Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
I am not sure how you think you are providing new aspects. Everything you write, you have already repeated hundreds or thousands of times. People have already responded to your points long ago and over time have just grown tired of what you have to say. Look at how you continue to even repeat your nonsense of a post from 2002. That is SIXTEEN YEARS AGO.
Shiller published his research showing that valuations affect long-term returns in 2002. Every word that I have written over the past 16 years is just an expansion on those words. So are more words from me needed?
They are needed.
Take a look at Greaney’s site, Anonymous. He has not yet corrected the error in his retirement study that I pointed out on the morning of May 13, 2002. His death threats were not really a “response” to my post. They were an attempt at intimidation. The proper response would be to correct the darn study.
So, no, the message has not gotten through. So, yes, the point must be made again. And I of course am not just talking about Greaney. There are people who have authored similar studies. And there are people who have recommended Greaney’s study and similar studies. All of those people need to hear the message again and again. Until they get it. And respond appropriately.
Do you see?
How often does a person who smokes three packs of cigarettes a day need to hear the message that smoking causes cancer? Until he freakin’ gets it. It’s an important issue. It’s life or death. As is the matter of whether the market is efficient or valuations affect long-term returns. There will never come a day when we will have heard that message as often as we need to hear it. Say that a day came when there is 100 percent agreement that valuations affect long-term returns and that we must all practice long-term timing when buying stocks. Would the message no longer be needed? By no means! If we stopped repeating the message, we would just eventually fall back into our habit of following Get Rich Quick/Buy-and-Hold strategies. We all have that Get Rich Quick urge within us that has been making stock investing risky since the first market opened for business. We need to be ever vigilant lest it rise up again within us and destroy our retirement hopes once again as it has done so many times before. This powerful new understanding of how stock investing really works will never be old news.
Now —
If someone has been told that smoking causes cancer and has chosen to ignore the message, do I think that it would be a good idea to keep insisting that he listen to it? No. That’s obviously crazy. Similarly, I don’t see it as my job (or anyone else’s job) to convert all the Buy-and-Holders to Valuation-Informed Indexing. I see it as my job to invite them to follow a strategy that I view as far superior. But each person gets to decide which strategy he is going to follow. I am not going to pester someone who has rejected Valuation-Informed Indexing with repeated appeals that he reconsider. That would obviously be annoying and non-productive and inappropriate.
But we have to open every board and blog on the internet so that those who ARE interested in hearing the new message have a place to access it and ask questions about it and so on. That’s the key. Once all sites are open to honest posting re the last 37 years of peer-reviewed research, there’s no problem. Those who prefer Buy-and-Hold do their thing and those who prefer Valuation-Informed Indexing do their thing. That’s how we do it in this country re every subject other than stock investing and that’s how we need to do it re stock investing as well.
I think we do it different with stock investing because the new message comes as such a shock to our Buy-and-Hold friends. Most of us care a great deal about our life savings. The Buy-and-Holders are telling us that the full amount listed on our portfolio statement is real. The Valuation-Informed Indexers are saying that we need to divide that amount by two to know the true and lasting value of our portfolio when stocks are priced as they are today. That’s a darn alarming message to those who truly came to believe that Buy-and-Hold is the answer. It’s scary stuff. So a good number of our Buy-and-Hold friends have come to react in crazy ways.
We need to normalize our discussions. Had we all started talking about what Shiller showed back in 1981, when he showed it, my famous post from the morning of May 13, 2002, would not have come as a shock to anybody. What I was saying was so obvious. We know that valuations affect long-term returns. So we need to consider valuations when calculating the safe withdrawal rate. What a shocker!
But it was a shocker, wasn’t it? Why? Because we had not been talking about Shiller’s breakthrough research findings from 1981 through 2002. When I brought them up, the Buy-and-Holders among us went nuts. Shiller’s work was too strong for them to reject it. But they couldn’t imagine accepting that the safe withdrawal rate is not a constant but a variable. So we got this nutso stuff.
