Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Why is the entire historical record relevant?
Take a look at this article, Laugh:
http://www.politico.com/story/2016/11/nate-silver-huffington-post-polls-twitter-230815
Nate Silver gets it. Using data as a guide to understanding something leads to more uncertainty, not less. When we are ignorant of how something works, we can delude ourselves into a false feeling of confidence. Data helps us to overcome our subjective biases because it is objective, because it is real and not b.s. But there’s an unfortunate inclination to become overconfident about what data appears to teach, to stop thinking because of a belief that the data has answered all the questions. There are always new questions. Use data properly and you will never stop searching for new insights. The wonder of research is that it pokes holes in dogmatism. When you see people becoming dogmatic about what the data appears to show at one particular point in time, you know that those people are on the wrong track.
The Buy-and-Hold “idea” (that there is no need to exercise price discipline when buying stocks) has been crashing stock markets ever since the day the first stock market was put in place. In 1981, those awful days of human ignorance came to an end. A fellow who has since been awarded a Nobel prize for his amazing work provided us the piece of the investing puzzle that brought us to where we had long wanted to go — we now have a model for understanding stock investing that truly makes sense, that truly works.
Bogle got us close. He is a hero too. But Bogle is a gravely flawed hero. He got us close by citing the powerful insights developed through study of the historical return data in the pre-1981 years. Then he let his ego destroy him. Bogle turned his back on all the good work he had done up to that time when he elected in 1981 not to launch a national debate as to what Shiller’s “revolutionary” (Shiller’s word) research meant for Buy-and-Hold but to instead go into cover-up mode and act as if the amazing finding that valuations affect long-term returns just didn’t exist.
Hence 35 wasted years in which thousands of people who could be helping us all to better understand this stuff instead live in fear of speaking in plain and understandable terms about what they really believe re stock investing. Hence 14 years of a Campaign of Terror against the Retire Early and Investing discussion-board communities in which dozens of boards and blogs were destroyed or compromised and in which those participating in the campaign have set themselves up for long prison sentences in the days following the next price crash. Hence an economic crisis that has already gone down in the books as the second worst in U.S. history and which has a good chance of taking over first place in the days following the next price crash, an economic crisis that has already brought on millions of job losses and which is likely to cause millions of failed retirements in coming days.
Not good.
I learned why the entire historical record is relevant from my good friend Jack Bogle. Read his work if you have any doubts.
I learned why honesty is important just from living life on this planet.
Valuation-Informed Indexing is the first HONEST research-backed investing strategy. It has all the advantages of Buy-and-Hold because it is rooted in research, just like Buy-and-Hold. But it avoids the huge disadvantage of Buy-and-Hold by incorporating HONESTY into the mix. VII isn’t a con. VII doesn’t cause economic crises or failed retirements. Valuation-Informed Indexers don’t need to surround themselves with Goon squads to make their case. We really have peer-reviewed research that supports our claims. VII is the real thing, not the marketing gimmick that Buy-and-Hold has become in the years since Bogle made his tragic decision to go into cover-up mode rather than to come clean about what the recent peer-reviewed research actually says about how stock investing works.
The historical record is what keeps us honest. The historical record is our protection against the con men who push smelly Get Rich Quick schemes on us for the purpose of turning a quick buck and who destroy millions of lives in the process. The historical record is where its at. Making HONEST use of the historical record is the future of investing analysis. Everyone in this field will be doing it once prison sentences for you Goons have been announced.
That’s my sincere take re these terribly important matters, in any event.
My best and warmest wishes to you and yours.
Rob
Anonymous says
And look at how Nate Silver did with his prediction of the last election.
Rob says
I think he did an outstanding job, Anonymous.
Silver said that Trump had a one in three chance of winning and took a lot of flak for it. He stuck to his position and explained with logic why this was so. Polls are scientific. But there are things they can do and things they cannot do. A poll cannot tell you which way undecideds are going to break on election day Silver pointed out that the polls on election day showed that Trump was close enough that, if the undecideds broke his way, he would win. I think that Silver did a fantastic job, better than just about anyone else out there.
