Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Buy and holders don’t need to look at valuations when we sell stocks – when prices go up, we rebalance into bonds. In fact, we over-rebalance, since we have more wealth, and our need to take risk has declined, and also because we’re getting older. I sold stocks, and bought bonds again today.
You are leaving two things out of your statement.
One, you don’t mention that the risk associated with owning stocks increases when valuations increase. You say that you take into consideration the fact that your need to take risk has diminished. Why not also take into consideration the fact that the risk associated with stocks increases as valuations increase? It is logically inconsistent to take risk into consideration in the one context and not in the other.
Two, you are failing to QUANTIFY the factors you describe. You say that you sold stocks and bought bonds today. Good for you. But are you now at the right stock allocation? You have no way of knowing until you QUANTIFY the various factors. The most likely annualized 10-year return for someone buying stocks in 1981 was 15 percent real. The most likely annualized 10-year return for someone buying stocks in 2000 was a negative 1 percent real. The risk associated with owning stocks was obviously a LOT greater in 2000 than it was in 1982. The Buy-and-Holder of 2000 might have lowered his stock allocation a tiny bit because he believed in rebalancing but, unless he went to the trouble of quantifying the effect of the insanely dangerous stock prices of 2000, he had no idea how much he needed to lower his stock allocation to get his risk profile back to where he had once decided it should be.
Buy-and-Hold is anti-reason. To reason effectively, we need information. On the surface, the Buy-and-Holders are all about gathering information. They present studies with charts and tables and all these sorts of things. It was that sort of thing that impressed me about Buy-and-Hold many years ago and that convinced me to become a Buy-and-Holder myself for a time. But there is now 36 years of peer-reviewed research showing that the single most important factor determining long-term investing success is the extent to which the investor takes valuations into account when making strategic decisions. And the Buy-and-Holders don’t take valuations into account AT ALL. And they don’t gather information relating to valuations. They ban discussions of such information! They put their fingers in their ears and scream “I can’t hear you!”” when people talk about the 36 years of peer-reviewed research showing that valuations matter. Putting your fingers in your ears and screaming “I can’t hear you!” doesn’t make the last 36 years of peer-reviewed research go away. It is still out there, threatening to destroy your hopes of retirement when the next price crash closes in on us all.
I am saying that we should discuss ALL the information that helps us become better investors. We should discuss all the stuff that the Buy-and-Holders look at, all the stuff that we knew mattered prior to 1981. And we should also discuss all the valuations-related stuff that we only learned mattered in the past 36 years. When you combine the pre-1981 research with the post-1081 research, you’ve really got something. The amazing thing that you’ve got when you do that is the thing we call “Valuation-Informed Indecxing.” It’s the future of investing analysis.
Buy-and-Holders need to look at valuations when they buy stocks and when they sell stocks and at all other times. There is simply no reason not to look at valuations when making any decision relating to stock investing — valuations is the most important factor bearing on any strategic question. Saying that an investor doesn’t need to consider valuations in some circumstances is like saying that a doctor doesn’t need to consider a patient’s blood pressure in some circumstances. A patient’s blood pressure numbers provide the doctor with important information bits. He should always take those numbers into consideration. If the numbers are normal, he can of course go on to other things just as an investor can go on to consider other factors if he takes a look at valuations and sees that they are at fair-value levels. But it is simply not possible for a doctor to do his job without at least stopping for a minute to check blood pressure and it is not possible for an investor to do his job without stopping for a minute to check valuations.
The question is — Why do Buy-and-Holder put so much desperate effort into NOT considering valuations when it is logically so critical that they do so? The reason is that valuations are providing them information that they do not want to know about. Buy-and-Holders live in a fantasy world where stocks are always worth buying, regardless of price. The P/E10 number provides them information that they very much want to ignore. This is what Buy-and-Holders go nutso when people like me present the numbers that need to be taken into consideration when making investing decisions. A part of the Buy-and-Hold mind sees that the numbers are important and is drawn to consider them. Buy-and-Holders generally respect the power of peer-reviewed research. But the Get Rich Quick urge of the Buy-and-Hold mind is threatened by this powerful information and demands that the person providing the information be silenced.