We need to move beyond the nutso stuff. When we move beyond it, I don’t think that everyone is going to become a Valuation-Informed Indexer. I think that lots of people will. But lots will remain Buy-and-Holders because that is what they will prefer, for whatever reason. And lots of others (probably the largest number) will choose some path between those two (that’s what lots of investors do today — after we open the internet to honest posting, they will still do that but in a better-informed way).
The idea that giving in to the Get Rich Quick impulse is a bad idea is going to be with us until the end of time. That’s the Valuation-Informed Indexing message. That’s Shiller’s breakthrough. That’s the whole story in a nutshell. We will never say it enough times because the Get Rich Quick urge is never going to go away and we are always going to need to be combating it. Thinking that it will go away is like thinking that reminders of the dangers of smoking are going to go away or that admonitions against cheating on your spouse are going to go away or that recommendations not to drink and drive are going to go away. These are basics of the human condition, as is the inclination that all investors feel toward Buy-and-Hold/Get Rich Quick investing strategies.
The difference is that every reasonable person acknowledges today that it is bad to drink and drive while millions of good and smart people still view Buy-and-Hold as the perfect strategy. So we experience clashes when some fellow comes along and points out that the Buy-and-Hold retirement studies lack adjustments for the valuation level that applies on the day the retirement begins. We need to figure out as a society how to live together in peace in a way that permits us all to have access to the important realities discovered by Shiller’s research while not upsetting our Buy-and-Hold friends unduly. That’s the project facing us today. That’s the thing we need to work through together to get this process moving forward and to a better place.
The basic message will be repeated until the end of time. Why? because those darn humans have a tendency to forget the basics. If you want them to learn how to invest effectively, you need to remind them of the basics over and over and over again. Shiller’s finding that valuations affect long-term returns is the most important basic of all. We obviously have as a society lost site of it in recent years. If we hadn’t, we never could have gone to the valuation levels that apply today. But even after valuations drop to fair-value levels, we are going to need to be reminded of that important reality regularly or we will just forget it and start going through that darn boom/bust cycle all over again.
Make sense?
Repetitive (and Proud of It!) Rob
Anonymous says
Two days in a row with big stock drops. Has anyone blamed buy and hold yet? Has The New York Times called yet? Any speeches from Jack Bogle? Any of that $500 million rolling in yet?
Rob says
No, it doesn’t work that way.
If we see a return to fair-value price levels (and we will if stocks continue to perform in the future anything at all as they always have in the past), millions of people will see half of their lifetime savings go “Poof!” Yes, that will cause people to become more open to questioning of the Buy-and-Hold dogmas. And those of us who believe that the last 37 years of peer-reviewed research is legitimate research will have plenty of answers to provide once the questioning begins.
We had race riots in the 1960s as the result of a long pent-up demand for the recognition of the civil rights of black people. Do you think that everything changed on the day when the first speech was put forward arguing that everyone’s civil rights should be respected? It doesn’t work that way. The Civil Right Revolution was achieved via a slow but steady process. But it was a revolution that very much needed to proceed and so, eventually it did.
So it will be with the Shiller revolution. There has never been a sliver of peer-reviewed research supporting the crazy Get Rich Quick claim that it is not necessary to practice price discipline (long-term timing) when buying stocks. Wade Pfau was amazed when he discovered this. He told me that the discovery was so shocking to him that he was asking himself whether he had missed something, why had no other researchers ever looked into this basic question? When you Goons threatened to destroy his career if he continued doing honest work and Jack Bogle didn’t do a thing about it, he knew the answers to his questions. The Buy-and-Holders have been making a false claim about the most important issue in stock investing for decades and they very, very, very much did not want to acknowledge either the initial mistake or the long cover-up.
Millions of people will be suffering in very serious ways in the days ahead in the event that stocks continue to perform in the future anything at all as they always have in the past. And, yes, they will have their questions answered. Not in a day or in a week or in a month or even in a year. But they will have their questions answered. And then we will decide as a society where to take it from there. I am 100 percent sure.