I don’t agree with the take that the polls were wrong. I think the polls did what polls can do; it was the interpretations of the polls that were wildly off. The polls did not show that Clinton was a sure thing. Lots of people said that and they pointed to the polls to support the statement. But the polls did not say that. On the popular vote, the polls came pretty darn close to showing what actually happened. And the Real Clear Politics electoral vote count showed that Trump only had to pick up one state that he was not expected to win to pull it off, and of course he did that. There should have been much more focus on what would happen if Trump won Michigan or Pennsylvania. It’s not the polls’ fault that people ignored that potential reality (the polls showed that Trump winning those states was at least a realistically potential outcome).
The same basic dynamic is at play with P/E10 predicting long-term returns. Over and over and over again, you Goons demand that P/E10 be shown to predict short-term returns effectively. It of course always fails to do so, just as Shiller has been saying for decades. But P/E10 has for 145 years been predicting long-term returns VERY effectively and of course always will continue to do so. For valuations not to affect long-term returns would be for price discipline not to work in a market and that is of course an absurdity. Unfortunately, it’s an absurdity that serves as the foundational premise of the Buy-and-Hold “strategy.”
That’s my sincere take, in any event.
Hang in there, man.
Rob
Anonymous says
He said Hillary was going to win. He was wrong. You said there would have been a crash by now. You were wrong. It shows lack of credibility.
Rob says
He didn’t say that Hillary was going to win. He said that the science that he was using told us that Hillary had a 70 percent chance of winning and that Trump had a 30 percent chance of winning. The result we have seen is perfectly consistent with the science that he used to inform his statements.
I did not say that there would be a crash by now. I said that the science that I was using told us that the long-term value proposition of stocks was poor and that, while no one can predict when a crash will come, my personal belief was it would come by now. The result we have seen is perfectly consistent with the science that I used to inform my statements.
The science behind Valuation-Informed Indexing when properly applied has always worked just as the science behind polling when properly applied has always worked. It’s the humans who get emotional and who apply science in inappropriate ways. That’s on the humans, not on the science. Science works when applied properly.
Silver distinguishes between “forecasts” and “predictions.” He says that it was his “prediction” (but not his forecast) that Clinton would win; his forecast was that Clinton had a 70 percent chance of winning and that Trump had a 30 percent chance of winning. If you go by that terminology, it was my “prediction” (but not my forecast) that we would see a crash by now; my forecast was the numbers generated by The Stock-Return Predictor (which show that stocks are a bad investment choice when selling at the prices that apply today).
Polls don’t tell a campaign everything that the campaign needs to know. I have no problem with a political professional saying “I am not going to make decisions solely by looking at polls because they do not give all the information I need.” But I have a big problem with someone saying “I am not going to use polls in the campaign that I am running.” To not take advantage of the insights offered by science is foolish and irresponsible, in my assessment.
It’s the same with the peer-reviewed research in the investing field. I have no problem with someone saying “P/E10 does not tell me all there is to know about stock investing and so I am going to look at other things as well.” That’s rational. But I do not view it as rational for someone to say “I am going to ignore the last 35 years of peer-reviewed research entirely because it does not answer every last question.” The last 35 years of peer-reviewed research answers many important questions and all those who put themselves forward as experts in this field should at the very least be making themselves familiar with what the research says and trying to educate themselves as to the possible implications of the findings of that research.
The bottom line here is that science is a plus. Science will never answer every last question and it is absurd (and goonish!) to demand that it do so. Science is a plus and science should be put to good use. All people who offer investing advice (whether experts or not) should be putting the people who hear their words on notice as to the limitations of the science they employ. But no one should be rejecting the last 35 years of peer-reviewed research solely because it fails to answer every last question.
There are many important things that the peer-reviewed research can tell us and there are some things that we would like to know that the peer-reviewed research cannot tell us and anyone who rejects the peer-reviewed research out of hand because it does not answer every possible question is being unreasonable and demonstrating that he or she is dominated by his or her Get Rich Quick urge. To make good use of the science available to us is the RATIONAL thing to do. I am happy to live in a day when the science of investing has progressed in a major way beyond what it was in the pre-1981 Buy-and-Hold Era. I aim (it is always a struggle for every one of us) to be a RATIONAL human.
My sincere take.
