Set forth below is the text of a comment that I posted recently to the discussion thread for another blog entry at this site:
“It makes me happy to know that people who lose half of their life savings in the next price crash will be able to come here and read this thread and decide for themselves whether The Big Black Mountain is real or imaginary”
Is that the crash that you said would happen in 2011 or the one you predicted would happen in 2012, or the year after that, or the year after that, etc.?
I was wrong in my prediction, Anonymous. You’ve got me on that one.
But does it really help Buy-and-Holders that much if the crash comes in 2018 or 2019 or 2020 instead of 2012? Returns have been dramatically sub-par for 19 years running. The annualized real return for the past 19 years has been 3.2 percent. That’s less than half of the average long-term stock return. So investors are well behind where they expected to be. And then they experience a 50 percent loss or perhaps more? That’s going to hurt. That’s going to hurt big time.
All of this is the result of our relentless promotion of Buy-and-Hold in the late 1990s. If we had been telling investors to practice price discipline, we never would have seen those insane gains from 1996 through 1999 and we wouldn’t have been trying to pay down that debt for the past 19 years. I don’t think the overvaluation is helping you at all. I think it is hurting you.
I said at the time that I made the prediction that I was not sure that it would happen as I said. What matters is whether or not it happens, not the precise date at which it happens. If market gains are caused by economic developments, they are real and you can count on them when planning your retirement. If they are caused by irrational exuberance, then they are cotton-candy nothingness fated to be blown away in the wind sooner or later.
You are placing all your chips on the fact that we cannot say precisely when your phony gains will disappear. I think you are focused on the wrong question. The question that matters is whether the gains are real or phony. Shiller’s research shows that they are phony. I believe that Shiller’s research is legitimate. I don’t think that you should be counting on phony gains to finance your retirement. I think you need to know the true and lasting value of your portfolio.
Those are my sincere thoughts.
Bad Predictor Rob
If predictions fail, then how can we trust anything else?
At this point, would you rather have a $5 million portfolio, consisting of a stock, bond cash mix of 50/40/10 versus a dream of a $500 million windfall?
If predictions fail, then how can we trust anything else?
When I said that I thought that we would see a price crash by the end of 2016, I noted that there was a chance that that prediction might not come through. It was a high probability bet based on what we have seen throughout history. But there is just not enough history available to use for anyone to be able to make predictions that will work with absolute certainty.
There are things that we know and there are things that we do not know. It would be foolish not to act on the things that we know. It would be hubris to pretend that we know everything. We know that valuations affect long-term returns. So it would be foolish to fail to exercise price discipline when buying stocks. But we cannot make predictions in which we can have complete confidence. So we should note the limits of our knowledge when making the predictions that we make. I did that when I made the prediction that we would see a crash by the end of 2016.
At this point, would you rather have a $5 million portfolio, consisting of a stock, bond cash mix of 50/40/10 versus a dream of a $500 million windfall?
How is my expectation of a $500 million settlement payment a “dream”? My claim that valuations affect long-term returns is rooted in 38 years of peer-reviewed research showing this to be so. I have had thousands of my fellow community members express a desire that honest posting be permitted at every investing site on the internet. And I have had a highly regarded academic researcher devote 16 months of his life to researching whether or not Valuation-Informed Indexing is superior to Buy-and-Hold. He concluded without reservation that: “Yes, Virginia, Valuation-Informed Indexing works!” And he concluded that the Buy-and-Hold retirement studies — which I have been trying to get corrected for 17 years now — are so much in error as to be “dangerous.” That doesn’t sound like a “dream” to me, that sounds like a rock-solid expectation.
Having a $5 million portfolio would be super. Even after taking into account the effect of a price crash, that would provide a high level of financial security. But would it make me feel better about going to prison? I wouldn’t want to go to prison even if I had a $5 million portfolio to cushion the blow. I would far prefer to have the $500 million settlement payment and NOT to go to prison. Call me madcap.
There’s also the issue of the millions of lives that will be destroyed as a result of your massive act of financial fraud. I don’t want something like that on my conscience. I can sleep at night because I have spent the last 17 years of my life warning people of the dangers of the Buy-and-Hold “strategy.” That’s worth something. I can look at the man in the mirror without getting sick.
