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.