I recently posted a Guest Blog Entry at the Budgeting in the Fun Stuff blog. It’s called The Last Days of Stock Investing Risk.
Juicy Excerpt: You can never eliminate risk entirely because short-term returns are not at all predictable. But there is now 33 years of peer-reviewed research showing that long-term returns are highly predictable for those who consider valuations. Risk is optional! Go with a high stock allocation when prices are low, a moderate stock allocation when prices are at fair-value levels, and a low stock allocation when prices are high and you cannot lose. That’s not just my opinion. That’s what the entire 140 years of U.S. stock market history available to us today tells us.
This new approach is called “Valuation-Informed Indexing.” It is rooted in the research of Yale Economics Professor Robert Shiller, who won a Nobel Prize last year for his work in this area. It is solid stuff. And it is a very simple strategy to implement. You need to check valuations once per year. And you need to change your stock allocation because of a big swing in valuations perhaps once every ten years. That’s it.
Making that one change in the conventional advice to stick with the same allocation at all times reduces risk by nearly 70 percent. That’s exciting. I think this is the future of stock investing.
Maybe this is the week Rob. Like they say even a broken clock is right twice a day. Perhaps this is the week Rob Bennet can be right once in 18 years.
Price discipline has mattered when buying stocks for 140 years now, Anonymous. There has never yet been a week when this was NOT so.
The difference between Valuation-Informed Indexers and Buy-and-Holders is that Valuation-Informed Indexers focus on the long term while Buy-and-Holders get excited over temporary moves up that they very much do not want to “miss out” on.
Being a Valuation-Informed Indexer is like being the house at a casino. There are times when the house is down because a player gets lucky. But the odds favor the house. And so the house always ends up ahead in the long run. It is not even possible for the rational human mind to imagine a way that it would turn out different.
By having the odds favor us every day, we are sure to end up ahead in the long run. That’s the story. The secret to long-term success in stock investing is TUNING OUT the Buy-and-Hold garbage and focusing on the long term.
That’s my sincere take re this terribly important matter, in any event.
I wish you all good things, Anonymous.
Rob
I think you have it turned around. Buy and holders have always won out, whereas market timing is justvlike playing at the casino. I choose not to be poor like you, Rob.
I believe that you believe that, Anonymous.
And I am grateful to you for sharing with us what you believe.
Rob
Even Robert Shiller says that we should not time the market. I will stick with the successful path of buy and hold and reject the get rich quick schemes of market timing.
What would Shiller say if the Buy-and-Holders did not engage in criminal actions to intimidate those who post their honest views on this topic, Anonymous?
I want to know what Shiller truly believes.
And I want to know what Bogle truly believes.
And I want to know what Bernstein truly believes.
And I want to know what Burns truly believes.
We find out what everyone truly believes when we begin enforcing the laws against financial fraud.
That’s when everything begins getting better and better and better instead of worse and worse and worse.
Tha’s my sincere take re these terribly important matters, in any event.
I naturally wish you all the best that this life has to offer a person.
Rob
“I want to know what Shiller truly believes.
And I want to know what Bogle truly believes.
And I want to know what Bernstein truly believes.
And I want to know what Burns truly believes.”
They have already told you what they believe, Rob. You are just upset because it doesn’t tie with your story. Bummer for you.
Not one of them is telling us what he truly believes, Anonymous.
To give just one example of hundreds that are examined in the materials at this site, Bernstein said in response to an e-mail from Ataloss that “of course” the methodology used in the Old School safe-withdrawal rate studies is analytically valid and yet anyone who used one of those studies to plan a retirement taking place in the real world would have to be out of his or her mind. The fact that the studies get the numbers so wildly wrong is what makes them analytically invalid. An analytically valid study would get the numbers right.
All of these people (and lots and lots and lots of others that I haven’t named here) have a lot to offer us. I look forward to the day when we ALL feel safe posting honestly. Not just on safe withdrawal rates. On scores and scores of critically important investment-related topics.
On the day we open the door to honest posting on the peer-reviewed research of the past 33 years, we will see 33 years of progress in our understanding of how stock investing works achieved in the space of a few months. I very, very much look forward to that day.
You should too, Anonymous. We are all in this together. We all want the same things. We all want to know how to invest our retirement money effectively.
My take.
Rob
“Not one of them is telling us what he truly believes, Anonymous.”
Yes, they do say what they believe, but it is not what you want to hear.
It is not even what they want to say, Anonymous.
Bernstein would like to be saying what he truly believes.
So would Burns.
So would Bogle.
So would Piper.
So would Tresidder.
We’re all going to come clean following the next price crash.
Yes, there will be prison sentences. But prison sentences come to an end. And we will all be having a blast after Bogle gives his “I Was Wrong” speech and we all are freed to say what we truly believe.
The peer-reviewed research is a power too big for you or anyone else to stop. Given that it is all going to come out sooner or later, each and every one of us is better off if it comes out sooner.
Or so Rob Bennett truly believes, in any event.
My best and warmest wishes to you and yours.
Rob
There’s huge leverage in this.
It’s not possible to count how many insights we will be generating together when we are all working toward a positive and constructive and life-affirming goal.
And of course we will all feel a lot better about ourselves.
Honesty pays off in the long run. Yes, even in the investing advice field.
Rob
I watched the movie “Serpico” tonight on Netflix.
That’s the story here.
People in the investing advice field need to feel safe to reject the corruption that has become pervasive in the Buy-and-Hold Era.
Once a few cross over, the entire Buy-and-Hold House of Lies comes crashing to the ground.
Those who flip first get the shortest prison sentences.
I am sure.
Rob
Yeah, you’re ‘Serpico’.
And I’m Batman.
And I’m Batman.
One of the Joker’s henchmen, maybe.
Rob
Yeah, you’re ‘Serpico’.
I see a lot of similarities.
In fairness, I should add that my boy Robert makes fun of me for making comparisons to my troubles on the internet. Some random thing will happen in a movie or be brought up in a conversation and he will say: “That’s just like what happens with you on the internet, isn’t it, Dad?”
Pre-teenagers — Grrrrr…
Rob
And so the house always ends up ahead in the long run.
And yet we see thousands of buy and holders achieving their investment goals, providing for their families, and enjoying a prosperous retirement. I think the house needs new management!
What we see is an economic crisis in which millions of people have lost their jobs and in which tens of thousands of entrepreneurs have seen their businesses fail.
What we see is millions of people on their way to failed retirements.
What we see is a nation of people who constitute the luckiest generation of investors ever to walk Planet Earth quarreling over whether they should permit honest posting on the last 33 years of peer-reviewed research.
The idea that there might be some magical, mystical world where failing to engage in price discipline when buying stocks might work out well for one or two long-term investors has hurt us all in very, very serious ways.
I want no part of it, Anonymous.
Please try to find someone else.
Rob