I don’t want to be silenced. I don’t want anyone to be silenced. I want to hear what Jack Bogle thinks of the last 36 years of peer-reviewed research. I want to hear what Robert Shiller thinks of the last 36 years of peer-reviewed research. I want to hear what Wade Pfau thinks of the last 36 years of peer-reviewed research. I want to drink it all in and make my own decisions. And I want every last one of my fellow community members to at least have the opportunity to do the same. That’s how out system works when it comes to every question other than the question of what the last 36 years of peer-reviewed research teaches us about how stock investing works in the real world. I intend to open every investing discussion board and blog on the internet to honest posting so that our system can start working its magic in the investing advice field as well.
Does all of that not make perfectly good sense, my old friend?
Rob
“One, you don’t mention that the risk associated with owning stocks increases when valuations increase. ”
There is risk in anything you invest in. Look at the risk you took by avoiding stock. You took the biggest financial beating of anyone I know. That’s why we diversify and also rebalance. No one has a crystal ball. Perhaps you should follow what Shiller says instead of what you want him to say. Your misinterpretations have put you in the tough spot you find yourself in.
Do you think that the risk of investing in stocks is static or variable, Anonymous?
That’s the entire dispute.
If the market is efficient, stock investing risk is static and Buy-and-Hold is the ideal strategy.
If valuations affect long-term returns, stock investing risk is variable and any investor who refuses to adjust his stock allocation in response to big swings in stock prices is letting his risk profile go haywire as a consequence.
Do you think that you should be keeping your risk profile roughly stable over time or do you not? If you follow a Buy-and-Hold strategy, it’s not possible to keep it stable (presuming that the last 36 years of peer-reviewed research is legitimate research).
And, if risk is variable, it is certainly not possible to calculate the safe withdrawal rate accurately without taking into consideration the valuation level that applies on the day the retirement begins.
We are not arguing over whether there is risk in anything you invest in or not. We are arguing over whether the risk associated with one particular asset class — stocks — is static or variable. There is 36 years of peer-reviewed research showing that it is variable. I believe that that research is legitimate. So I am not willing to pretend to believe that the risk associated with stock investing is static.
Does that help?
Rob
“Do you think that the risk of investing in stocks is static or variable, Anonymous? That’s the entire dispute.”
No, that’s your dispute. It has nothing to do with the comment. As always, you insist on ignoring the point raised and babbling on about something else.
That pisses people off. It’s annoying, and eventually it gets you banned. You think it’s perfectly acceptable behavior. And THAT’S the entire dispute.
Okay.
I do think it is perfectly acceptable behavior. I think it is admirable behavior.
You are 100 percent right that it annoys people, that people get pissed off in response to me saying what I say. But I feel very strongly that someone needs to say it. I wish that someone other than me had been selected for the job. But the circumstances played out in the way that the circumstances played put. I love my country. That runs deep. And here we are.
It is my view that, if more people spoke out about the far-reaching implications of the last 36 years of peer-reviewed research in this field, people would get less pissed off when they heard about them. At some point, the principles of Valuation-Informed Indexing would become old hat to people and mentions of what the last 36 years of peer-reviewed research says would not be so controversial. So I think that we need to take things in just the opposite direction from where you want to take them. I want to see everyone who has doubts about Buy-and-Hold to speak up about them in clear and firm and bold terms so that hearing such doubts would become just another thing, nothing to get hot and bothered about. You want those of us who think Buy-and-Hold is a big pile of smelly garbage to keep it to ourselves so as not to piss off the 90 percent of the population who believes in Buy-and-Hold.
We are working at cross purposes, Anonymous. Can we agree on that much?
