I’ve posted Entry #337 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Mike Piper Explains Why Buy-and-Holders Are Reluctant to Follow the Research Supporting Valuation-Informed Indexing Strategies.
Juicy Excerpt: Mike explained that an instructor in a class on retirement planning that he recently took “was super enthusiastic about a recent piece of research that showed that, based on historical data, retirees’ ability to safely spend from their portfolios would be improved if they followed a set of rules in which they dramatically adjust their asset allocation each year based on current interest rates and price-to-earnings ratios.” Yes! That’s indeed what the 145 years of historical return data available to us today does indeed show. And it is a truly exciting discovery that is known by only a small number of today’s investors.
But Mike said that he feels qualms about following that sort of investing approach with his own money regardless of what the recent research shows. He notes that a strategy that works well historically cannot be tested in a large number of real-world simulations. Those planning retirements need to know whether their strategy will work well over a 30-year time-period (from age 65 to age 95). If you begin a test today, you won’t know for 30 years whether the strategy passes it or not and by then it will be too late for you to make use of what you learn from the test. And to adopt the new strategy you have to pass up the conventional strategy, accepting all the risks entailed in doing so. There are no do-overs in the retirement planning game.
Anonymous says
Just shocking that someone would want to see actual results versus just taking your word for it.
Rob says
I’ve like to see some evidence that it is possible to calculate the safe withdrawal rate accurately without taking into consideration the valuation level that applies on the day the retirement begins, Anonymous.
Wade Pfau spent months researching the literature in this field trying to find one sliver of support for the claim that that is possible. He came up empty-handed.
I wonder why.
Rob
Anonymous says
There is a long track record of success with buy and hold. It works just fine.
Rob says
Okay, Anonymous.
Please take good care.
Rob
Anonymous says
Can you show anyone with a successful VII outcome?
Rob says
What I can show you is 36 years of peer-reviewed research, Anonymous.
That’s enough for me. It’s up to you whether that is enough for you or not, it’s not up to me to decide for you. But it is up to me to decide for me. I have decided that it’s enough for me.
The problem is not that you and I have come to different conclusions as to what is enough. That’s normal. That’s what you should expect to see. In any community, there are going to be different positions taken on different issues. It’s a 100 percent healthy thing that that be the case.
The problem is that you are using abusive tactics to decide for others. You are saying “no one is going to get to hear what Rob Bennett has to say because I have decided that what he is saying is not enough for me.” No. That’s over the line. That is not acceptable.
If no one speaks up about your abusive tactics (and the abusive tactics of other Buy-and-Holders — you obviously are not the only one causing a problem re this matter), then we will never be able to point to millions of people using Valuation-Informed Indexing successfully because no one will ever know about Valuation-Informed Indexing. For us to see successful VII outcomes, we are going to need to start talking about VII at every investing board and blog on the internet. That’s how it is done. You tell people about what the research says (or, if you want to stare things more diplomatically, what you BELIEVE the research says) and then those people ask questions to firm up their understanding, and then those people try out Valuation-Informed Indexing, and then over time you have reports of successful VII outcomes, more and more and more of them as time passes.
We cannot get to the successful outcomes until we permit people who believe in Valuation-Informed Indexing to post honestly. That’s the very first step in the process that must be followed if we are ever to have reports of lots and lots of successful VII outcomes. I am trying to get the process started. I am refusing to post dishonestly because I believe that it is my right to post honestly and because I believe it is my responsibility to the community to post honestly. You are demanding something of me that I obviously cannot deliver until the possibility of honest posting is opened up and at the same time you are refusing to permit the possibility of honest posting. It doesn’t add up.
I am 100 percent confident that we will in time see millions of cases of successful VII outcomes. But I continue to insist that my right to post honestly be recognized because THAT IS HOW IT IS DONE.
