I’ve posted Entry #415 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Is Dangerous.
Juicy Excerpt: Only in subsequent years did I discover the downside of rooting an investment strategy in objective, research-proven realities. The downside is that science does not stand still. We thought we knew how stock investing worked in the 1960s and 1970s, when Buy-and-Hold was being developed and popularized. Then we learned in 1981 that our fundamental beliefs were not nearly so solid as we had once imagined, The trouble with a numbers-based model is that, if mistakes are made, the model produces numbers that are wrong. The certainty that goes with an objective approach becomes illusory. A model that produces false numbers retains the appearance of objectivity but no longer is animated by the spirit of a scientific endeavor. Science that is not corrected for a long period of time becomes anti-science.
Uh oh, Rob. Shiller just said you are wrong yet again. We aren’t gone to see that 50-60% drop that you say we are going to see.
https://www.marketwatch.com/story/housing-market-now-reminds-me-of-2006-robert-shiller-says-2018-10-30
Notice he says the following:
“The drop in home prices in the financial crisis was the most severe drop in the U.S. market since my data begin in 1890,” Shiller said. “It could be that we’re primed to repeat it because it’s in our memory and we’re thinking about it but still I wouldn’t expect something as severe as the Great Financial Crisis coming on right now. ”
So it oops likeyou don’t really know what Shiller’s data really says. Further, it means your dreams of a big crash leading towards your $500 million windfall will not materialize since your logic is all based on what Shiller says.
Of course, you will say that the goons got to Shiller and he is being controlled.
I’m grateful for the link, Anonymous.
Shiller is expressing an opinion when he says that he does not think we will see a repeat of the Great Financial Crisis anytime soon. He could be right. He’s certainly an informed person and I certainly think that people trying to figure out what is going on should be taking his opinion into consideration. I obviously hold a different opinion. And my opinion is every bit as much rooted in Shiller’s research as Shiller’s is. Stock prices are today at two times fair value. If we see a drop to fair-value price levels, that’s going to wipe out the retirement hopes of millions. I sincerely believe that the consequences could be devastating.
Is Shiller being controlled by you Goons? He is. I say that we should open every discussion board and blog on the internet to honest posting on safe withdrawal rates and scores of other critically important investment-related topics. Are you able to say what Shiller’s views re his own research would be today had the entire internet been open to honest posting for the past 16 years? You cannot. It’s a hypothetical. We had a chance to find out and we blew it by failing to work up the courage to stand up to you Goons. We don’t get the benefits of open debate for so long as we do not permit open debate.
On the morning of May 13, 2002, I was a Buy-and-Holder. I am obviously not that today. What changed? What changed is that I saw John Greaney advance his first death threat on the evening of 17, 2002 and then I saw 200 of people who long had been friends of mine endorse that death threat. Huh? What the f? When you see something like that, your mind forces you to try to come up with an explanation. My explanation is that Buy-and-Hold is not science at all, that it is a purely emotion-based strategy. It parades as science because the Buy-and-Holders want to persuade both themselves and others that it is real. But the science stuff is a cover. The reason why the Buy-and-Holders ignore the 37 years of peer-reviewed research showing that valuations matter is that they possess an emotional desire to believe that the numbers on their portfolio statement are real and lasting. It is the Get Rich Quick component of the strategy that is the driver of the strategy, the primary source of its widespread appeal.
Shiller wasn’t there at the Motley Fool’s Retire Early board on the evening of August 27, 2002. So he didn’t see what I saw. My personal circumstances caused me to be exposed to a type of “research” to which Shiller has probably never been exposed, The thing that is “revolutionary” (Shiller’s word) about Shiller’s research is that he showed that it is investor emotion that drives stock prices, not economic realities. What better way to test whether that premise is valid than to talk about Shiller’s research at a discussion board at which people are hoping to begin early retirements because of the numbers they see on their portfolio statements? If you get an insanely emotional reaction, that shows that Shiller is right. If the aspiring early retirees respond with a calm confidence that their strategy is rooted in research, that would support the Buy-and-Hold claims.
