I’ve posted Entry #412 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called There’s a Big Difference Between Saying That Valuations Matter and Exploring HOW They Matter.
Juicy Excerpt: The safe withdrawal rate is a number that drops to as low as 1.6 percent in some circumstances and rises to as high as 9.0 percent in other circumstances.
That’s an extremely controversial statement. If you don’t believe me, remind me some time and I’ll show you the scars. People who are happy to acknowledge that valuations matter are not at all willing even to acknowledge the possibility that the safe withdrawal rate is not always the same number (Buy-and-Holders believe that it is always 4 percent). Why?
Isn’t it a different way of saying the same thing? To say “valuations matter” is to make a theoretical statement. To say “high valuations can push the safe withdrawal rate down to 1.6 percent and low valuations can push the safe withdrawal rate up to 9 percent” is to give that theoretical statement practical application. Why would anyone who shares a belief in the theory object to exploring its practical implications?
It’s because exploring the practical implications of the belief that “valuations matter” gives that belief life.
Why do you continue posting these columns? They all say the same thing. All you do is toss your same old word salad around a bit, and dump it. What’s the point?
Every word that I have written over the past 16 years is rooted in a belief that valuations affect long-term returns. That’s the only sense in which the columns all say the same thing. Shiller’s “revolutionary” (his word) research findings changed everything that we once thought we knew about how stock investing works. We all should have begun exploring every aspect of the new world created by Shiller back in 1981. We would be a lot further along by now had we done that.
I am doing my part. I am writing about as many aspects of the question as I can in the days before the crash. After the crash, I will be joined by lots of others and we can all begin moving forward at a much faster pace. If Shiller is right (I believe that he is), every column written in the future will be rooted in a belief that valuations affect long-term returns. Will you then say that every article written about stock investing says the same thing? That is of course silliness.
The point is to help people learn how stock investing works in the real world. The point is to protect them from the Buy-and-Hold/Get Rich Quick stuff. What’s the point in you working so hard to block people from learning what they need to learn?
Word Salad Rob
Wrong. They all say the same thing in the sense that they all say the same thing. Just one example, the phrase:
Shiller’s “revolutionary” (his word) finding
Appears in the 3/6, 9/11, 8/21, 9/18, 7/11, and in many earlier columns. That’s just from the first page of the Google results.
I make that point over and over and over again because it is a critically important point. Shiller changed the world in 1981. We should have launched a national debate at that time re the hundreds of ways in which he changed our understanding of how stock investing works. I wish it had happened. It didn’t. That’s just the reality.
If you say in the year 2018 that the safe withdrawal rate is a number that changes with changes in the valuation level, you are saying something that is obviously true but also something that CANNOT be true. If that’s really true, wouldn’t the studies have been corrected a long time ago? It is very hard to understand how people could make an error that would cause millions to suffer failed retirements and it wouldn’t be corrected for years.
The explanation of how that happened is that Shiller’s research was revolutionary in nature. He showed the need for a paradigm change. People don’t just give up on paradigms overnight. They have to look at things from lots of different angles before they are ready to do so. They need to ask lots of questions and be persuaded by the answers given. They need to become comfortable with the new paradigm before they are willing to give up on the old one.
Every column that I write is looking at some aspect of the new paradigm. So it makes sense to remind people in each column that this stuff is revolutionary. If you come to my stuff wearing your Buy-and-Hold hat, you are not going to get it. You need to come to it with an understanding that, given the revolutionary nature of Shiller’s work, everything that we once believed — and that most of us still believe — is now under question.
If Buy-and-Hold had never existed, everyone would get Valuation-Informed Indexing in 10 minutes. It is simple, clear, common-sense stuff. But most people have heard of Buy-and-Hold. Most people have heard the Buy-and-Hold dogmas repeated thousands of times. So they think there must be something to them. You’ve got to persuade them to question those dogmas before you can have any hope of helping them to understand what the new research is showing us. Once you become committed to lots of wrong stuff, it becomes hard to accept the right stuff.
Shiller and Bogle cannot possibly both be right. They are saying opposite things. The first order of business at every discussion board and blog should be to help people figure out which of the two is right. You have to get that one right for anything else you do to work.
Revolutionary advances are good news. But they are not easy to accept. There is a lot of emotional resistance to revolutionary advances. People do not like change. Change can be a plus and in this case it is. But you cannot make an effective case for Valuation-Informed Indexing without pointing out regularly how revolutionary Shiller’s work is. People need to keep that thought in mind to have any hope of making sense of it. It is unusual for a piece of research to change everything that we once thought we knew about a subject. But that’s what happened in this case.
Good question.
Revolutionary Rob
So “making a point over and over again” is somehow different from “saying the same thing”.
I imagine that argument has been considered bannable behavior in many places.
How many times have the Buy-and-Holders said that “timing does’t work”?
Are you saying that any Buy-and-Holder who uses the phrase should be banned for doing so?
Bannable Behavior Rob
You have essentially banned people for speaking honestly about buy, hold and rebalance. That’s fraud. Pay me $5 Trillion dollars as a settlement.
Do you have change for a $10 trillion bill?
Money Bags Rob