Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“Shiller got it wrong back in 1996. I got it wrong when I made my prediction after the price recovery of March 2009.”
Shiller learned from his mistake and doesn’t make predictions any more.
I hope you learn from your mistake.
The issue that you are focused on is a secondary issue. I am focused on the primary issue.
If the market is efficient (this is the premise of the Buy-and-Hold strategy), then the numbers on your portfolio statement are rooted in economic realities. If valuations affect long-term returns (this is the premise of Valuation-Informed Indexing), then the numbers on your portfolio statement are largely rooted in emotion at times of high valuations. The portion that is rooted in emotion disappears over time.
Which of these two things are true is a very, very big deal. It affects every financial planning decision you make. You cannot engage in any effective financial planning unless you get the numbers right. And it is impossible for any Buy-and-Holder to get the numbers right if valuations truly affect long-term returns (as I believe to be the case).
You are focused not on that critically important question but on an also-important-but-less-so question. You are focused on the question of WHEN the pretend gains will disappear. We all would like to know that. It’s certainly worth looking into. But it’s not the huge big deal that you make it out to be. If you lose 50 percent of your life savings in 2020 rather than in 2016, have you no longer suffered a loss? It’s still a devastating loss. In some circumstances it is even worse if the loss is delayed because the delay causes you to continue making poor financial planning decisions until the day the loss shows up on your portfolio statement.
We need to get better at figuring out when the losses will take place. I agree with that much. That’s why we all should be working together on this stuff. I have offered some thoughts as to why it may be that prices have remained higher for a longer time in this bull/bear cycle than they did in any earlier one. But I only possess one sorely limited brain, you know? We would make quicker progress if Bogle was helping us out on a daily basis and if all the other people who work in this field were helping us out. Each person comes at things from a different angle and you never know who is going to be the one to supply the missing piece to the puzzle.
I would like to see everyone trying to figure out how stock investing works in the real world rather than pulling the covers over their heads and pretending that we can go back to 1980. 1980 is gone. It has been gone for a long, long time. The future should not scare us. It should excite us. We should embrace it. We should move forward with caution and prudence. But we should definitely move forward.
My sincere take.
Progress-Loving Rob
feed twitter twitter facebook