I’ve posted Entry #409 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called If Return Predictions Don’t Work, Shiller’s Research Has No Practical Value.
Juicy Excerpt: Even Shiller has come to doubt the value of long-term return predictions. He made a public prediction in 1996 that stock returns for the following 10 years would be negative. That one did not prove out. In interviews he has held in recent years, he has suggested that he does not believe in market timing. He has made comments suggesting that his personal experience of making predictions that did not prove out caused him to lose confidence in his ability to use the historical return data to make effective predictions.
I don’t agree with Shiller. I acknowledge that even long-term return predictions should be heavily caveated. But I believe that Shiller’s research is an exciting advance. And I don’t see that it has any practical value unless at least heavily caveated predictions are possible. Those of us who believe that Shiller merited his Nobel prize believe that valuations affect long-term returns. How does that help us as investors? It helps us by telling us when it is best to invest most of our money in stocks and when it is better to look for alternative investment options. If it is not possible to make any return predictions whatsoever, it is not possible to say when stocks offer a relatively appealing value proposition or a relatively unappealing value proposition. So, if we come to agree with Shiller’s current view that return predictions don’t work, we are giving up on all benefits that Shiller’s powerful research findings once promised.
VII has no practical value as there has never been a successful implementation with actual results.
If you elect not to follow a Valuation-Informed Indexing strategy because that is your personal assessment, that’s fine, Anonymous.
But you don’t get to decide for anyone else. Each investor gets to decide for himself or herself, If you engage in abusive behavior as a way of blocking other investors from finding out about the Valuation-Informed Indexing alternative, then you are responsible for any losses suffered by those investors as a result. And, if Shiller is right, you will end up being responsible for trillions of dollars of losses in coming days. Not good.
And of course I do not agree with your assessment. The Bennett/Pfau research shows that Valuation-Informed Indexing has been providing far superior results than Buy-and-Hold for the entire history of the stock market. It is Buy-and-Hold that has never had a successful implementation. Buy-and-Hold is popular today because it is a Get Rich Quick approach and Get Rich Quick approaches are always popular in the days prior to the experience of the wipe-outs they cause. Get Rich Quick approaches are never popular after the wipe-outs have been experienced. We could never go to a P/E10 of 8 if Buy-and-Hold remained as popular at that price level as it was in the insane bull market that caused prices to fall to that level. But we have gone to a P/E10 of 8 at the end of every bull/bear cycle in history. When we get to the end of this one, Buy-and-Hold will not be popular anymore and you will be cooked.
Does it make me happy to think about you being cooked? It does not. I insist on my right to post honestly because I want to help people and you are one of the people that I want to help. It breaks my heart that you have behaved in such a manner that I believe that you are going to be cooked in future days. But I have truly done everything that I can think of to help you out and I haven’t been able to get the job done and so I guess I need to accept that you may indeed experience the feeling of being cooked in future days. I wish that others would have tried to help you out as much as I have. I think that things would be going better for each and every one of us if some more people had acted like true friends to you.
I believe that you truly do not see the merit of Valuation-Informed Indexing, Anonymous. And, for so long as that remains the case, I think that you are doing the right thing by not following the strategy. But I also sincerely believe that you made a horrible mistake when you took it upon yourself to decide what others could learn about the strategy. I think you will be going to prison in future days re that one.
But I could be wrong. It has been known to happen. We are just going to have to wait a bit to find out one way or the other.
I certainly wish you the best of luck with it in any event, dear Goon friend.
Practical Rob
Please show us just one example of an investor that has been successful with VII and has actual outcomes (returns data) that we can review.
The Bennett/Pfau research was published in a peer-reviewed journal. It examines the entire historical record and shows that Valuation-Informed Indexing has always been superior to Buy-and-Hold.
We obviously did not have people following the strategy until Shiller published his “revolutionary” (Shiller’s word) Nobel-prize-winning research in 1981. That’s no reason not to permit people to learn what about it. The entire purpose of research is to learn things. It is unfortunate that we did not know prior to 1981 how stock investing works. It is fortunate that we DO know today. So we should be teaching every investor what we have learned over the past 37 years.