It does not appear that there is any compromise possible. I am 100 percent unwilling to consider saying that I believe that Greaney’s study contains a valuation adjustment and you are 100 percent unwilling to consider coming clean re the 15-year cover-up of the errors in that study. It does not appear to me that we are going to hold hands and sing “Kumbaya” together anything real soon. Fair enough?
I still think that it is possible that there will come a day when we will hold hands and sing “Kumbaya” together. I believe that that day will come following the next price crash because then the behavior of the people listening in to our interactions will change. People will be pissed off about the money that they have lost and they will work up the courage to stand up to you Goons and to insist that you be put in prison cells. That’s going to be a big development. That will change everything. From that point forward, we will have bloggers and researchers and advisors and economists and policymakers and just about everyone falling over themselves to express their excitement about what we have learned from the last 36 years of peer-reviewed research in this field and we will be seeing honest books come out and honest podcasts and honest calculators and just all sorts of good stuff. All of the pent-up honesty of the past 36 years will be released into InvestoWorld. It will be something to see. It will be the Second Independence Day for these United States.
Or not, you know?
I could be wrong. I am telling it how I see it. But I am one of those darn flawed humans. So I could be wrong. You can’t go just by what I say. But that is certainly what I expect to see happen.
Is there something that I can do for you in the interim?
I am not able to think what that something might be. Can you give me a clue?
I certainly do not want to piss you off any more than I already have pissed you off. That is the last thing on my mind. But I am 100 percent unwilling to say that the retirement study posted at John Greaney’s web site contains an adjustment for the valuation level that applies on the day the retirement begins, as always. So I feel that we are kind of in a rut here. Do you have any suggestions for how we might proceed from this point forward (short of suggesting once again that I not do the thing that pisses you off so much that I feel compelled to do because of the deep love that I feel for this wonderful country of ours)?
Peace, man.
Rob
Do I have any suggestions for someone who thinks “ignoring the point raised and babbling on about something else” is “admirable behavior”?
I do, but those suggestions are always deleted. So I won’t bother.
Okay.
I do wish you all good things in any event, if that makes any difference whatsoever.
Hang in there, man.
Rob
“I do think it is perfectly acceptable behavior. I think it is admirable behavior.”
No, it is not acceptable and I agree with the other poster. You say you want to have a discussion, but you don’t. You have your topics, your agenda and your opinions and that is it. People have tried to explain things to you, but you don’t listen and you keep on doing what you are doing, resulting in banning and with most people ignoring you. You still think everyone else is the problem, yet you lack any self awareness. Occasionally, we see your token line where you say “I could be wrong”, yet you really haven’t spent one minute to examine that possibility. Instead, you blame everything on everyone else. You won’t even listen to your own wife.
I’m bad to the bone, Anonymous.
Everybody knows it too.
That’s the thing.
Rob
If you were as honest as you claim to be, you would end every post with:
“This is my opinion and it is correct. Therefore it is fact. I am not interested in your stupid opinion, which by definition is financial fraud and will land you in prison someday. Do not comment unless it is to tell me how awesome I am. (I already know I’m awesome, but it’s nice to hear it from others.)”
It is my personal belief that my opinion is the correct one, Anonymous.
I can sign on to that much.
I naturally wish you all the best that this life has to offer a person.
Rob
If Robert Shiller posted here at your website and told you that you were wrong and that you are misrepresenting his work, would you agree with him, or would you accuse him of fraud?
1) I would do what I could to bring Shiller’s comment to the attention of as many people as possible by posting it as a future blog entry.
2) I would not agree with him if all that he did was to make that statement. I would ask him why he had come to that conclusion and try to find common ground with him by either coming to a better understanding of where he was coming from or by persuading him of the merit of my different take.
3) I would not accuse him of fraud if he merely stated his opinion re the matter and did not accompanying his expression of his opinion with death threats or with demands for unjustified board bannings or with thousands of acts of defamation or with threats to get academic researchers fired from their jobs. In the event that he did engage in insanely abusive behavior, I would encourage him to knock off the funny stuff as quickly as possible with the aim of limiting his prison sentence to the greatest extent possible.
