Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Are you the only one posting honestly?
I’m certainly not the only one who includes ANY honesty in his posts. But I think it would be fair to say that I have shown more of an unwillingness to post DIShonestly than anyone else working in this field.
Take Bill Bernstein. He said back in May of 2002 that you need to subtract two points from the safe withdrawal rate of 4 percent reported in the Buy-and-Hold studies for the effect of valuations when they are where they were at the top of the bubble. Subtract 2 from 4 and you get 2 — and that is indeed what the safe withdrawal rate was at that time. So Bernstein was engaging in a heroic level of honesty. Good for him.
But when he saw the controversy over my honest posting raging at the Bogleheads Forum, did he step forward and say anything? He did not. There were times when there was insanely abusive posting going on and he was in the room (we know because he posted on other topics) and yet he kept his mouth shut about the errors in the Buy-and-Hold studies. Huh? What the f?
There are millions of people who will be suffering failed retirements in days to come because of the 16-year cover-up of the errors in the Buy-and-Hold retirement studies (I am assuming here that stocks may continue to perform in the future at least somewhat as they always have in the past). Bernstein has been heroically honest. He has also helped the cover-up continue by failing to speak up when it was his responsibility to do so.
I have not been 100 percent honest. I kept my mouth shut from May 1999 through May 2002 re the errors in the Buy-and-Hold retirement studies. So I am 100 percent sympathetic to Bernstein’s situation (and, indeed, the situation of every person who works in this field today). But I certainly think it would be fair to say that I have gone farther than anyone else in publicly urging that we all pull together and bring a full and complete stop to the Campaign of Terror against our board and blog communities. I’ve got the scars all over my body to prove it! I mean, come on.
I am not the only one posting honestly. But as I have seen the damage that we all have suffered as a result of the dishonestly, I think it would be fair to say that I have been more open and strong in my calls for opening the entire internet to honest posting re the last 37 years of peer-reviewed research in this field than anyone else around. And it’s not a particularly close call!
Fair enough?
Rob
Rob,
Sometime ago, you said the following:
“I was asked to give a time frame and ?felt that that was a reasonable thing to demand of me. So I gave it my best shot. I said that, if we do not see a crash by the end of 2015, that would be grounds to question this VII stuff. I think that is fair. We cannot say when it will come but there are lots of reasons to believe that it should come by the end of 2015. If it doesn’t, that would suggest that we are missing a big piece of the puzzle and I think it would be fair for my critics to point that out. That’s all I can say on the matter. ”
We are now WAY past 2015 and there has been no crash. In fact, the market is much higher, by your own words, VII hasn’t worked out like you said it would. When should we expect for you to give us your “I was wrong” speech? What are you now going to do since your expectation of a $500 million settlement is now gone?
Thanks for stopping by, Anonymous.
I have written several columns on the failed predictions, both Shiller’s failed prediction of 1996 and my failed prediction from a number of years after that that you refer to above. I write the columns because I am trying to come to terms with the reality of the failed predictions. As I say in the words that you quote above, it was reasonable of you to demand some sort of time frame in which a crash would take place. And so I supplied the prediction as a means of holding myself accountable. And the crash did not come in the time-frame predicted. That tells us something important. As I say in the words quoted above, it suggests that we are missing a big piece of the puzzle. I think that all of that is fair to say.
You say: “VII hasn’t worked out like you said it would.” I think I can agree with that much too. It hasn’t worked out like I said it would, like I expected it would. But it HAS worked. Shiller used VII principles to predict that an economic crisis would appear in the later years of the first decade of the new Century. That happened. I said that the insane price increases of the late 1990s would hurt us all. And we have now seen sub-par returns for 18 years running (the annualized real return for the past 18 years has been one-half of what we usually see — millions of people have lost ground financially because our irresponsible behavior of the late 1990s left us with a $12 trillion debt that we are still in the process of paying back). So VII has worked to an amazing degree in a general sense; the Buy-and-Holders certainly didn’t predict the 2008 economic crisis or the 18 years of sub-par returns. But it has failed in terms of specific predictions that Shiller put forward and that I put forward.