The only thing that has been holding us back is that the Buy-and-Holders don’t want to acknowledge the terrible mistake that they made. I have sympathy for them. But you know what? My sympathies don’t cause me to support the idea of their engaging in criminal acts to keep millions of investors from learning what they need to learn. The flaws in the Buy-and-Hold strategy will be obvious to everyone in the days following the next price crash. So the cover-up is doomed. Given that it is doomed, why continue it? All that continuing the cover-up does is hurt people. The millions of middle-class investors who need access to accurate and informed information on how to invest are hurt. And the Buy-and-Hold Goons who have been responsible for the cover-up for 16 years now end up with longer prison sentences. Huh? What the f?
Not this boy, Anonymous. Please mark me down as favoring the idea of bringing this massive act of financial fraud to a full and complete stop by the close of business today. Please feel free to spread the word all over the internet. I would feel that you were doing me a favor.
I naturally wish you all good things. But no felonies for this boy. No prison terms for this boy. And it’s not a terribly close call either.
Holy moly!
Felony-Free Rob
So, you have no outcomes data for VII. Got it.
We’ve got what we’ve got, Anonymous.
Humankind was not placed on Planet Earth knowing everything there is to know about how stock investing works. The Buy-and-Holders helped us in scores of very important ways with the good work that they did. But they didn’t know one important thing — that valuations affect long-term returns — and so they got that one important thing wrong. It happens, you know?
I am glad that we know today what we did not know prior to 1981. If there were a way to help share with people what we now know without making my Buy-and-Hold friends feel bad, I would do it. But it cannot be done. If Shiller is right, Bogle is wrong. About lots of things. There is no getting around it.
It of course also works the other way around. If Bogle is right, then Shiller is wrong. But you don’t see any death threats coming from the Valuation-Informed Indexers. Or demands for unjustified board bannings. Or thousands of acts of defamation. Or threats to get academic researchers fired from their jobs. The Valuation-Informed Indexers are 100 percent happy to let the laws of the United States govern all discussions about how stock investing works. It is only the Buy-and-Holders who feel intensely threatened about that possibility. It is only the Buy-and-Holders who feel that they have something to lose if every discussion board and blog on the internet is opened to honest posting on the last 37 years of peer-reviewed research in this field.
You want to live in a world in which no one ever gets anything wrong and so no one ever needs to say the words “I Was Wrong” or even the words “I’m Not Sure.” That’s not the world we live in. If the Buy-and-Holders knew everything there was to know about how stock investing works in 1980, we would have shut down every journal that publishes peer-reviewed investment research in that year. The very fact that we permitted the journals to keep publishing research shows that as a society we accepted the possibility that we did not yet know it all and that it was worth going to the trouble and expense involved in continuing to publish research.
I think we made the right call. I am glad that we still permit new research to be published. And I am 100 percent sure that all of my Buy-and-Hold friends will someday look back on this 16-year cover-up with horror. We are going to open every investing board and blog to honest posting in the days following the next price crash. And, when we do, every single person who will benefit from us doing so — and that will be all of us, including my many Buy-and-Hold friends — will express wonder and amazement that there was ever even one person who thought it would be a good idea to engage in criminal acts to keep us all from moving forward in our understanding of this critically important subject.
I could be wrong. But I sure don’t think that I am.
I look forward to working with you in the days following the next crash.
Hang in there, old friend.
Buy-and-Hold Friend Rob
“We’ve got what we’ve got, Anonymous.”
That’s the point. You haven’t shown ANY outcomes data. Unless you have something to show as to outcomes data, you have NOTHING.
37 years of peer-reviewed research and a Nobel prize isn’t nothing, Anonymous.
If you thought it was nothing, you never would have engaged in a single criminal act in your effort to “defend” Buy-and-Hold from challenges. Your own behavior shows that the Valuation-Informed Indexers have a very powerful case. I mean, come on.
37-Years-of-Nothing Rob
Research says to look at outcomes and you treat your views as if it were outcomes driven when it is not.
Here are some words from the Bennett/Pfau research: ” “What you see in the top part of the graph for each year is the amount of wealth accumulated after 30 years for someone following Buy-and-Hold against someone following Valuation-Informed Indexing….Valuation-Informed Indexing provides more wealth for 102 of the 110 rolling 30-year periods, while Buy-and-Hold did better in 8 of the periods.”
