Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“Valuation-Informed Indexing is linked to everything. Absolutely everything.”
Wrong again, Sluggo.
You’re entitled to your opinion. But I obviously hold a different opinion.
When I am considering what to do with the hours of life given me, I obviously have to go by my opinion when making decisions. Yes?
You do not need to go by my opinion when making decisions as to what to do with your life. You’re not me.
But I sincerely believe that it is important to get the retirement planning numbers (and much else) right. I think it would be better not to have any investing boards than to have them and to ban honest posting on the past 38 years of peer-reviewed research at them. You will say that that’s a “strident” viewpoint or some such thing. But I don’t think so. I think it is common sense.
I wish you the best of luck in your life endeavors, Anonymous. But I cannot go down the path that you have chosen for yourself. I cannot do it. I care about the people who read my stuff and I feel an obligation to share with them my honest beliefs about any matters that I post on.
I am not a Buy-and-Holder. I am a Valuation-Informed Indexer. It would make me happy if that were okay with you. But if it is not, I just have to accept that reality. I cannot pretend to be something that I am not. That one’s a non-starter and it has been for 17 years now. I wish that I could say that I posted with complete honesty even prior to May 13, 2002. It shames me that I cannot say that. I know that I never want to go back to pretending that I believe that Greaney got the numbers right in his retirement study.
And I think that posting honestly re all the other topics that have come up over the past 17 years is a good idea too. If we were all thinking clearly, I don’t think there would be a single voice raised in dissent to the proposition that we all need to feel free to post honestly for any of our boards or blogs to serve any good purpose. I acknowledge that more than a single voice has been raised in dissent. But I have to observe that it scrambles my brain each time I try to get it around that one. Holy moly!
Your good friend,
Sluggo
If it is our opinion that your posts are not honest, then we are okay with banning your posts, right? That is what you seem to do here. Why is it not okay for others to ban your posts?
Bernie Madoff is in prison today because he committed financial fraud. His crime was to send statements to the people who invested in his fund listing transactions that never took place.
Greaney similarly has made false claims about the safe withdrawal rate. He has said that it is the same number (4 percent) at all times. There is now 38 years of peer-reviewed research showing that valuations affect long-term returns. So the safe withdrawal rate is a number that varies, depending on the valuation level that applies on the day that the retirement begins. Do that math and you learn that, in January 2000, the safe withdrawal rate was 1.6 percent, not 4.0 percent. Greaney’s act of fraud has hurt hundreds of times the number of people who were hurt by Madoff’s act of fraud.
Is it “okay” to violate U.S. law? Is it “okay” to commit financial fraud? Is it “okay” to destroy millions of people’s lives (Greaney’s study was only used by thousands of people but Wade Pfau and I intended to get ALL of the Buy-and-Hold retirement studies corrected before you Goons threatened to send defamatory e-mails to his employer in an effort to get him fired from his job if he continued doing honest work in this field — so there are millions who will see their lives destroyed because of your acts of financial fraud in the event that stocks continue to perform in the future at least somewhat as they always have in the past).
I don’t think it is “okay” to commit financial fraud. So I am going to continue to report the safe withdrawal rate accurately and honestly and to do everything in my power to EXPOSE your massive act of financial fraud and thereby to bring it to a full and complete stop. You have not as of today been prosecuted for your act of financial fraud and so I suppose that in that very limited sense you could say that it has turned out “okay” for you. But Madoff was not in prison in the days before his acts of financial fraud were exposed either. I don’t think that he would say today that what he did was “okay.”
We will have to wait and see what your jury says about whether your acts of financial fraud are “okay” or not, Anonymous. That’s how our system works. I am going to continue to say that they are NOT okay. I presume that you are going to continue to say that they are okay. Your jury will decide the matter. I believe that our laws against financial fraud are good and important and necessary laws. I believe that we will see those laws enforced in the days following the next price crash. I SUPPORT those laws.
Does all of that help at least a tiny bit?
Law-and-Order-Guy Rob
It is our opinion that you were wrong, just as Wade Pfau has pointed out. I guess you are worried about joining Bernie Madoff.
Okay, Anonymous.
I do wish you all the best that this life has to offer a person, in any event.
I hope that that helps, at least a tiny bit.
Worried Man Rob
Bernie Madoff was found guilty by his peers. Your peers have found you guilty and have banned you from the boards. If anyone is going to prison, it would be you.
Putting the guy who pointed out an error in a retirement study in prison while not putting the guy who failed to correct the error for 17 years in prison would be 100 percent upside-down, Anonymous. But that’s Get Rich Quick logic, you know? It’s all emotion. We all WANT those numbers on our portfolio statements to be real when stocks are priced at two times their fair value.