What happened at the Retire Early board should have been written up at every investment discussion board and blog on the internet. The violent reaction of the Buy-and-Holders to my showing that Greaney’s study got the safe withdrawal rate numbers wrong is EVIDENCE as to whether it is Shiller or Bogle who is right about how stock investing works. That evidence should have been considered at every site at which stock investors congregate. It was not. 90 percent of today’s investors are Buy-and-Holders and they become embarrassed for people to learn about the death threats and the career threats and all the other garbage that their fellow Buy-and-Holders have dumped on us all in their effort to keep us all from learning how stock investing really works.
So Shiller is probably not aware of a lot of things that have influenced my thinking. I am certain that he has seen his own share of abusiveness. I believe that he could probably write a book on what he has seen. But I doubt that he has seen Buy-and-Hold abusiveness as up front and in-person and for as long a time as I have seen it. He doesn’t interact with you Goons on a daily basis, as I do! I have seen evidence that Shiller has never seen. And that evidence has influenced my thinking on how all this stuff works.
Could I be wrong? Sure. If Bogle could be wrong, I could be wrong. And I certainly believe that Bogle is wrong about some important things. So I have to acknowledge that it is possible that I am wrong about some important things. That’s the fate of us poor humans. We can believe something with all of our hearts and minds and still end up being wrong about that something. It’s a humbling reality.
I think that’s why we have laws protecting us from the sorts of tactics that you Goons employ to keep us all from learning things we very much need to learn. Since any of us can be wrong about anything, we permit honest discussion on all subjects other than stock investing. That way, we learn about those subjects over time as different people coming at things from different perspectives offer their sincere thoughts and we come to discover our mistakes and fix them. Shiller has not learned all that he would have over the past 16 years because that learning experience got cut off on the day when I pointed out the error in Greaney’s study and he went into freak-out mode and lots of good and smart people failed to work up the courage to stand up to him and demand that he take a chill pill. Nor has Bogle learned all that he should have learned. Not have I. Not have you Goons. The Ban on Honest Posting has hurt each and every one of us in very, very serious ways.
I hope we don’t see anything as severe as the Great Financial Crisis. I hope that Shiller is right. I am not personally convinced. I think it is entirely possible that we will see something WORSE than the Great Financial Crisis (I presume that he is referring to the 2008 crash with these words). There was talk at the time that the 2008 crash might bring on the Second Great Depression. When stock prices headed back upward in not too long a time, the panic subsided. I am worried that it will be harder to address the panic the next time stock prices crash. But I certainly hope that Shiller and all others taking a more optimistic view turn out to be right and that I turn out to be wrong. My biggest fear is that we will all need to live through a Second Great Depression before we are able to open up every site on the internet to honest posting and reap all the benefits of the last 37 years of wonderful peer-reviewed research in this field.
As I have noted on many earlier occasions, it will be interesting to see how things play out.
And, as I have also noted on many earlier occasions, I naturally wish you all the best that this life has to offer a person, my dear Goon friend.
Non-Dogmatic Shillerite Rob
Are you saying:
A) You know more than Shiller
B) Shiller is just wrong in his analysis
C) Shiller is purposely giving the wrong answer to appease the goons
D) All of the above
I’m saying that I know more than Shiller re some aspects of the question. Shiller also knows more than me re some aspects of the question. Bogle knows more than me re some aspects of the question. And I know more than Bogle re some aspects of the question.
I reported on the errors in the Buy-and-Hold retirement studies on the morning of May 13, 2002. Neither Shiller nor Bogle has reported on the errors in those studies TO THIS DAY. So there obviously are some things that I am seeing that those two (and lots and lots of other good and smart people) are not yet seeing.
We all bring a different perspective and a different set of life circumstances to the table. We need to permit honest posting re the last 37 years of peer-reviewed research both for those who believe that Shiller is right about how stock investing works and for those who believe that Bogle is right about how stock investing works. Those on both “sides” have important things to offer and we all benefit from hearing from those on both “sides.” It is by permitting honest posting that we achieve a true learning experience for everyone and protect our board communities from becoming corrupt enterprises.
It’s also possible that Shiller is a little off in his analysis. Shiller is not a perfect being. That could happen. And it could be that to some extent he is trying to appease those who don’t want to hear that we have a day or reckoning coming because we have permitted stock prices to rise so high. I’ve certainly seen things like that happen from time to time! However, in this particular case I (flawed human that I am) see the first possibility that you list as being the most important influence.
My sincere take.