4) I would let him know that, regardless of his response, I would continue to view him as a giant in this field and would thank him for all that I have learned from him over the years.
Does that help?
Rob
“2) I would not agree with him if all that he did was to make that statement. I would ask him why he had come to that conclusion and try to find common ground with him by either coming to a better understanding of where he was coming from or by persuading him of the merit of my different take.”
If you read what he has written, he has already explained why you are wrong.
Okay, Anonymous.
Rob the Wrong
Mr Bennett,
You are wrong. Please reread my extensive and well researched work and you should find the answers.
Will do, Robert.
Don’t let the bad guys get you down, old friend.
Rob
“Don’t let the bad guys get you down, old friend.”
The “bad guys” you refer to are a figment of your imagination. Please come join us in the land of reality.
The “bad guys” you refer to are a figment of your imagination. Please come join us in the land of reality.
Tell it to the people who lost their businesses in the 2008 crash. Or who lost their jobs. Or who saw the value of their stock portfolios collapse and who became frightened about their financial futures.
The people who posted with me at the old Retire Early board were real human beings. They had stories. They had hopes and disappointments. I got to know them. I kidded around with them. I came to care about them. Sue me.
Someone who lies to them about the numbers they use to plan their retirements is doing something bad, in my assessment. If you want to point to good that that someone has done to add balance to the story, I am 100 percent with you. That’s a fine thing to do. If you want to point out that that someone had suffering of his own that he had to endure at earlier times of his life and say that that influenced the choices he made and argue that he would have made different choices if he had been able to think 100 percent clearly at all times, as none of us are, please feel free to put down my name on that statement.
There are things that I can do. But there is only so far that I can go.
If I participate in a community day after day after day and I see a study being recommended that I know to be in error and I keep my mouth shut because I know that I will earn the wrath of a gang of internet Goons if I express my honest views, then I become one of the bad guys myself. Not interested. Not this boy. I care about the people I write for and I love my country. Please try to find somebody else.
It would be nice to believe that we lived in a world in which nothing bad ever happened. I enjoy writing inspirational stuff as much as the next fellow and I like seeing the reactions it generates. But it has been my experience in my 61 years of walking the planet that there really is bad stuff out there. And each time one of us holds back from pointing it out when we see it, we cause more of it to be generated. Death threats are bad stuff. Demands for unjustified board bannings are bad stuff. Thousands of acts of defamation are bad stuff. Threats to get academic researchers fired from their jobs are bad stuff. Those things don’t happen by themselves. Human beings make conscious choices that cause those things to happen.
Financial fraud is bad stuff. Prison sentences are bad stuff. If I keep quiet about someone committing felonies before my eyes, I contribute in a small way to those acts. I don’t like seeing my friends go to prison. Find someone else. I will not keep quiet when I see this sort of thing take place before my eyes at the discussion boards and blogs that I love. That one is not in the cards.
We all have bad within us, Goon friend. We all have a duty to act in love when we see our friends losing the ability to think clearly about these matters.
My sincere take.
My best and warmest wishes.
Rob
Thanks for making the case for buy and hold. Those that followed it did great.
Always happy to help out where I can, my good friend.
Rob
“The people who posted with me at the old Retire Early board were real human beings. They had stories. They had hopes and disappointments. I got to know them. I kidded around with them. I came to care about them.”
And yet when asked about this previously, you couldn’t provide a single name or a link to a comment where someone bemoaned being impoverished by Greaney’s flawed study. Guess you didn’t care enough to remember their names.
There’s an article at this site at which I quote from the comments of 101 of my fellow community members who expressed a desire that honest posting re SWRs be permitted at that board. And that was only a small sample.