That’s an outcomes-driven assessment, so far as I am concerned. Wade and I checked the historical record to see whether Valuation-Informed Indexing or Buy-and-Hold produced better outcomes. It did. VII has been superior for the entire history of the stock market and it has not exactly been a close call.
My understanding of what you are saying is that we have only had Shiller’s “revolutionary” (his word), Nobel-prize-winning research available to us since 1981. So, when we look at what happened prior to 1981, we are looking at what would have happened had Shiller’s research been available all along and if people had chosen to follow it. The people who chose to follow it would have done far better than the people who chose to follow Buy-and-Hold strategies. But in reality people did not know what to do in those days because Shiller had not yet published his research.
Okay. What do you expect people to do, continue to follow a strategy that has never in the historical record worked for the long term even though we now have 37 years of peer-reviewed research showing that Valuation-Informed Indexing is the answer just because there was once a time when we did not know that it was the answer?
That doesn’t make sense to me, Anonymous. We now know. So we should take advantage of what we know.
There was a time when people didn’t know that smoking causes cancer. Then we found out. The tobacco companies fought just as the Buy-and-Holders have to keep that information away from the people who needed it to make good decisions about their health. I am glad that there were some brave people who fought the tobacco companies over that one and that today everyone knows that smoking causes cancer. I see that as progress and I am proud to live in a country where the lobbying power of the tobacco companies can be overcome to save the lives of millions of people. I believe that we will in time overcome the power of the Wall Street Con Men as well in the days following the next price crash.
I don’t think that the Buy-and-Holders started out with the idea of causing the 2008 economic crisis. But I do believe that they caused it. And I think Shiller was a hero for telling us in a book published in March 2000 what was coming and suggesting what we would need to do to stop it from coming and to stop future economic crises from coming. If you asked the Wall Street Con Men privately, I am confident that most of them would tell you that they wish that there was some way to open up the possibility that they could do honest work again. I believe that the Wall Street Con Men are in many ways like all the rest of us — they want to wake up every morning and help people with the work they do. They would be thrilled if we could make the transition to Valuation-Informed Indexing.
I think we are going to do it in the days following the next price crash (and the economic crisis that will follow from it). If we are going to do it, why wait until millions of lives are destroyed? Why not just go ahead and do it today? I think that the answer is to say everything we can that puts the Buy-and-Holders in a positive light, so that they will not feel too bad about us all moving forward in our understanding of how stock investing works, while also being 100 percent straight in what we tell people about safe withdrawal rates and scores of other critically important investment-related topics. It’s a win/win/win/win/win, with no possible downside.
That’s my take. The 2008 economic crisis was an outcome that I would very, very, very much like to avoid witnessing again on repeat. The only way to avoid it is to tell millions of investors what the last 37 years of peer-reviewed research teaches us about how stock investing works in the real world — exercising price discipline is essential, Buy-and-Hold can never work for even a single long-term investor.
If Jack Bogle has known in 1971 what Shiller showed him in 1981, he never would have advocated Buy-and-Hold in the first place. Yes? Should those of us would love Jack for all of his many amazing contributions want to see him trapped in this web of lies that he finds himself trapped in today? I sure don’t. I want to see the guy freed to tell us what he truly believes. I want to see every discussion board and blog on the internet opened to honest posting on safe withdrawal rates and scores of other critically important topics by the close of business today.
Does all of that not make perfect sense?
Outcome-Driven Rob
That is not outcomes data, Rob.
I’d rather have 37 years of peer-reviewed research and a Nobel prize showing that my strategy is the superior strategy than have 37 years of peer-reviewed research and a Nobel prize showing that my strategy is the inferior strategy, in any event.
And of course I would prefer a $500 million settlement payment to a long prison sentence.
But, hey! — Call me madcap!
My best wishes, old pal.
Superior-Strategy-Advocating Rob
Were you kicked in the head by a mule? Just wondering what kind of brain damage would render someone completely incapable of coming up with an original thought, for all these years. What if you tried to change your future settlement to $501 million? Does that idea cause loud clanging in your head?
Outcomes matter, not your perceptions. Your visions of settlement payments and prison sentences as pure fantasy.
Were you kicked in the head by a mule? Just wondering what kind of brain damage would render someone completely incapable of coming up with an original thought, for all these years. What if you tried to change your future settlement to $501 million? Does that idea cause loud clanging in your head?