Smarter Than Shiller (and Dumber Than Shiller Too!) Rob
So, your answer is “D”?
I cannot see into Shiller’s brain. So I am not able to respond to your question with certainty. But it certainly seems possible to me that all three of the factors that you mentioned played at least a small role in his coming to a different assessment from my own. Similar factors might have influenced my attempts to form an assessment as well, to be sure.
Does any of this surprise you? It seems obvious to me that we all form different assessments of thousands and thousands of realities because we come at them from different perspectives formed by different sets of life circumstances.
Please mark that one down as my sincere take re this terribly important matter.
Assessment-Forming (Sometimes Properly, Sometimes Improperly) Rob
Since it is all 3 factors, it seems obvious that you should be featured on all these financial shows and columns. That would fix our economic system and give you a retirement nest egg at the same time. Thoughts?
Sure.
Not just me, though. The people who disagree with me should be featured too. Those people are the people most likely to point out my errors. So, if we are going to feature me, we need to feature the people who disagree with me as well.
And the people who agree with me on some points and disagree with me on some points should be featured. Those people may be able to spot weaknesses in my arguments that those who disagree with me on everything will not see because they share enough common ground to have thought about the questions in issue in greater depth.
Let a thousand flowers bloom! That’s my take.
I would only ban people who engage in abusive behavior. Those people make it harder for all of us to enjoy a learning experience. So they are a big negative. In those cases, bans make sense.
But I would never ban someone just because he posted honestly re the last 37 years of peer-reviewed research in this field. That’s corrupt. I mean. come on.
My best and warmest wishes.
Economic System Fixer Rob
How about Mel Lindauer? Should he be featured?
He adds a lot to the discussion. So I would certainly be happy if we could all enjoy the positives that he brings to the table. But, as you know, he has not been willing to follow the published posting rules of the site. That’s a problem. That hurts us all. That has to be addressed. If that were addressed, then I would 100 percent support the idea of featuring Mel.
And you know what? My strong hunch is that Mel and I would become good friends over time. I don’t think that we would come to agree on all investing questions. But I think that, if we regularly engaged in interactions in which we disagreed in a respectful way, we would over time come to kid around with each other and become good friends despite our differences on the substantive questions. I think that would be just great. It would make me very happy to see things play out that way. I think it would be inspiring to all our fellow community members to see it play out that way. That’s how it should be, in my assessment.
Future Lindauer Pal Rob
How about John Greaney? He and Mel could be a great tag team! Between those 2 and Jack Bogle, I think that would cover everything we need to know!
The same obviously applies for John and Jack. Tell me where to sign up and I’m in in three seconds and you won’t have to ask me a second time.
My best wishes.
Tag Team Rob
Every rational person would have to say that buy and hold is less dangerous than selling and then staying out of the market for 22 years.
I think we are all set with the three of them. We will get back to you if we need you input.
Every rational person would have to say that buy and hold is less dangerous than selling and then staying out of the market for 22 years.
I don’t agree, Sensible.
And, what’s more important, the last 37 years of peer-reviewed research in this field and Robert Shiller’s Nobel prize doesn’t agree.
Divide your portfolio amount by 2 and then compare that number with the number you get when you take what you had in 1996 and then increase it by 4 percent each year. The last time I checked, the Valuation-Informed Indexer was ahead. It was close. But the Valuation-Informed Indexer was a small amount ahead. But that doesn’t consider the difference in the amount of risk that was being taken on. The Valuation-Informed Indexer was invested in a virtually zero-risk asset class, the Buy-and-Holder was in a high-risk asset class. So on a risk-adjusted basis, the Valuation-Informed Indexer was certainly ahead. And then consider that choosing 1996 as the year from which to begin the comparison is cherry-picking in favor of Buy-and-Hold. Choose 1997 or 1998 or 1999 or 2000 and the Valuation-Informed Indexers is much farther ahead. Then consider that, at the end of every earlier boom/bust cycle, prices didn’t just go down to fair-value levels, they went down to one-half of fair-value levels. That would put the Valuation-Informed Indexer even farther ahead. Then add it in the effect of decades of compounding on the amount by which the Valuation-Informed Indexers is ahead. That puts him even farther ahead at the end of the investing lifetime.
