Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:
For investors following your VII strategy, you are saying they need to write a book and sell it in order to finance their retirement? That’s part of the VII strategy?
Rob, if any person followed your plan, they would have experienced a failed retirement. It is simple math.
I am saying that every investor should practice market timing. The aim should be to keep your risk profile roughly constant over time. When valuations move up dramatically, you have to lower your stock allocation. When valuations move down dramatically, you have to increase your stock allocation. Wade Pfau and I co-authored peer-reviewed research showing that this approach greatly diminishes risk while also greatly increasing return. That’s been so for as far back as we have good records of stock prices.
I also say that any journalist who is placed in circumstances in which he happens to fall upon a story one-tenth as big and important as this one would be a fool not to pursue it for the remaining years of his life. Stock crashes cause huge amounts of human misery. If we can do away with stock crashes (and we can do that today by permitting widespread discussion and exploration of the far-reaching implications of Shiller’s Nobel-prize-winning research findings), we change the world in a very positive and exciting and life-affirming way. Please mark me down as being in favor of us doing that and as being humbled to have been able to have played the role that I have played in turning this amazing breakthrough in our understanding of how stock investing works into a reality.
I hate the bad stuff that we have seen. But the good stuff that is waiting over the horizon is so good that I don’t believe that hardly anyone is even going to remember the bad stuff once we make it together to the other side of The Big Black Wall of ignorance and indifference that is holding us back today.
We’ll see.
My best wishes.
Life-Affirming Rob
An interesting article by Robert Shiller in the New York Times from last week
https://www.nytimes.com/2020/01/02/business/gut-feelings-are-driving-the-markets.html
‘Gut Feelings’ Are Driving the Markets
Valuations are high, but investors are still willing to hold, because of a visceral emotion driven by President Trump.
The United States stock market is trading at a very high level today. The data show where the market stands, but don’t tell us how it got there. For an explanation of that, we need to take into account a factor that sound very unscientific: “animal spirits,” sometimes called “gut feelings.”
First, let’s look at some of the numbers. More than 30 years ago, the economist John Campbell and I developed what we have called the Cyclically Adjusted Price Earnings (C.A.P.E.) ratio, a measure that enables the comparison of stock market valuations from different eras by averaging the earnings over ten years, thus reducing some of the short-term fluctuations of each market cycle. C.A.P.E. reached 33 in January 2018 and is almost as high now, at 31. That number might seem meaningless in itself, but it is significant when you consider that it has been as high or higher on only two occasions: 1929, just before the 85 percent stock market crash ending in 1932, and in 1999, just before the 50 percent drop at the beginning of the new millennium.
People will point this year to low interest rates to justify the high C.A.P.E. ratio. But interest rate levels historically have not correlated well at all with the C.A.P.E. For example, low long-term rates did not explain the high C.A.P.E. ratios in 1929 and 1999, nor did rising long-term interest rates explain subsequent market crashes.
That brings us to another factor, which John Maynard Keynes called “animal spirits.” It is a sense of optimism and ready energy to be entrepreneurial and take risks, and it has been adjudged to contribute to high stock market levels. Animal spirits are not adequately measured by business consumer confidence indexes, because the surveyors do not probe for such deep feelings…
Thanks much for providing that link, Evidence.
I expect that I will write a column for Value Walk advancing my reactions to it.
Rob