Having a $5 million portfolio is a great thing. In ordinary circumstances, I would congratulate you. But I cannot ignore the overall circumstances in which you have placed yourself. If Buy-and-Hold were a real thing, you never would have engaged in criminal acts to “defend” it. One of the things that I don’t like about Buy-and-Hold is how the emotionalism at the root of it causes Goons like you to go completely nutso in emotional pain. Not this boy, you know?
There are lots of people who have said that they believe that the last 38 years of peer-reviewed research in this field is legitimate research. Not one has ever committed a single criminal act in “defense” of Shiller’s research. Gee, I wonder why.
We all have to choose our own paths in this life, Anonymous. I wish you the best of luck with yours. But I cannot say that I have ever spent two seconds feeling even the tiniest bit of envy for your circumstances. The $5 million portfolio considered alone sounds good. But in real life the investment strategy that you followed to get the $5 million did so much emotional damage to you that the price just came too high, in my sincere assessment.
My best wishes.
Rob
I don’t think you would be able to get even one person to agree with any of what you just posted.
You might be right that I couldn’t get one today. But I believe that there will come a day when you won’t be able to get even one person to disagree with any of what I just posted.
It all comes down to whether Shiller’s Nobel-prize-winning research is legitimate or not. If Shiller’s research is not legitimate, then stock prices are set by the rational acts of millions of investors pursuing their self-interest and Buy-and-Hold is the ideal strategy.If Shiller’s research is legitimate, then stock prices are set by shifts in investor emotion. When prices are at the crazy levels where they reside today, we should be seeing an insane amount of emotionalism. You would expect to see death threats and demands for unjustified board bannings and thousands of acts of defamation and threats to get academic researchers fired from their jobs, stuff like that. But only if Shiller is right. Hmmm….
And what do you think is going to happen to investor emotions if millions of people see most of their life savings wiped out in a price crash? Then you would see the OPPOSITE of irrational exuberance, you would see irrational depression. What’s the opposite of death threats and demands for unjustified board bannings and thousands of acts of defamation and threats to get academic researchers fired from their jobs? Prison sentences and $500 million settlement payouts, that sort of thing, right?
We’ll see. It all depends on whether Shiller’s Nobel -prize-winning research is legitimate research or not. I believe that it is legitimate research. I’m not God. I don’t know everything. It is possible that I am wrong. But that is what I truly believe. So that is what I am going to go with.
I naturally wish you all the best that this life has to offer a person.
Shiller Believer Rob
“It all comes down to whether Shiller’s Nobel-prize-winning research is legitimate or not. ”
I don’t think even Shiller would agree with you. Nor would Shiller agree with your interpretation of his work.
I think you’re wrong.
Now, I’ve said a lot of things over the course of the past 17 years. I’ve written hundreds and hundreds of articles on Valuation-Informed Indexing. It seems entirely possible to me — likely, even — that Shiller would not sign on to some of the things that I have said, You know what? That’s healthy. That’s what we should want to see. Shiller has a different brain from mine and he has lived through different experiences. It would be extremely weird if he signed onto every word that I have ever put forward. So we shouldn’t expect that.
But we should all want to know the details. Which are the points re which Shiller agrees with Rob Bennett? Which are the points re which Shiller disagrees with Rob Bennett? Which are the points re which Shiller generally but not entirely agrees with Rob Bennett? Which are the points re which Shiller is not sure what he thinks about what Rob Bennett has said because he has not given the matter enough thought just yet?
We all need to know the answers to those questions. Where Shiller says that he agrees with me, that would give me some comfort that I am on the right track and make me feel more comfortable sharing the ideas far and wide. Where Shiller says that he thinks that I am wrong, that would prompt me either to change my idea so that I can win Shiller’s endorsement or to develop a better explanation of the idea as it exists so that I can more effectively persuade him. Shiller would of course be trying to persuade me too in cases where he thought that I was wrong. His efforts to develop more effective arguments would force him to think through matters more carefully and further refine and develop his own ideas. And then entirely new ideas would pop out of his brain as a result. Which of course would work to the benefit of each and every one of us, Buy-and-Holders and Valuation-Informed Indexers alike.
Opening up every site on the internet to honest posting re the last 38 years of peer-reviewed research in this field is a win/win/win/win/win, Anonymous. It’s not possible for the rational human mind even to imagine any possible downside. We are looking at the biggest advance in our understanding of how stock investing works ever achieved in the history of investment analysis.