The peer-reviewed research is your friend, Sensible. You should take come time to ponder the message that it is trying to get across to you. Price discipline matters as much when buying stocks as it does when buying anything else. It’s been that way for 150 years now. There is not a single exception in the historical record.
Or so Rob Bennett sincerely believes, in any event. I could be wrong. It has happened before. If it were happening again, I probably would be the last to know.
I wish you the best of luck in all your future life endeavors, dear friend.
Already-Ahead-and-Getting-Farther-Ahead-Every-Day Rob
I think we are all set with the three of them. We will get back to you if we need you input.
Okay, Anonymous.
I wish you all the best that this life has to offer a person, in any event.
Friendly Rob
“I don’t agree, Sensible.
And, what’s more important, the last 37 years of peer-reviewed research in this field and Robert Shiller’s Nobel prize doesn’t agree.”
Actually, Shiller does not agree with you. He has continued to advise people to stay in the market, while you got out. Further, most of us have SUBSTANTIALLY exceeded your results with VII.
LOL. I love how Rob measures how is he doing against someone who invested 100% into equities at the peak of the .com bubble.
Too funny how he tries to rationalize his catastrophic choices.
Actually, Shiller does not agree with you. He has continued to advise people to stay in the market, while you got out. Further, most of us have SUBSTANTIALLY exceeded your results with VII.
When you say that you have exceeded my results, you are using the numbers set forth on your portfolio statement to make the assessment. You are not dividing by two. That’s the entire point. The last 37 years of peer-reviewed research shows that valuations affect long-term returns, that when stocks are priced at two times fair value, you need to divide by two to identify the true and lasing value of your portfolio.
Shiller says that valuations affect long-term returns. He wrote an entire book on the subject. He was awarded a Nobel prize for his work. He has indeed said that most people should always keep some money in the market. But of course I have said the same. That makes perfect sense. Shiller has never said that people should go with the same stock allocation at all times, he has never endorsed a Buy-and-Hold approach. In fact, he wrote a paper in 1996 warning that investors who were going with high stock allocations at those prices would live to regret it within 10 years. And prices were a good bit lower then than they are today.
Bogle has said that: “Big moves out of stocks should not be done at all. But strategic asset allocation can be done at very rare times, maybe six times in an investor’s lifetime, three times when the market is stupidly high and three times when stupidly low.” That’s Valuation-Informed Indexing. That’s what I say. Do you think that I should say that Bogle endorses my views and not even note the thousands of times that he has advised investors not to engage in market timing? I don’t think that would be fair. I am happy that Bogle endorsed Valuation-Informed Indexing on that one occasion. I think that’s great. But I don’t think it is fair to mislead people into thinking that he is a big-time advocate of Valuation-Informed Indexing when the reality is that he has put forward thousands of statements advising investors not to engage in market timing while failing to distinguish short-term timing from long-term timing, planting the impression that no form of timing is required.
It’s the same with Shiller. None of us speaks with 100 percent precision with every statement we make. A fair-minded person tries to consider all the statements that a person has made and to examine any particular statement in the context of a person’s entire life’s work. Shiller’s entire life’s work is a statement that valuations affect long-term returns. So that’s what I think he believes. That’s Valuation-Informed Indexing, not Buy-and-Hold. Shiller is not saying the same thing as what Bogle is saying (with the exception of the one Bogle statement that I quoted above). Shiller is saying something very different. He wouldn’t have been awarded a Nobel prize if he were only saying the same things that many people had been saying for years before he even did his research. Shiller’s Nobel-prize-winning research changed everything and Shiller believes that his research is legitimate research. Do you?
I don’t say that Shiller and I are in complete agreement on every point. I have explored many issues that Shiller has not written about or spoken about. All of my writings are rooted in his findings (and in Bogle’s beliefs too except for Bogle’s belief that it is not necessary to practice price discipline when buying stocks). So I would like to know what he thinks about my work. But we just are not today in circumstances in which people like Shiller feel comfortable offering their views on the many ways in which the Buy-and-Holders got it wrong (not intentionally but because we once did not have access to Shiller’s “revolutionary” [his word] research findings and so we ALL got it wrong). I would think that you would have a better understanding than anyone alive why that is.