Rob
Anonymous says
So, if I provided a link to where Nate said he made a prediction and that he was wrong, would you also admit that you are wrong?
Rob says
No.
I’ve read numerous articles by the man. I know what he thinks. And your efforts to take some works out of context is just goonishness. If he believed what you are saying, he wouldn’t have said the opposite numerous times.
Nate Silver believes what you are saying about as much as Robert Shiller believes that price discipline is not required when buying stocks or as much as Wade Pfau believes that I am not the co-author of the peer-reviewed research that we published together.
Goonishness is a disease, Anonymous. It’s not rational. Goonishness is not an intellectual argument. It is pain striking out at a world that confounds it.
If you were comfortable with your own Goonishness, we never would have seen a single death threat from you or a single demand for a single unjustified board banning or a single act of defamation or a single threat to get a single academic researcher fired from a single job. You refute yourself with your nasty attitude before I type a word in response to your statements.
That’s my sincere take, in any event.
I am 100 percent happy to do anything that I can to help you. I have zero willingness to join you in your goonishness. To do that would make both you and me worse. I am trying to lift you up, not to sink down to your level.
I don’t do financial fraud. Not once. Not ever. Not in 14 years. Not in 14 billion years. Please try to find somebody else.
I do wish you all the best that this life has to offer a person.
Rob
Anonymous says
So Nate is like Shiller, Bogle, Pfau, etc in that he says one thing, but thinks something else. Is that right?
Rob says
Nate Silver is a human, like all the others you mention.
Goons lie about humans. In that respect, Silver is like all those other humans.
That’s why I am confident that the American people (including me!) will defeat you Goons in the end, Anonymous. We didn’t enact the laws against financial fraud as a lark. We enacted them because we appreciate the damage that those who lie about financial matters can do to us.
You have put yourself on a dark path. I am 100 percent happy to help. I am 0 percent willing to join you on that dark path.
I naturally wish you all good things.
Rob
Anonymous says
With all these people lying, are you the only honest person left?
Rob says
We have had thousands of people express a desire that honest posting be permitted at every investing discussion board and blog on the internet, Anonymous. I am confident that, following the next price crash, the thousands will become millions. Then we are off to the races.
We all have a potential for honesty within us and we all have a potential for dishonesty within us. All of the people you mentioned have demonstrated a desire to be honest. They need a hand. Our job as a people is to lend a hand to those among us who are writing honestly about the last 35 years of peer-reviewed research. It’s not all about turning a quick buck. We want our retirement plans to work. We need access to honest accounts for that to happen.
We won’t get to where we all want to be by living in fear of you Goons. We get there by backing each other up. When one of us goes honest, it makes it easier for the next fellow to take the same path. And then the next. It grows and grows and grows.
We are close today. Shiller was awarded a Nobel prize. That’s honesty sticking its head out the door and seeing if it is safe to try something good. I am 100 percent confident that the people who did that felt better about themselves afterwards.
I love being honest. It took courage to put up that May 13, 2002, post. But I have never looked back. As the rewards grow greater and greater, my ability to be honest grows stronger and stronger. I don’t even think about it much today, I just do it. My decision to write honestly about the last 35 years of peer-reviewed research in this field has shocked a lot of people but it has also led me to some amazing places. Looking back, it is stunning to think what followed from me working up the courage to put up that May 13, 2002, post. Yowsa!
It’s a process. We are close. We’ve got a tiger by the tale. Hang in there.
My take.
Rob
Rob says
With all these people lying, are you the only honest person left?
I’d like to take a second stab at this one, coming at it from a different angle, a numbers-based angle.
The P/E10 level in January 2000 was 44, three times the fair-value P/E10 level of 15. That’s $12 trillion worth of dishonesty.
Rob
Anonymous says
And what is that dollar level now?
Rob says
I can’t tell you, Anonymous. John Walter Russell did the calculation. I am not the guy to ask to do a numbers thing.
We are still at two times fair value. So it is still a big number. We are working our way through the damage the Buy-and-Holders did to us in the late 1990s. We’re about halfway there. But there’s still a lot of human suffering up ahead.
There’s never been a Buy-and-Hold market that didn’t end in tears. It’s not even possible for the rational human mind to imagine how there ever could be one.
Rob