Madoff was the toast of the town in the days before his investors saw their life savings disappear. That’s when the emotion turned. We are going to have to wait to see how millions of investors react when they see more than half of their life savings disappear. I believe that people are going to be pissed. But I can’t prove it, you know? We are going to have to wait to see how things play out.
I know that I am not going to switch to the other side. That’s ASKING for a prison sentence! Not this boy, you know?
I wish you the best of luck with it. If there is ever anything that I can do to help you out, I will be there in three seconds and you won’t have to ask a second time. But there obviously are limits. If you think that I am going to say that I believe that Greaney’s retirement study contains a valuation adjustment after all, you just have not been paying attention. Not this boy. No freakin’ way, no freakin’ how.
I hope that helps at least a tiny bit.
Right-Side-Up (I Think) Rob
Uh oh. Another article in which Robert Shiller says that Rob Bennett and his VII timing scheme are wrong.
https://www.fa-mag.com/news/was-the-stock-market-boom-predictable-44086.html?print
If investors would have follow Rob’s advice with VII, they would have missed on on the big market boom. Articles like this won’t look good in front of your jury.
I’m grateful for the link, Anonymous. It is of course always helpful to see what Shiller is saying re these matters. He’s obviously not saying anything even remotely close to what you are suggesting that he is saying.
Shiller is saying that the increase in stock prices from March 2009 was not caused by economic realities. The idea that stock price changes are caused by economic developments is the premise of the Buy-and-Hold Model. So he is here rejecting out of hand the entire Buy-and-Hold Model.
He is saying that predicting future prices is hard and I of course agree with that. Shiller has always said that and I have always said that.
I don’t see him saying in these words that knowing the extent of investor emotionalism that is present in today’s price does not permit one to gain a strong sense of where prices are likely to go over the long-term from that point forward. It was Shiller’s showing that that has been so for as long as the market has been in existence that caused him to be awarded a Nobel prize.
Shiller did not predict the price boom that we saw from 2009 forward and neither did I. That price boom was not entirely inconsistent with what we have seen over the history of the market but it was certainly very much an outlier result. He puts forward some explanations for that price boom that are EMOTIONAL rather than economic in nature. He is suggesting that, when the emotions shift, as they always do, prices will shift too.
That’s what makes high prices so scary. The long-term movement of the market is always in the direction of fair prices (it is the core job of all markets to get prices right). So, when prices are as insanely high as they are today, there is a much greater risk that they will be dropping hard in coming days than there would be if prices were at moderate or low levels. We cannot predict future prices precisely. But we can do a very good job of assessing risk. Risk is off the charts today. Given the increased risk in the market, investors who want to keep their risk profile constant over time need to lower their stock allocations from where they would want them to be if prices were moderate.
I don’t entirely agree with Shiller’s explanations of why prices might have gone so high. I don’t reject them out of hand. But I would put more emphasis on two factors: (1) efforts of the Federal Reserve to stabilize both the economy in general and the stock market in particular in the wake of the 2008 economic crisis and price crash; and (2) the enhanced feeling of security that investors felt when the huge price drop that we saw in late 2008 and early 2009 did not remain in place long. Shiller did refer to the second of those two factors. I think that was a big deal. It’s the stuff about Trump and Steve Jobs re which I am more skeptical. Shiller’s thought re those matters are speculative, in my assessment.
Say that the big factor is that investors felt reassured when the 2008 price drop did not remain in place for long. If that is the true reason for the price rise, we should all be scared re what may happen next. The higher confidence that investors feel today that high prices will remain in place can keep prices from falling for a time. But not forever. And, when they do fall, all of that excess confidence is likely to be shattered. So the price drop will likely be bigger than it would have been has we never experienced the excess confidence in the first place.
The difference between Buy-and-Hold and Valuation-Informed Indexing is that Buy-and-Hold says that price changes are rooted in economic developments while Valuation-Informed Indexing says that price changes are rooted in shifts in investor emotion. It is certainly true that shifts in investor emotion cannot be predicted precisely. So prices cannot be predicted precisely. But price changes do not follow a random-walk pattern if they are caused by shifts in investor emotion. Emotional highs bring on emotional lows. So the risk of big price drops is much higher when prices are high than it is when prices are low.
Shiller is saying here that today’s high prices are emotion-based, not reality-based or economics-based. That’s a very scary message for those who are going with high stock allocations today. An economics-based price would be one that you could count on. You cannot count on an emotions-based price. The same emotion that is causing investors to dramatically overstate stock prices today could cause them to dramatically understate stock prices next month or next year or two years from today. It’s not even just that we should expect stock prices to revert to fair-value levels. Irrational exuberance usually causes irrational depression. It is entirely possible that we will soon be seeing stock prices well BELOW fair-value levels. Yikes!