Greaney never would have advanced a single death threat if he thought that he could persuade people that his study was legitimate without engaging in such tactics. People who have written legitimate studies just don’t engage in such tactics. Not ever. Not once.
I mean, come on.
Rob
“There’s an article at this site at which I quote from the comments of 101 of my fellow community members who expressed a desire that honest posting re SWRs be permitted at that board.”
And I’m supposed to just take your word for that?
It’s amazing that someone who went to law school has absolutely no grasp of the concept of evidence.
36 years of peer-reviewed research is a lot of evidence, Anonymous.
Wade Pfau spent months trying to find a single peer-reviewed research study showing that it is not necessary to practice price discipline when buying stocks. He came up empty-handed. It’s the Get Rich Quickers who have the evidence problem.
My sincere take.
Rob
“There’s an article at this site at which I quote from the comments of 101 of my fellow community members who expressed a desire that honest posting re SWRs be permitted at that board.”
So obviously that was a lie. No big deal to you. I mean, it’s somewhat plausible that such an article might exist on your site. But, of course, it doesn’t. You’re a habitual liar, and you don’t care who knows. Very, very strange.
It’s all a lie, Anonymous.
Greaney had included a valuation adjustment in his study all along.
I was just kidding around a little bit. Trolling, so to speak.
Please take good care, old friend.
Rob
Gee Rob, there is a discussion on market timing with CAPE over at the boglehead boards:
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=239669&sid=93b52b377f9799bd77bb20976198e283
I thought the buy and hold goons blocked all of that kind of talk. Meanwhile, most people are providing evidence to the contrary. You better get over there and set them straight.
I’m grateful for the link, Anonymous.
The discussion is not legitimate if some viewpoints are banned. There may be good points made by individual posters. But the overall discussion is limited once people are punished for expressing certain viewpoints. I don’t support that sort of thing.
YOU should set them straight. We aren’t on different sides. Everyone benefits from honest posting. The entire cause of the problem is your view that there are two sides. Everyone wants to invest effectively. So we are all on the same side.
My sincere take.
Rob
So, if they let you post on the Bogleheads board, you would post?
Why would you ask such a question? I didn’t ban myself. And I didn’t support the ban.
Obviously I would,
Rob
Okay. I checked. They will let you post. Go ahead.
I’m in the process of winding down for tonight. I’ll check things out there tomorrow morning, Anonymous.
Please take good care.
Rob
But you need to post now to save the world from the goons and the big crash. No time to waste.
I’ll take a shot at saving the world from the Goons tomorrow morning.
We’ll see then how it plays out.
My best wishes.
Rob
Of course valuations matter. But as Rob has so painfully proven – the timing matters too. And this is why buy and hold is generally better.
It’s so remarkably simple it is hard to fathom how rob could be on this ridiculous crusade for so long.
Okay Rob. It is a new day. Where is your post? We need you to save the world from total economic destruction.
“I’ll take a shot at saving the world from the Goons tomorrow morning. We’ll see then how it plays out.”
We already know how it will play out. You will do nothing. The only question is whether you will bother to make an excuse.
I agree with you that valuations matter, Laugh.
I presume that what you mean when you say that “timing matters too” is that the time it takes for prices to revert to fair-value levels matters. I don’t agree with you re that one, at least not entirely.
The time it takes for prices to revert to fair-value levels affects the result obtained. So it certainly can be said that in one sense the timing matters. But what can we do with this information? We can choose not to time the market at all — that’s what Buy-and-Holders do. Or we can choose to look at what has happened in the past, form some parameters for how we will adjust our stock allocations in moderate ways, and then compare the results of that approach with the results we would obtain if we followed the Buy-and-Hold approach. Wade Pfau and I compared those two possibilities in the peer-reviewed research study that we co-authored. We found that Valuation-Informed Indexing — doing the best that we can do with the limited knowledge available to us — has far out-performed Buy-and-Hold for the entire 150 years of stock market history available to us.