And deep down inside, you are 100 percent sure too. If you weren’t, you wouldn’t even be posting here. I am 100 percent sure re that one too.
But we will all get to watch it play out together in the days following the next price crash. I wish you the best of luck with it. I hope that helps at least a small bit.
My best and warmest wishes.
Ever-Closer-to-Becoming-a-Millionaire-Times-500 Rob
Evidence Based Investing says
In 2000 and 2008 the US stock market dropped about 50%. We didn’t see your predicted revolution.
We won’t see it after the next 50% drop either.
Anonymous says
“And deep down inside, you are 100 percent sure too.”
I am 100% certain that there will not be any New York Times article. I am 100% certain you will not hear the speech you want from Jack Bogle. I am 100% certain that you will not see your $500 million windfall. I am 100% certain that there is no credible death threat (unless you include the one you made). I am 100% certain that Wade’s career was not threatened. I am 100% certain that you have made all of this up.
Rob says
In 2000 and 2008 the US stock market dropped about 50%. We didn’t see your predicted revolution.
We won’t see it after the next 50% drop either.
We’ll have to see, Evidence.
In 2000, we were still at a high P/E10 value after the drop. That’s a distinguishing factor. The thing that draws people to Buy-and-Hold is the Get Rich Quick element. I believe that the lowest P/E10 value in 2000 was about 20. So people were still enjoying the Get Rich Quick aspect of the Buy-and-Hold experience. If people were to abandon Buy-and-Hold when the P/E10 value was 20, they would be giving up pretend gains. So there was still an emotional pull to Buy-and-Hold at that time, even though there had been a drop from a P/E10 of 44. If we drop to fair-value price levels or lower, that Get Rich Quick aspect will no longer be there. So the reaction may be different.
The 2008 drop really did scare people. And it pulled the P/E10 value to a wee bit below fair-value levels. And we really did see people starting to question Buy-and-Hold at that time. Not most people. But some. But that price drop did not remain in place for long. We hit the low in February 2009 and prices had gone to pretty high levels by the end of the year. If it happens like that again, then I agree that we will not see a different reaction. But what if we go to price levels below fair value and then remain there for five years or longer? I think that may cause more people to open their minds to questioning of the concept.
Do you remember what Ed Easterling said about the errors in the Buy-and-Hold retirement studies? He said: “If the response is ‘Who knew?’ it won’t be much comfort for retirees in the employment line at Wal-Mart. This is especially true since a rational understanding of history and the drivers of longer term stock returns can help retirees to avoid that surprise.” If Shiller is right (I think he is), then we are going to be seeing millions of failed retirements in days to come. People cannot rejoin the workforce in their 70s and 80s. We have hurt those people in very, very serious ways by failing to correct the errors in the Buy-and-Hold retirement studies as soon as we learned about them.
Those people are going to be pissed and I can’t say that I am going to be able to find any fault in them for feeling that way. I have seen people get angry when they are cheated by $10 at the grocery store. Try $100,000 or $300,000 or $500,000. People are going to be pissed. And we are going to have to figure out as a society of people what to do about it.
I am not God. I could be wrong. I am just telling you what I sincerely believe. I know that under no circumstances do I want to place myself on the wrong side of The Felony Line re these matters. No freakin’ way, no freakin’ how. I do not believe that it is a good idea to fail to correct errors discovered in studies that millions of people have used to plan their retirements. I do not. Sue me, you know?
I do wish you all good things, my dear Goon friend.
Felony Averse Rob
Rob says
I am 100% certain that there will not be any New York Times article. I am 100% certain you will not hear the speech you want from Jack Bogle. I am 100% certain that you will not see your $500 million windfall. I am 100% certain that there is no credible death threat (unless you include the one you made). I am 100% certain that Wade’s career was not threatened. I am 100% certain that you have made all of this up.
Okay, Anonymous.
I do wish you all good things, in any event.
100 Percent Made-Up Rob