I am going to put this one on my list as fodder for a possible future column. Thanks again for bringing it to our attention.
And, yes, investors who followed my advice would have “missed out” on the big price boom from 2009 forward. Except, if Shiller is right in what he is saying, they would not have missed out on anything real. They would have missed out on a fleeting, emotional fantasy. If you want to have your retirement money tied up in a fleeting, emotional fantasy, I guess that’s your call. It’s not something that I want to do with my mind and it’s not something that I feel even a tiny bit comfortable recommending for my friends. I say that investors should pull back from full participation in the stock market when it goes stark, raving bonkers, as Shiller is saying it did in the post-2009 period.
No, we cannot predict precisely when the return to rationality in prices will take place. But we can protect ourselves from experiencing its full negative effect on our financial future by pulling back a bit in response to the insane increase in stock market risk that applies when prices are where they are today.
Those are my sincere thoughts re this terribly important matter, in any event. I naturally wish you the best of luck in all your future life endeavors. my dear Goon friend.
Risk-Aware Rob
“He is saying that predicting future prices is hard and I of course agree with that. Shiller has always said that and I have always said that.”
Which is why you should try timing the market with get rich quick schemes like VII. Just go with buy, hold and rebalance.
No freakin’ way, no freakin’ how.
If the only way to time the market were to engage in short-term timing, I would agree with you. Short-term timing really doesn’t work. Buy-and-Hold is a step up from short-term timing.
Buy Buy-and-Holders do not engage in ANY form of market timing. What the f? To fail to engage in long-term timing is to fail to exercise price discipline when buying stocks. How could that possibly be a good idea? Do you fail to exercise price discipline when buying cars or sweaters or bananas? I didn’t think so. So why would you choose that path when buying stocks?
I’m a research-based guy, Anonymous. The thing that I most loved about Bogle is that he recommended that investors use the peer-reviewed research as a guide to how to invest. It was that recommendation that caused me to become a Buy-and-Holders myself for a time. It was when I learned that Bogle followed only the pre-1981 research and entirely ignored the peer-reviewed research from 1981 that I jumped off the Buy-and-Hold train. Not this boy, you know?
I believe in following ALL of the peer-reviewed research, both the research published prior to 1981 and the “revolutionary” (Shiller’s word) Nobel-prize-winning research from 1981 forward as well. Call me madcap.
I naturally wish you all the best that this life has to offer a person, dear Buy-and-Hold friend.
Research (ALL of It!) Following Rob
Yourso called research failed. You have admitted that predicting the future prices was hard. Your crash predictions have time and again. With your last failed prediction, you said we should question VII. Sorry, but I won’t gamble with my retirement, hoping to cash in on some kind of windfall like you.
If you don’t believe in Valuation-Informed Indexing, you shouldn’t follow it. That’s for sure. And you shouldn’t recommend it either. If you have doubts about it, you have both a right and a responsibility to express those doubts to others.
Personally, I don’t have any significant doubts. I know that I don’t know everything about Valuation-Informed Indexing. It’s a concept that needs to be developed further. And not just by me. We need to have thousands of people working together to develop the concept as fully as possible. We will make mistakes as that development process continues. It’s inevitable. I of course hope that we acknowledge our mistakes when they are discovered and quickly correct them and learn from them. But I don’t have any significant doubts re the core idea that price discipline is 100 percent required when buying stocks. I think that the case for that much is rock solid.
I don’t think it is entirely unreasonable to have some doubts. Prices certainly have remained high longer in the current bull/bear cycle than they have in any earlier cycle. I think that can be explained, primarily by looking at actions of the Federal Reserve. But I wouldn’t argue too much with someone who concluded that the fact that prices have remained high for a longer stretch of time in this cycle meant that this is not for him. Each person has to decide how to invest his or her money.
I would not feel comfortable failing to exercise price discipline. Others would not feel comfortable engaging in market timing. So be it, you know? The smart way to play it is to try to learn from those who come at things from a different perspective. I certainly try to learn from my Buy-and-Hold friends. I have even learned things from you Goons! It makes me happy when that happens. I hope that my Buy-and-Hold friends occasionally learn something from me. I know that some do because they have told me so. I don’t think you Goons could bear to acknowledge that you have learned things from me. But I believe that you have. And, again, that makes me happy.
My best wishes to you, Anonymous.
Windfall-Cashing Rob