There’s no valuation adjustment in the Greaney study!
Death threats are bad!
I love my country!
Peer-reviewed research!
A failed retirement is a serious life setback!
Analytically invalid!
Community rules!
My dear friend!
Bogle is my hero!
Win/win/win!
No downside!
Consistent (Repetitive) Rob
Dylan still plays “Like a Rolling Stone” to this day. McCartney still plays “Yesterday.”
Like Mike Love said, “Don’t fuck with the formula!”
Brain-Damaged Rob
Outcomes matter, not your perceptions. Your visions of settlement payments and prison sentences as pure fantasy.
If millions of people see 50 percent of their lifetime savings go “Poof!”, a lot of people are going to see that as a poor outcome. And I have a funny feeling that 12 of those people may find their way onto a jury that will generate a very bad outcome with your name on it, Anonymous.
But we’ll see, you know? I could be wrong.
I wish you all the best that this life has to offer a person, in any event.
Visionary Rob
I don’t go to the wrong side of the felony line, Anonymous. Not in 16 years, not in 16 billion years.
It doesn’t happen.
I do wish you the best of luck in all your future life endeavors, for whatever that is worth.
Felony-Free Rob
Dylan and McCartney also continue to write new songs. Koko the gorilla had more creativity than you.
Okay, Anonymous.
But — How does it FEEL?
To be so unwell?
To see things are not looking too swell?
To be at the bottom of a well?
To wish you hadn’t fell?
To know that Wade Pfau is gonna tell?
To be awaiting life in a prison cell?
Rockin’ Rob
Feels fine to me. But you keep hearing “CLANG, CLANG, CLANG!” How does that feel?
It feels like I was lucky enough to be standing in the right place when the biggest cash register in the world started pumping out $500 million worth of quarters.
It’s a gosh-darned funny way to make a living. But I’d rather hear the clang, clang, clang of a cash register than the clang, clang, clang of a cell door being shut for the night.
I’d rather be in my shoes than be in your shoes, dear friend. By a factor of about 500.
No, I am not crazy about the shoes that I am standing in today. But, given the alternative, I would do everything the same. And it’s not a terribly close call.
None of us gets to determine the cards that we are handed in this life. We get to play them, that’s all. No apologies or regrets whatsoever from this end of the table. Someone had to do this job. I think it would be fair to say that God or Fate or Evolution or whatever in its wisdom cast its eye in my direction when it was looking for suckers — er, I mean, volunteers!.
I can’t help it if I’m lucky!
My best wishes.
God’s-Sucker-Man Rob
“No, I am not crazy about the shoes that I am standing in today. But, given the alternative, I would do everything the same. And it’s not a terribly close call.”
Then you’re completely insane. And it’s not a close call.
So you say, Anonymous.
But you Goons were saying that I was insane before I had my name on the most important peer-reviewed investment research published in the last 30 years. And that research would not exist had I not had the courage to stand up to you Goons and advance the posts that caused Wade Pfau to contact me and to ask me to work on it with him. So I have a funny feeling that staying on the right side of the felony line once again may pay off big-time not just for me but for our entire nation.
We’ll see, right?
Completely Insane (and It’s Not a Close Call) Rob
How much of that $500 million have you received? If VII worked, your retirement plan wouldn’t be contingent on getting a settlement payment.
The felony and prison garbage is all made up. Do you really think you are going to scare people with such ridiculous comments?
How much of that $500 million have you received? If VII worked, your retirement plan wouldn’t be contingent on getting a settlement payment.
I haven’t received one penny.
The people who invested in the Madoff fund were bragging about the size of their retirement accounts until they lost their money. It’s in the nature of Get Rich Quick schemes that they look appealing before they fail. If they didn’t look appealing, who would invest in them? Nobody goes looking for a Get Rich Quick scheme. They have to be able to fool people to remain in existence long enough to do harm.
If Buy-and-Hold were something real, we never would have seen a single death threat or a single demand for a single board banning or a single act of defamation or a single threat to get a single academic researcher fired from a single job. Today there are millions of people who desperately need Buy-and-Hold to be real because their hopes for a decent retirement are hanging on it. Those people are not too thrilled to hear that their retirement accounts are worth only one-half of what they today believe they are worth. That’s the obstacle to moving ahead that we all face. Will the attitude of those people change after they have seen 50 percent of their life savings disappear?