The time at which mean reversion occurs matters. But it is not known. We would like to be able to engage in short-term timing as well as long-term timing. That would be ideal. But the world in which that is possible just does not exist. So that one is out.
But we are able to develop general rules that have always applied in the past and base our strategies on a belief that those rules or something not too terribly far different from them are likely to work in the future as well. The entire historical record shows that that is a far better approach than refusing to exercise price discipline at all. Just because we don’t know everything doesn’t mean that we do not know anything. The reality that we don’t know everything that we would like to know about how stock investing works doesn’t prove that we haven’t learned a great deal indeed from the last 36 years of peer-reviewed research. We know a lot more today than we knew when the Buy-and-Hold strategy was developed and we should take all that we now know into consideration when developing our investing strategies.
My sincere take.
Rob
Okay Rob. It is a new day. Where is your post? We need you to save the world from total economic destruction.
I tried to sign up. The system did not accept my e-mail address. I presume that that is because it is on a banned list. I entered my boy’s e-mail address. I presume that the confirmation instructions were sent to him. He may not be awake for a few more hours. So we will need to exercise a little patience.
Rob
We already know how it will play out. You will do nothing. The only question is whether you will bother to make an excuse.
I will put up a post. I have already crafted one. I just was not able to get the system to do what it needs to do for that post to appear before the eyes of my fellow community members.
If I am able to post later this morning, I will do so. How the post is received on others. I don’t pretend to control that aspect of things. I can’t say that the words that you have posted here fill my to the brim with confidence in this particular projects. But we’ll see.
Rob
The most recent comment in that thread:
“Schiller has been clear that CAPE is not useful for timing. Why wouldn’t you believe him?”
That poor guy can’t even spell Shiller. Get him, Rob.
Also, there are about a gajillion ways to create a new email account in two minutes.
I have decided to drop the idea, given your “get him” b.s.
Perhaps another time.
Rob
“I have decided to drop the idea”
I’m shocked. Shocked, I tell you.
Okay, Anonymous.
I do wish you all good things.
Rob
Oh no. Rob won’t post. Our entire economy will now collapse.
You are of course being sarcastic. But I do indeed feel the concern that you are expressing here. It’s not that Rob Bennett will not post at one site that will cause our economy to collapse. It’s that as a nation we have not figured out a way to correct the mistakes in our understanding of how stock investing works in the 36 years since those mistakes were revealed in peer-reviewed research published by a Nobel-prize-winning economist.
I believe that we will see a change following the next crash. I believe that our Buy-and-Hold friends and our Wall Street Con Men friends and even our Goon friends have a place in their hearts in which they feel a love for their country. I believe that it is going to make a difference when they can see with their own eyes the human misery that results when millions of middle-class people are denied access to honest and accurate reports re what the peer-reviewed research of the past 36 years teaches us about how stock investing works in the real world. There’s a saying that “all’s well that ends well.” I believe that the good news here is 50 times more good than the bad news here is bad. I think that we are all going to see some amazing stuff in the days ahead and it is my hope and expectation that a lot of people who today are viewed as being on “the other side” will be helping us all come to a better understanding of the realities as revealed by the last 36 years of peer-reviewed research.
Yes, I believe that we are going to see a deepening of the economic crisis, Anonymous. The wonderful thing is that this is the first of the four economic crises that we have suffered as a nation that has been 100 percent optional. We didn’t have 36 years of peer-reviewed research to help us recover from the three earlier economic crises brought on by the relentless promotion of the Buy-and-Hold “strategy.” We have that this time and I believe that it is going to make a big difference. We have been through other tough spots as a nation and we will make it through this one in the same way we made it through things like the Civil War and the 911 terrorist attacks and Watergate and the Great Depression — by pulling together and by reaching down deep for what is best in us and by sharing it with others in a spirit of love.
We’ll see, you know?
That’s my sincere take re these terribly important matters in any event. And I naturally wish you all the best that this life has to offer a person.
Hang in there, old friend.
Rob