Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Good Morning Robb
The Pe/10 at this point is 32 , 50% over fair value.Using Value Informed investing the most likely stock return is .13%. Going to cash in retirement I would feel more comfortable with only a 20% allocation to stocks. Problem is in today’s world Tips pay less than 1%, and CD’s pay approximately 2.2% -2.8% less taxes. So my effective return is zero , but is it fair to say zero is better than a 50% loss? To me yes zero is better than stocks because the extra risk is not worth a only .13 return . Does this make sense to you? I won’t be brainwashed by the buy and hold’s to not panic. I am not a pro just a middle class retired guy. But even I can see and be open minded that Buy and Hold doesn’t work. Thank you for the time you put into your blog…Max
It’s always nice to hear your voice, Max.
Your concern is one shared by millions. It is actually not too hard to find people worried about investing in stocks at today’s prices. The big issue that many people have with lowering their stock allocations is that the returns available from alternative asset classes are not big enough to help their portfolio ever grow to the size they need it to grow to to permit them to retire.
You are of course correct that a zero return is better than a 50 percent loss. The trouble of course is that no one knows when the 50 percent loss is coming. This is why I push so hard on the need to look at the historical return data. Buy-and-Holders make it seem like 50 percent losses just sort of pop up out of nowhere. No! Crashes that have lasting effect (those in which the losses remain in place for a significant length of time) only take place at times of super high prices (like today). And, once we get to super high prices, we always experience a crash sooner or later. There are no exceptions. We cannot identify the date when the crash is coming. But we know with certainty that it is coming sooner or later. So we need to make all of our investing decisions with that knowledge in mind.
I ordinarily say that investors should never let their stock allocations drop below 30 percent. That’s because you don’t want to experience too much regret if prices continue upward. If you have a 30 percent stock allocation, you are at least getting some of the temporary goodies and perhaps that will be enough to help you stay the course. You have a stronger appreciation of the importance of keeping valuations in mind that most. So it is my view that a 20 percent stock allocation is not crazy for you. However, it is my personal take that you should not go below that.
It is important that you understand that it is not that stocks are a dangerous asset class in general, only that stocks become a dangerous asset class when prices rise to insanely dangerous levels. If you start thinking that stocks are dangerous in general, you will feel confirmed in that belief when prices crash. Then you will be reluctant to invest in stocks even after prices drop. That will not work. You will not be able to accumulate the funds you need to retire without investing in stocks. Over the course of a lifetime, Valuation-Informed Indexers go with the same stock allocation as Buy-and-Holders, they just go heavier in stocks when prices are good and less heavy when prices are bad.
The exciting thing about being in CDs or IBonds today is that you are not earning only the return marked on the certificate or the bond. Your intent is only to own the asset with the low return for a few years. Then that money will be shifted into stocks paying a high expected return (the likely long-term return on stocks can rise to 15 percent real in the wake of a price crash). If you earn 1 percent for three years and then 15 percent for seven years, your 10-year return is not 1 percent, it is a lot higher than that. The purpose of being in CDs or IBonds today is to preserve the capital you will need to invest heavily in stocks when the long-term value proposition on stocks is strong.
Do you see how it helps to talk these things over? You are not the only person who has doubts about stocks at today’s prices. Millions of people do. But most of us are highly reluctant to act on those doubts until we first give voice to them and then hear feedback from others re our thoughts, in some cases positive feedback and in some cases negative feedback. We think by talking things over with our friends and neighbors and co-workers. Talking things over is an essential part of the intellectual process. We cannot think clearly without first gaining the freedom to talk things over in peace.
This is the real harm that has been done to us all by the relentless promotion of the Buy-and-Hold strategy. Buy-and-Holders have a hard time persuading themselves that valuations do not matter. It’s a position that just doesn’t make sense. They do believe in the strategy enough to follow it; they are not entirely lacking in belief. But they are very much lacking in confidence. They just cannot find peace following a strategy that requires them to ignore price. So, when they hear others talk about the consequences of ignoring price, they freak out. The result is that the Buy-and-Holders insist that everyone else keep quiet about their doubts re this “strategy.”
