A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

Podcast #187 — Volatility Adds Nothing

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I’ve posted Podcast #187 to the “RobCasts” section of the site. It’s called Volatility Adds Nothing.

Volatility is what makes stocks risky. An earlier podcast argued that Volatility is Optional– we could do away with it by educating investors about the realities of stock investing, But wait! Buy-and-Hold advocates argue that stocks pay high returns only because buying them means taking on big risks. If we do away with volatility, will we be doing away with high returns too? I don’t think so.

Comments

  1. Re: today’s passion

    (1) Why do you link to articles and discussions that show you to be uniformed and mean-spirited (the personal attack on Taylor)?

    (2) Did you re-register at morningstar even though you are banned or is that someone else posting under your name?

  2. Why do you link to articles and discussions that show you to be uniformed and mean-spirited (the personal attack on Taylor)?

    I of course don’t agree even a tiny bit with this characterization, JCL. Taylor gets some things right and some thing wrong, just like all the other humans. The idea that he is not capable of getting anything wrong is Goon thinking. It hurts Taylor because it blocks the learning process for him. And it degrades all the community members who feel coerced into pretending to believe it.

    The discussions are not honest unless we are free to point out mistakes made by our fellow community members. This should of course be done in a charitable way. But it is critical to the growth of the community as a whole that it be done when mistakes are made on important questions.

    Did you re-register at morningstar even though you are banned or is that someone else posting under your name?

    I re-registered.

    Rob

  4. I don’t believe that that’s precisely correct, JCL.

    I received an e-mail from Morningtar Casey saying that my comment was deleted on grounds that it was “inflammatory” (I’ll post the comment here at the blog tomorrow so that community members can judge for themselves whether there was anything inflammatory in it — I personally do not see how any even halfway reasonable person could find anything inflammatory in it except from a Goon perspective from which any post with my name on it would be viewed as “inflammatory”). Casey’s note also said that my account would be closed in the event of “additional violations.”

    I sent Casey an e-mail in response asking how anyone with my name could post in a non-“inflammatory” way given that I am widely known as the person who discovered the analytical errors in the Old School safe withdrawal rate (SWR) studies and that this is a flashpoint for a number of abusive posters that have been known to visit the Morningstar boards. I’ll post the text of that e-mail in a blog entry as well, probably on Thursday.

    My sense is that my account has not yet been closed. But I am not able to see how I can post without one of the Goons demanding that it BE deleted. And the words of the e-mail from Casey (combined with the deletion of the entirely non-inflammatory post on grounds that it was “inflammatory”) indicate that Morningstar will go along with such demands.

    I have not yet received a response from Casey to my e-mail (of course I only sent it about half an hour ago).

    Rob

  6. ROB:

    YOU HAVE ALREADY BEEN BANNED!

    WHAT PART OF THIS DO YOU NOT GET?

    IT WAS NOT TIME OUT FOR FIVE MINUTES IN THE CORNER.

    YOU WERE TOLD TO SCRAM FOREVER.

  7. If we do away with volatility, will we be doing away with high returns too? I don’t think so.

    Unfortunately the entire history of investing shows you to be wrong. Numerous books and articles by Bill Bernstein explain this in language you should be able to understand. I have linked to some of these articles in the past and you have mentioned that you have read some of Bill’s books.

    The only explanation for your continued posting on this subject is that you simply choose not to understand.

  8. The only explanation for your continued posting on this subject is that you simply choose not to understand.

    No. I have read Bernstein and I understand fully what he says re this matter. I disagree, Evidence. I say that Bernstein is wrong re this matter. You can link to him 5,000 times and that won’t change anything. To get me to change my opinion you would need to persuade me that Bernstein is right. This you have not done.

    You certainly do not begin to do do with a claim that “the entire history of investing” shows that taking on more risk always leads to obtaining a higher return. The reality is quite to the contrary, In fact, if you read Bernstein carefully, you will see that even Bernstein is aware that there have been many times in history when the compensation that investors obtained by taking on more risk was a negative long-term return.

    There is no necessary correlation between risk and return. There is indeed a connection between the two. One could say rightly that the claim that there is a correlation between risk and return is a half-truth. This is the sort of thing that Rob Arnott was talking about when he said that the Buy-and-Hold Model is the product of “myth and urban legend.”