That’s the reality, Anonymous. My conclusion is that we don’t have it all figured out as of today. We need to keep digging. We need to open every discussion board and blog to honest posting on every possible issue and invite all sorts of people to participate in a national debate aimed at getting to the bottom of all this stuff.
That’s my take. You of course knew that that was my take before you posted your comment. I’ve repeated that take about 10,000 times now. I’ve repeated it so many times now that I am sick of hearing myself say it.
The reason why I was once a Buy-and-Holder myself is that it was promoted as a model for understanding how stock investing works that is rooted in the scientific process. I am a big believer in the scientific process. I stopped being a Buy-and-Holder when I learned that Buy-and-Hold as it is practiced today is anything but that. Buy-and-Hold has over time become the opposite of what it was intended to be in its early days. An essential part of the scientific process is an ongoing openness to learning new things.
Shiller taught us something new in 1981 (that valuations affect long-term returns). We should have incorporated Shiller’s findings into the rest of the Buy-and-Hold Model when they were revealed to us. That didn’t happen in 1981 and it didn’t happen in all the years up to 2002, when I put up my famous post pointing out that there is no valuations adjustment in the Greaney retirement study. When I learned about the failure to incorporate the new findings, I got about developing a new model that retains all of the Buy-and-Hold stuff that has stood the test of time but that also incorporates the new “revolutionary” (Shiller’s word) research findings of 1981 as well. That’s Valuation-Informed Indexing. That’s this site.
We all should be trying to figure out why Shiller’s prediction of 1996 didn’t work out and why my prediction that we would see another crash before the end of President Obama’s second term didn’t work out. It’s when we solve those sorts of puzzles that we learn new things. And we all should be doing all that we can to learn new things.
It is my belief that the Federal Reserve may be part of the explanation. I think that the Federal Reserve has been trying to keep prices from collapsing because of a fear that another price crash may lead to a serious recession or even a Second Great Depression. The Federal Reserve did not play such a role in most of the years examined in Shiller’s research. So it may be that we are going to need to make some adjustments to the process by which we make return predictions to reflect this new reality of the stock investing realm.
The new reality does not negate Shiller’s revolutionary, Nobel-prize-winning finding. If Fama is right, the market is efficient and stock investing risk is stable and the safe withdrawal rate is always the same number and price changes are caused by economic developments. If Shiller is right, valuations affect long-term returns and stock investing risk is variable and the safe withdrawal rate changes with changes in valuation levels and price changes are caused by shifts in investor emotions. If price changes are caused by shifts in investor emotions and valuations affect long-term returns, then every investor needs to divide the number on his portfolio statement by two to identify the true, lasting value of his portfolio when stocks are priced as they are today.
That’s a very, very different stock investing world than the stock investing world imagined by Fama and Bogle. We all need to get about the business of exploring this new world, both those of us who believe that it is the real world in which stock investing takes place (the Valuation-Informed Indexers) and those of us who believe that it is not the real world but who would benefit by exploring it because doing so would help us confirm our confidence in the very different world that just about all of us believed in prior to the publication of Shiller’s 1981 research findings (the Buy-and-Holders).
Does all of that help at all?
My prediction failed. That’s a fact. Valuation-Informed Indexing has passed every test (except the Bennett prediction test and the Shiller prediction test). That’s also a fact. I have been proven wrong about one small thing. At the same time that I was proven right about lots and lots and lots of much bigger things. It will be interesting to see how things play out in the days following the next price crash.
My best and warmest wishes to you, my dear Goon friend.
Rob
VII failed. YOU have been wrong. You just can’t bring yourself to ever admit it because then you would have to admit that the last two decades of your life have been wasted. There is no way to put a positive spin on it.
Okay, Anonymous.
I do wish you all good things, in any event.
Rob
It’s probably a good idea for me to note that the fact that I have devoted the last 16 years of my life to developing the Valuation-Informed Indexing model does indeed bias my thinking re all these matters. We are in agreement re that much of what you say here.
Deeply Biased Rob