For Buy-and-Hold to survive, we all need to keep quiet about what our common sense tells us and about what the last 37 years of peer-reviewed research in this field tells us. And, when we keep quiet about what our minds tell us, we lose the ability to think clearly. Most of us end up going along with the crowd because to develop the strength to engage in independent thought we would need first to be able to talk things over with others and the Buy-and-Holders cannot permit that. What a predickelmint!
The Buy-and-Holders are not bad people. They came up with tons of good stuff. But, like all the humans, they just are not capable of knowing it all and never needing to ask others for help. Over time, they have developed a hyper-sensitivity to criticism that keeps them trapped in the stone age of investing analysis, the pre-1981 timer-period. And, because they sense in a dim way that they are living in the stone age, they feel a need to stop all of those who are trying to learn how this stuff really works from having the discussions they need to have to engage in effective learning experiences.
Yes, that’s my favorite rant! I have put a lot of blood, sweat and tears into perfecting it over the years and I am sticking to it!
Take good care, old friend.
Rob
When a tree falls in the woods and no one is there to hear it, does it make a noise?
When Rob Bennett posts on the internet and no one reads it, does it really matter?
I think it matters, Anonymous.
If Shiller is right (I obviously believe that he is), we are going to see another price crash within the next year or two or three. Millions of middle-class Americans will see 50 percent of their lifetime saving disappear into thin air overnight. It will have been the relentless promotion of Buy-and-Hold strategies that will have caused that. If we permitted honest posting re the last 37 years of peer-reviewed research, we could never have another bull market. Stock prices are self-regulating so long as investors have access to the information they need to act in their self-interest (that is, so long as they are able to learn when stock prices are so high that they no longer offer a strong long-term value proposition). Once we rule out future bull markets, we also rule out future bear markets because it is the insane irrational exuberance of bull markets that produces the insane irrational depression of bear markets. And once we rule out future bear markets, we rule out future economic crises because it is the huge loss of consumer buying power that we experience in bear markets that causes economic crises.
So we are close. Very close. The bad news here is genuinely bad. It breaks my heart to think of the ocean of human misery that we have collectively brought on with out participation in and tolerance of the Ban on Honest Posting. But it remains the case that the good news here is 50 times more good than the bad news here is bad. We live in a great country. We have processes in place by which we as a people overcome these sorts of problems. I am 100 percent certain that we are going to prevail in the end. Could I be wrong? It certainly has been known to happen. I could be wrong. But I don’t think so. I think I am right. I think we are going to get to the other side of this mess stronger than ever. We’ll see, you know?
When we get to the other side, we will all be united. We all are on the same side. We all want to learn about a better way to invest. It is silliness to think that there could even be a single exception to that general rule. Some of us have gotten caught up in our personal dramas over the course of the past 37 years and we don’t see it that way at the moment. But after the crash? After the crash, the realities that Shiller pointed to in his Nobel-prize-winning research are no longer theoretical. After the crash, we will all be seeing the results of ignoring those realities discussed in our daily internet news feeds. That changes things. In a big way.
Which side do you think Jack Bogle is going to be on in the days following the next price crash? I have a funny feeling that Bogle is going to be on the side of the American people at that time, not on the side of the Lindauerheads. Where does Mel Lindauer go when Jack Bogle calls for his removal from the Bogleheads forum (a forum named for Jack Bogle, not Mel Lindauer)? Your guess is as good as mine, you know? I think he goes somewhere whehe can no longer disrupt the conversations that we are trying to have. Again, we will see. But that is certainly what I expect to see happen.
All of the material housed at this web site will be available at that time to every single person interested in learning what happened to us. Yes? That’s a pretty darn freakin’ big deal. I think it would be fair to describe the 16-year cover-up as the biggest case of financial fraud in the history of the United States. Thanks to the power of this exciting new communications medium, we will all be able to quickly make complete sense of what went down. When means that we will all be able to quickly come to terms with what down and move forward into a brighter future for all of us. I am obviously humbled and honored to have been able to have played the role that I have played in making it all happen.
