I stop feeling love for you, someone who cares enough about this stuff to stand up to me and give me guff when I state things a wee bit too strongly, then I am surely on the wrong track. Theoretically I could be wrong about even that one. But, as noted above, I couldn’t even bear to get out of bed in the morning if I lost confidence in that one. So I am holding tight to that one.
And don’t you ever forget it, you damned smelly Goon!
Please take good care, old friend.
Rob
Anonymous says
30 years is more relevant than 145 as the markets are much different, accounting standards are different, government controls are different, etc.
Anonymous says
“It could be that I am lying to myself because I have so great an emotional investment in this strategy.”
I thought VII was the NON-emotional strategy.
Rob says
30 years is more relevant than 145 as the markets are much different, accounting standards are different, government controls are different, etc.
I feel more confortable going by what has happened over 145 years as my guide, Anonymous. But to each his own, to be sure.
Please take good care.
Rob
Rob says
I thought VII was the NON-emotional strategy.
That’s certainly the intent.
But that was the intend behind Buy-and-Hold too.
The tricky part is that we are all blind to our own blind spots.
It’s hard being a human!
Rob
Anonymous says
“I am going by what has happened over the past 145 years.”
There are all sorts of patterns we can tease out of 145 years of data. Example: When stocks rose over 19% for 2 years in a row, they fell at least 14% within 132 weeks after! Unfortunately, the market doesn’t check the “rules” before it moves. It moves randomly based on new information.
Rob says
So the Buy-and-Holders say, Anonymous.
But do you know for certain?
An alternate explanation is that, when stock prices rise 19 percent in a year,that reflects a 6.5 percent increase in the value of the underlying assets rooted in economic productivity and a 12.5 percent increase fueled by investor emotion that will be reversed over the course of 10 years or so. If this is the case, the 6.5 percent gain can be relied on to finance an old-age retirement and the 12.5 percent gain cannot. If this is the case, it is important for investors to know this.
If your explanation is the right one, looking at valuations is pointless. If your explanation is the right one, the people who handed Robert Shiller a Nobel prize in economics were fools. I don’t buy it. I think valuations matter.
And, as we have seen during the first 14 years of our debate over whether honest posting re the last 35 years of peer-reviewed research in this field, so do a lot of academic researchers and professors and journalists and economists and policymakers and bloggers and ordinary investors. All of these people have a right to post their sincere views re how stock investing works wherever opinions re how stock investing works are advanced. All of the people listening in to such conversations have a right to hear both schools of thought articulated with the full force and clarity and depth at which those following them are able to put to the task.
Once your prison sentence is announced, all of these people will feel free to express their sincere views and the investing advice field will no longer be 100 percent corrupt and we will able to bring the Buy-and-Hold Crisis to an end. We adopted the laws against financial fraud for just this purpose. Financial fraud hurts people in very serious ways. When we fail to prosecute it, we permit further damage to be done.
You don’t like the idea of our laws against financial fraud being enforced because that would mean you going to prison, perhaps for a very long time. I get that. But have you really thought this through? The cover-up showing that Buy-and-Hold is a big pile of smelly garbage didn’t begin in 2002; it began in 1981. Say that someone in the time-period from 1981 through 2002 had had the courage to stand up to the Buy-and-Hold Goons of that day. If that had happened, Greaney would never have reacted the way he did when I posted honestly about safe withdrawal rates and neither he nor any of his friends (you!) would be headed to prison today. By going to prison yourself, you are helping some potential future Goon from sharing your fate.
While also helping yourself. The number of lives you destroy is obviously going to affect the length of your prison sentence. The sooner you come clean, the fewer lives you destroy. So helping out future Goons ends up helping the current-day Goons too. And of course you would be helping out the millions of middle-class investors at the same time. You would even be helping out the Wall Street Con Men. They will be able to sell MORE stocks once honest posting is permitted at every site on the internet. The single thing that holds people back from buying this wonderful asset class is the risk associated with it. The peer-reviewed research that I co-authored with Wade Pfau shows that investors who follow the first true research-backed strategy thereby reduce risk by 70 percent. Wow!
And of course you would be helping restore confidence in our political system by coming clean today. The laws against financial fraud are a key guardrail in our system. The millions of people who worked for decades to earn the money they need to retire on should not lose that money to a small group of Wall Street Con Men just because it is so easy to turn a buck by exploiting the Get Rich Quick urge that resides within all of us. Being an investing advisor isn’t all about turning a quick buck. There are ethical responsibilities involved. One of those is to speak out in strong and blunt and simple and uncompromised terms when Goons like you show up on the scene. It was the continued promotion of Buy-and-Hold “strategies” that caused the economic crisis and that thereby cost millions of your fellow citizens their jobs. The people of the United States need to see us address this matter effectively by sending you away to prison for a long, long time. It is a simple matter of basic justice.
These are all my sincere thoughts re these terribly important matters.
I naturally wish you the best of luck in all your future life endeavors.
Rob