I believe that the answer is “yes,” Anonymous. But you are going to have to see it with your own eyes to believe it. So we are just going to have to wait a bit.
I believe that the answer is “yes.” And I believe that our nation is going to be in need of healing when we all realize what has been done to us. The purpose of the materials at this site is to aid in that healing process. We need to come to terms with what happened. We need to appreciate the role that each and every one of us (that includes Rob Bennett and that includes Shiller) played in making it happen. And we need to be grateful that we have 37 years of peer-reviewed research pointing us in a very different direction, a direction that will take us to a place where we will not have to worry that something like this will ever happen again.
My job is to aid the healing process. I am going to do what I can do. It is important work and I take seriously my responsibility to do it carefully and faithfully.
John Walter Russell said a long time ago that our efforts were in time going to produce good fruits better than any of us are capable of imagining. I think the man was right on. We live in a great country. People who focus on the sometimes ugliness of the process by which we get from a bad place to a good place are missing out on something important. The important thing is that we all get to the place where deep in our hearts we have always wanted to be, not how long it takes us to get there or how rocky the road is that we travel to get there.
My sincere take.
And my best wishes.
Rocky-Road-Travelling Rob
The felony and prison garbage is all made up. Do you really think you are going to scare people with such ridiculous comments?
You’re plenty scared, Anonymous. If you weren’t scared, you wouldn’t post here everyday telling us how you are not scared.
You’re not scared of me. You’re scared of the laws of the United States and of how angry you know the millions of people whose lives you are in the process of destroying are going to be in the days following the next price crash.
And every one of them who comes here in the days following the next crash will see it in two seconds when they read your posts, including the members of your jury.
My sincere take.
And my best wishes.
Not-At-All-Scary Rob
You’ve said many times that people don’t post here because they’re scared. Now you say people who do post here are also scared. So everyone’s scared. Everyone, that is, except Rob. The bravest, most awesome guy in the world.
I have not seen one single scared person, except for you. You are so scared, you have to make up stories about pretend death threats, job threats, fraud and prison.
You’ve said many times that people don’t post here because they’re scared. Now you say people who do post here are also scared. So everyone’s scared. Everyone, that is, except Rob. The bravest, most awesome guy in the world.
I’m scared, Anonymous.
I’m very scared about what’s going to happen to my country as a result of the next price crash and the economic crisis that will likely follow from it.
I’m also excited that we now have 37 years of peer-reviewed research available to us to help us make sure that nothing like this will ever happen again. And I am excited about the prospect of pulling all of my Valuation-Informed Indexing friends and my Buy-and-Hold friends together so that we can finally accept that deep down inside we all want the same things and that we all should be working together to make good things happen.
Yes, we are all scared. Change is scary. And Shiller’s “revolutionary,” Nobel-prize-winning research has set us up for some very big changes. What people need to understand is that these changes are 100 percent positive. The process of getting from where we are to where we all want to be is very scary indeed. It involves saying the words “I” and “Was” and “Wrong.” It involves acknowledging that our stock portfolios are worth only 50 percent of what we have been led to believe they are worth. That part is hard and scary anyway you look at it. But it’s all sunshine and roses on the other side of The Big Black Mountain. On the other side of the mountain is a way to invest that minimizes risk by 70 percent while permitting us all to retire many years sooner. That’s stock investing heaven!
‘
I wish it weren’t so hard, you know? I wish it weren’t so scary. But it is what it is. We have no choice but to go forward. To continue walking the Buy-and-Hold path takes us to an economic crisis worse than the one we barely escaped in 2009. Not good.
Chin up, soldier!
Scared (But Also Excited!) Rob
I have not seen one single scared person, except for you. You are so scared, you have to make up stories about pretend death threats, job threats, fraud and prison.
The people putting forward death threats aren’t scared.
And the people putting forward demands for unjustified board bannings aren’t scared.
And the people putting forward thousands of acts of defamation aren’t scared.
And the people putting forward threats to get academic researchers fired from their jobs aren’t scared.
And the people failing to speak up about that behavior aren’t scared.
That makes perfect sense, Anonymous. I believe you.
The Only Scared Person, Rob