And you will see in that day how I will be helping you. The stuff that you Goons did will be reported. That’s part of the story. That cannot be covered up if we all are going to move forward. But the other side of the story is that lots of Normals TOLERATED your behavior. That puts your behavior in a different light than it would be placed in had the reality been otherwise. That helps you. And, yes, I will be reporting how I was one of those cowardly Normals for a time, how it took me three years to work up the courage to point out to my fellow community members (my friends!) that the retirement study posted at John Greaney’s web site lacks an adjustment for the valuation level that applies on the day the retirement begins. It will all come out And each and every one of us will be better off as a result so long as I continue to follow my policy of being as honest as I can possibly be without ever crossing the line and becoming uncharitable while also being as charitable as I can possibly be without every crossing the line and becoming dishonest. That’s the American way and that’s the way that I intend to continue playing it, my dear Goon friend.
The noise will come in the days following the next price crash. I predict lots of noise. I predict hundreds of visitors at this site every day. Perhaps thousands. Perhaps tens of thousands. Perhaps — Hundreds of thousands?
I don’t know. We’ll see. I’ll do my best to keep up with whatever flow of traffic appears before my eyes.
I could be wrong. I said that before. It doesn’t hurt to say it again. I could be wrong. But I don’t think so. I think that I am right. So long as playing it the other way translates into a prison cell for Old Farmer Hocus too (I obviously do not believe that Greaney included a valuations adjustment in his study), I am going to continue to keep to the right side of the felony line and let things play out however they play out. I wish you the best of luck in all of your future life endeavors. But I also need to watch out for myself. And that is my sincere take re what is in my personal best interests (as well as in the best interests of the world at large, to be sure).
Does all of that work for you? I sure hope so. It sure would give me some mental relief to know that my plans were all A-OK in your book.
I think there is going to be plenty of noise. I heard lots of noise on the morning of May 13, 2002, and that noise told me that something terribly important was going down. That something important has not been resolved in a successful way in the past 16 years. Too bad! That unfortunate reality makes me want to cry. It really does. But the bottom line here is that I am not Superman. I have done all that one human being can do. We live in communities. When I have a community of people helping me out, amazing and magical things will happen. I am sure. We will have to wait a bit to hear that amazing and magical noise. I think it would be fair to say that not one of us will at that time question whether it all was worth the wait 10,000 times over.
I think it matters.
But I could be wrong.
And I naturally wish you all the best that this life has to offer a person.
— My dear, Goon FRIEND.
Insignificant (for Now!) Rob
Well, you got one more comment. Two, counting this one. So that’s two days of posts. Maybe five more Value Walk columns. But after that, you’re out of content, or at least what you consider content. Then what?
Better have a good answer, for those hundreds of thousands of people who are about rush to this site.
I don’t have a definite answer as of today, Anonymous. I can imagine some possibilities.
There is no law that says that a blog has to have a new entry every day. I could just report on the new column entries at Value Walk and have one new blog entry here each week. That would be a stress-free way to cope with recent developments, no?
I could put up blog entries in which I work through various strategic questions using the five unique calculators housed at the site. I have had that idea in the back of my mind for some time. I would prefer to do that at a different site and then just post links here, as I do with the Value Walk column. But if I reached a decision that I want more than one fresh blog entry each week here, that would be a way to insure that there would be at least two new blog entries each week.
I could return to writing Guest Blog Entries. I did that before. I could do it again.
I could write e-mails to various people asking for help with the various obstacles that we face in opening the entire internet to honest posting re the last 37 years of peer-reviewed research in this field and then post the texts of the e-mails (as well as any response received) as blog entries here.
I could make efforts to get a second weekly column started at another site and then post link to those column entries as they come out.
Those are my thoughts re possibilities. My guess is that I will elect to go with some sort of combination of those options and that the mix will evolve over time. It might be that in the early days I will cut back on the number of blog entries and then, after the passage of some time, there might be a new column and that will be a focus and then after the passage of some more time I might see some of my e-mails seeking help generating responses and I might want to document the back-and-forth discussions that follow.
I don’t control the world. I am lucky if I can control me, you know? So I don’t think it’s a good idea to be too complete in my planning. I like having daily blog entries. I think that the issues are important enough that that is justified. I think it sends the right signal for there to be daily entries. But, if circumstances seem to indicate that it makes sense to cut back on the pace for a time, I hope that I will be open to doing that. So I haven’t ruled anything 100 percent in or 100 percent out as of this moment in time.