    The key to understanding how to invest successfully for the long run is understanding when taking on more risk pays off and when it does not. When stocks are insanely overpriced (as they were from 1996 through 2008), there is no payoff to investors willing to take on insane levels of risk. The “payoff” for such decisions is losses that remain in place a long, long time. Not good.

    I will continue to take the price being charged for the stocks I buy into consideration when making my stock-allocation decisions, Evidence. And I will continue to try to help my fellow community members to understand the realities of stock investing as revealed by the historical stock-return data.

    Rob

  9. Good luck @ Morningstar.

    You don’t mean it, JCL. But you should.

    There is not one person alive (Goon or non-Goon) who benefits from us remaining in the dark re the realities of stock investing. When the U.S. economy goes over a cliff, we all feel the pain together. So we should be working together today to enhance our understanding of the realities.

    My sincere take.

    Rob

  10. You certainly do not begin to do do with a claim that “the entire history of investing” shows that taking on more risk always leads to obtaining a higher return.

    That is not the claim I made. I have never claimed that “taking on more risk always leads to obtaining a higher return”. What “the entire history of investing” shows that if you wish to have higher returns you must take on risk. However the higher returns are not guaranteed. Hence the use of the risk.

  11. I have been re-banned.

    I have not received a response to my e-mail to Morningstar Casey. But when I visit the Vanguard Diehards board a message appears in red script that reads: “User Account Has Been Banned.”

    I don’t think that that can fairly be characterized as a warm welcome.

    Rob

  12. [i]the higher returns are not guaranteed. [/i]

    What would you say were the chances that someone buying the S&P index in January 2000 would obtain a higher 10-year return than the return of 4 percent real available at the time from risk-free Treasury Inflation-Protected Securities (TIPS), Evidence? The Stock-Return Predictor (which merely reports what the historical data says on this question) reports that the odds of that happening were about 1 in 10.

    Rob

  13. My investing horizon in January 2000 was at least 50 years. What a calculator that didn’t exist at the time says about the possible 10 year future returns of one asset class in January 2000 is not something that will help me as an investor.

  14. not something that will help me as an investor.

    We strongly disagree re this point, Evidence.

    Had you protected your portfolio at this time of huge risk and tiny upside for stock investors, you would have more assets today, when the long-term value proposition for stocks is a bit better; and in future days, when the long-term value proposition for stocks is likely to be hugely better.

    The data indicates that you could retire five years sooner if you would open your mind to the reality that there was a time when you did not understand everything there is to know about stock investing. That is of course the first step to learning something new. And it is only by learning new stuff that we all make our lives better.

    All of the insights that we have been developing for over seven years now are available for your use and for the use of all the Goons anytime that you or any of the others care to begin taking advantage of them. You’re not excluded from the party unless you elect to exclude yourself.

    Don’t do it, my old friend!

    Rob

  15. a calculator that didn’t exist at the time

    The calculator wasn’t available at that time, Evidence.

    But the data needed to create it was.

    And it didn’t take an I.Q. of 140 to come up with the idea that it would be helpful for us to know the long-term return that stocks are likely to provide starting from the various valuation levels before we put our money down on the table.

    Why do you think that some smart person didn’t develop this calculator many years before it ever became a twinkle in Rob Bennett’s eye?

    Rob

  16. WHAT PART OF THIS DO YOU NOT GET?

    Let’s say that it is 90 percent of the board community that would like to see honest posting be permitted and that the Goons comprise 10 percent.

    The part that I don’t get is why the published rules of the board should not be enforced to protect the 90 percent, who are the people who built the board in the first place.

    The Goons agreed to follow the community norms (as described in the published rules for the site) or they would not have been permitted to post.

    We are living through an economic crisis caused by the reckless promotion of Buy-and-Hold “strategies,” Common Man. That part influences me too. I think we all should be working together to keep the U.S. economic and political system from going over a cliff. I see that as a lose/lose/lose/lose just as I see the idea of permitting honest posting on SWRs and other important investment topics as a win/win/win/win.

    Call me madcap.

    Rob

  17. I’ve received an e-mail from Morningstar Darrin.

    It reads:

    “Your account has been banned and your post removed. You were previously banned under the username “Hocus”. We do not allow banned users to return under different names.”

    Rob