I believe that the abusive stuff will go away or at least be diminished in the days following the next price crash. We will then be able to hear what Shiller and lots of other people think about my takes on all of the hundreds of issues that I have explored in my columns and articles and podcasts. My guess is that Shiller will agree with much of what I have written but perhaps not all of it. It would not be reasonable to expect two people to agree on every single point ever addressed, even when they agree on the fundamental point (that valuations affect long-term returns). I will of course make note of any critiques that Shiller (or anyone else) offers at that time. I will probably make some changes as a result of the feedback that I receive and I would think that Shiller and the others will also make some changes in their thinking as a result of the back-and-forth that we engage in at that time.
It should be happening now. Take out the insane abusiveness that you Goons have brought to the table and it would be happening now. The problem is not with Shiller, the problem is with you Goons, If you truly cared to understand what he believes, you would bring a full and complete stop to the abusiveness and I am 100 percent certain that he would be happy to share much more of what he believes on all sorts of questions than he has until now. So it’s on you. Your top priority is “defending” Buy-and-Hold. My top priority is learning how stock investing works and helping others to learn, whether that means accepting Buy-and-Hold dogmas or rejecting them.. That’s the difference.
Do you think that Shiller believes that the safe withdrawal rate is a number that changes with changes in valuations or is always 4 percent? That’s a pretty darn important question, don’t you think? If I am right that the safe withdrawal rate is a number that changes with changes in valuations, Greaney has by his refusal to correct his study for 16 years now directly caused thousands of failed retirements and indirectly caused millions of them. Do you think you should make an effort to find out what Shiller thinks re this one?
How about Bogle? Have you ever tried to find out whether Bogle thinks that the safe withdrawal rate is always the same number or is a number that changes? Bogle endorsed the book in which Bill Bernstein said that it is a number that changes with changes in valuation levels. I think it would be fair to say that that is a pretty darn important clue. Do you think that Greaney should correct his study now that 16 years have passed and our opportunity to help millions who followed the Buy-and-Hold studies to plan their retirements has been squandered (but at a time in which there are still many, many retirements that could be saved by making the corrections)?
I think we should correct the studies. I think we should try to find out what Bogle really thinks on scores and scores of important issues. Same with Shiller. Same with everyone else. I think we should bury the abusive stuff at the bottom of the ocean and open every discussion board and blog on the internet to honest posting re safe withdrawal rates and scores of other critically important investment-related topics.
But of course you knew that.
My best wishes to you, Anonymous.
Out-of-the-Market Rob
LOL. I love how Rob measures how is he doing against someone who invested 100% into equities at the peak of the .com bubble.
Too funny how he tries to rationalize his catastrophic choices.
I am the co-author of peer-reviewed research that compares results for Buy-and-Hold with results for Valuation-Informed Indexing over the entire history of the U.S. market and finds that Valuation-Informed Indexing has always provided far higher returns at greatly reduced risk for the long-term investor. If you were interested in learning more about how stock investing works and in helping others to learn more, you would have done all you could to see that that paper was written up on the front page of the New York Times so that we could launch a national debate on these matters and have thousands of good and smart people helping us all come to a better understanding.
Instead, you threatened to send defamatory e-mails to my co-author with the aim of getting him fired from his job in the event that he continued doing honest work in this field. That tells the tale of the core difference between Buy-and-Hold and Valuation-Informed Indexing. One is rooted in emotion, one is rooted in reason. When I was a Buy-and-Holder, it was because I believed that it was rooted in reason. When I learned that Buy-and-Hold had not been updated to reflect Shiller’s “revolutionary” (his word) research findings, I left the Buy-and-Hold camp and went about the business of developing a model for understanding how stock investing works based on both the research from before 1981 (Buy-and-Hold) and the post-1981 research (Shiller’s revolutionary addition to our understanding).
Death threats ain’t science, Laugh. Death threats are garbage. Death threats and other garbage like that have been holding us back for 37 years now. Not this boy, you know? Not a close call.
That said, I do wish you all good things.
Catastrophic Choices Rob
I’ll just note here that I have added the matter of what Shiller said in that article about the next recession being less severe than what we saw in 2008 to my list of Future Column Topics. I am always grateful when you Goons bring something like that to my attention. It is one of the positives that I enjoy from our interactions here (which are of course countered by the big negatives of nastiness and dishonesty and intimidation).
So — thanks for that.
Grateful Rob