I’ll try different things. I’ll see what seems to work best and go with that. I’ll hope for the best.
Does that not make good sense?
And the hundreds of thousands have a lot of catching up to do! I have a funny feeling that, even after I have hundreds of thousands visiting this place on a daily basis, I am never going to hear one voice complaining that “hey, Rob, you just don’t provide middle-class investors with enough material, get to work, you lazybones!” I do my part. And then a little more on top of that. And then a little more on top of that. I’m famous for it. I mean, come on.
I can do no more and I can do no less.
I do wish you all good things, my dear Goon friend.
Rob
“I could”
“I could”
“I could”
“I could”
“I could”
You’ve started so many sentences that way in recent years. To my recollection, none of those “I could”s ever happened. Same with the “I will”s and the “I plan to”s. You just don’t have any gumption anymore. So we can look forward to one weekly link to Value Walk (what a treat that’s been, seeing the same column, slightly reworded, 400 times.)
But on the bright side – one more comment equals one more daily post! I’ve done my part here.
Okay, Anonymous.
Please take good care.
And thanks for doing your part!
Gumption-Deficient Rob
“I think it matters, Anonymous.”
No one else does.
That’s not a conclusion that a reasonable person who reviewed the materials at the site would come to, Anonymous.
Lots of people think it matters. Those of us who think it matters are not a majority, that’s for sure. We’re about 10 percent of the population. But if Shiller’s research is legitimate (I believe it is), it is very important for that 10 percent over time to become 20 percent and then 40 percent and then 80 percent. For that to happen, people need to be able to talk over the ideas among themselves, to ask questions, to probe, to hear the ideas explored from different angles until they become more comfortable with them.
It’s that learning process that has been blocked by the intimidation tactics of the Buy-and-Holders. I have asked people to help me out when you Goons crossed the felony line. People often don’t do it because they are afraid. Well. I am afraid too. I could theoretically do what others do, I could silence myself, censor myself, keep my doubts about Buy-and-Hold hidden so as not to draw the wrath of the Buy-and-Hold Goons down on me.
How would things ever change if I did that? I want things to change. Cowardice is not the formula for change. So I don’t want to go there. I want to take it exactly the other way. I want to develop Shiller’s insights to the fullest extent to which they can be developed and I want to share the implications of those powerful and life-affirming insights with every person on the planet. That’s my mission. That’s my job. That’s my life’s work. That’s what gives me a kick when I get up in the morning and when I go to bed at night. That’s the story for me.
You want the new ideas to die. You want the state of humankind’s knowledge of how stock investing works to return to where it stood in 1980. You and I are working at cross purposes. So you do what you do instead.
You say that it doesn’t matter. Your actions tell a very different story. You think it matters a great deal. That’s why you fight so hard. I think you are right re that one. I think it matters a great deal too. Every time you advance another death threat or another demand for another unjustified board banning or another act of defamation or another threat to get another academic researcher fired from another job, the message that you want me to hear is: “You are in scary territory, you better back down.” But the message that I hear is: “This is truly important stuff and the people on the other side have come to the conclusion that Buy-and-Hold can only be defended with the lowest tactics imaginable, this is worth fighting for.”
I love my country. What I love about it is that we have processes in place to resolve conflicts of this sort in ways that work to the good of every single person involved. I like that. I like being part of a process with the promise to enhance millions of lives in very big and important ways.
Is it possible that our country will fail us this time? It’s possible. I don’t say that it can’t happen.
But I don’t believe for two seconds that that is what is going to happen. I believe that the American people are going to win this one. I don’t have any doubts about it.
I think that you Goons are going to be with us when we all get to the other side. Losing 50 percent of your life savings is going to change your perspective on things. So we will be friends then. We will be working together then. I think that will be perfectly groovy, you know? I look forward to that.
We are prisoners of time. I can tell you what I see. I cannot persuade you that it is real until you are able to see it with your own eyes. We are going to have to wait a bit to see how things play out in the days following the next price crash to find out for sure whether Greaney’s study really does lack a valuations adjustment, as I have been saying for 16 years now, or whether the problem is just that I went off my meds somewhere along the line.
I certainly wish you the best of luck with it, dear friend. Does that help at all?
Med-Taking (or Not?) Rob