The only hold-up for 17 years now has been that you Goons think it will be embarrassing for Greaney to acknowledge that the retirement study posted at his web site truly does not contain an adjustment for the valuation level that applies on the day the retirement begins, just as that nasty Rob Bennett noted in his famous post from the morning of May 13, 2002. What do you think Shiller will say re that one? Thousands of people have looked at the Greaney study over the past 17 years and not one has been able to identify where he put the valuation adjustment. I have a funny feeling that Shiller is not going to be able to identify one either. Gee, maybe it’s not such a great idea to open the entire internet up to honest posting re the last 38 years of peer-reviewed research in this field afterall.
We humans learn by talking things over with each other, Anonymous. That is how it is done. We venture forward with thoughts, we get feedback from other humans who possess different educations and different sets of life experiences and we refine our thoughts in response to the feedback so that over time they get better and better and better and better and better. That’s why our economic system has been sufficiently productive to support an average long-term gain of 6.5 percent real in the stock market for 150 years now. That 6.5 percent gain is the result of thousands and thousands and thousands of conversations that we are always having on thousands of different subjects in an environment in which it is universally understood that we are all permitted and encouraged to contribute our two cents and see what happens as a result.
That process broke down in the investment advice field 38 years ago. Thousands of good and smart people had come to the conclusion that Buy-and-Hold was the answer and had developed well-paying careers promoting the ideas that follow from a belief in Buy-and-Hold. Then this guy from Yale showed up and blew the entire thing to pieces intellectually. He published peer-reviewed research showing that the core idea of the Buy-and-Hold project was in error (stock prices are not developed via rational reactions to economic developments but via shifts in investor emotion). The normal thing would have been for us to have at that time launched a national debate aimed at determining which of the two models for understanding how stock investing works. It didn’t happen. The people who had built careers centered on a belief in Buy-and-Hold reacted not in the best interests of the people of the United States and not in accord with the principles on which our economic and political systems are built but pursuant to a desire to protect their turf.
And they have been killing us ever since. They have put millions of people at risk of suffering failed retirements. They have caused hundreds of thousands of businesses to fail. They have caused millions of people to lose their jobs. They have caused political frictions to grow. They have caused discussion boards to be burned to the ground. They have put a number of Goon posters at grave risk of being sent to prison in the days following the next price crash. They have caused us to miss out on the insights that would have been set forth in hundreds of books that would have been published if the people who had the desire and intelligence needed to publish them had not been afraid of what would be done to them by the Buy-and-Holders if they dared to tell others in clear and firm and convincing ways what their minds told them about the subject of how stock investing works.
If Buy-and-Hold cannot be questioned, our economic system cannot survive.
That’s the bottom line. We cannot continue to live as we have lived in the past if the embarrassment felt by the Buy-and-Holders over their 38-year cover-up has grown so great that they cannot bear ever again to permit honest posting re these matters. I love my country. I favor the idea of permitting honest posting in the investment advice field, just as we permit it in every other field of human endeavor. I believe that the laws against financial fraud are good and necessary laws. I favor reasonable enforcement of them in defense of the people of the United States, who need to gain the power to talk over the “revolutionary” (Shiller’s word) research findings of the past 38 years before even more damage is done by this massive act of financial fraud.
I love my country, Anonymous. So I believe that we will get to the other side of The Big Black Mountain. When we get to the other side, I will find out what Shiller thinks of every investing insight that I have advanced over the past 17 years. And I will learn a lot. And so will Shiller. And so will all the people listening in. Good. That’s the way it is supposed to work.
You will learn too. There’s a good chance that any learning you do will be done from a prison cell. Still, it’s better to learn from a prison cell than not to learn at all. I am happy that the amazing things that we are all going to see once we bring this massive act of financial fraud to a full and complete stop will work to the benefit even of the Goons who led the effort to bring us all down. It’s nice to think that there is something so good in this world (our economic and political system) that it brings ALL good so long as it remains in place.
I believe that Shiller will sign on to most of what I have said when we have all gained the freedom to talk about these matters freely and openly and honestly. I also believe that he will probably find a few areas where I went a bit off the tracks. And I very much look forward to learning about what those areas are so that I can make fixes. That’s how it works. That’s the beauty of our system when it is being shown the respect that it merits.
My best wishes to you, Goon friend.
Patriotic Rob
Blah, blah, blah……….you make it all up, Rob. It hasn’t worked for you the last two decades. You are living in a pretend world.
Okay, Anonymous.
I do wish you all good things, in any event. I hope that that helps at least a tiny bit.
Pretend-World-Residing Rob