I didn’t cause any of this problem. I was a Buy-and-Holder myself on the morning of May 13, 2002. I gave up on Buy-and-Hold on the evening of August 27, 2002, when Greaney put forward his first death threat and 200 Buy-and-Holders endorsed it (in fairness, there were 50 others — presumably some Buy-and-Holders and some Valuation-Informed Indexers — who spoke out in opposition to the death threat). If I could turn back the clock to 1981, so that we could all begin posting honestly 36 years ago, I would do it and I am 100 percent certain that Jack Bogle and all of my other Buy-and-Hold friends would participate in the process that would have led us to a place where we would have millions of successful VII outcomes today. But I of course do not have the ability to turn back the clock.
The best that we can do today is to work together to open up every investing board and blog on the internet to honest posting starting at the close of business today. That’s what I propose. I think it would be fair to say that, if we take that path, we will all look back someday to today as a Second Independence Day for the people of the United States. The last 36 years of peer-reviewed research is the most exciting 36 years of peer-reviewed research in the history of the United States. It is truly exciting and liberating stuff. We all should be exploring the far-reaching implications of Shiller’s amazing research findings on a daily basis.
That’s my sincere take re these terribly important matters in any event.
I naturally wish you the best of luck in all your future life endeavors, my good friend.
Rob
Anonymous says
So, in short, no….you don’t have any documented successful outcomes.
Rob says
In short, I have 36 years of peer-reviewed research showing that valuations affect long-term returns.
That’s enough for me.
And I refuse to post dishonestly.
And I naturally wish you all good things.
Rob
Anonymous says
If you needed heart surgery and a doctor said that he could do a procedure that has a demonstrated track record of success or, alternatively, he said that you could try this other surgery that might work, but has no track record, which would you choose?
Rob says
I don’t agree with you that Buy-and-Hold has a demonstrated track record of success, Anonymous.
The U.S. stock market has generated an annual average return of 6.5 percent real for 147 years running. U.S. stocks should represent an AMAZING long-term value proposition.
But look at what happened in the four occasions in U.S. history when the Buy-and-Hold “strategy” became popular. On the first occasion, this “strategy” caused losses big enough to cause the first of the four economic crises suffered in U.S. history. On the second occasion, this “strategy” caused losses big enough to cause the second of the four economic crises suffered in U.S. history. On the third occasion, this “strategy” caused losses big enough to cause the third of four economic crises in U.S. history. On the fourth occasion, this “strategy” caused losses big enough to cause the fourth of four economic crises in U.S. history.
Huh? What the f?
I’m beginning to develop a funny feeling that perhaps going pure Get Rich Quick is NOT the answer, that perhaps going pure Get Rich Quick is actually the freakin’ problem, just as the last 36 years of peer-reviewed research in this field indicates.
When the first heart surgery was performed, there was no “track record of success.” There was a mountain of scientific evidence showing that heart surgery would enhance millions of lives and the decision was made that as a society we would have to go with what the science said and let the track record of success develop naturally over time. Had advocates of the morticians lobby threatened to kill any doctors who employed the new scientific knowledge to help millions of people lead better lives, we would all be worse off today.
Fortunately, we have laws protecting us against that kind of behavior. Unfortunately, the Wall Street Con Men have for 36 years now been able to use their considerable wealth and power and connections to evade those laws. I think it would be fair to say that following the next price crash we will be working together as a society to insure that our laws are enforced, that those who have posted in “defense” of Mel Lindauer, John Greaney and Jack Bogle will be put in prison cells where they belong so that the rest of us will be able to enjoy the benefits of Shiller’s “revolutionary” (his word), Nobel-prize-winning research for many decades to come.
It will be interesting to see how it all plays out, Anonymous.
I naturally wish you the best that this life has to offer a person, my hostile-to-scientific-breakthroughs friend.
Rob
Anonymous says
“I don’t agree with you that Buy-and-Hold has a demonstrated track record of success, Anonymous.”
“It will be interesting to see how it all plays out, Anonymous.”
I have watched it play out. You can continue to live in your fantasy world. That is your right.
I don’t want to risk my retirement and have my family live in fear, so I chose the path that has a proven track record of success and that is what we see with buy and hold.
Rob says
Given that those are your sincere beliefs (I certainly believe that they are), you are doing the right thing, Anonymous.
I naturally wish you the best of luck with it.
Rob