Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
How big of a book is this to cause such a delay?
It’s the most important book ever published in the field of personal finance, in my assessment. Under the dominant model for understanding how stock investing works (Buy-and-Hold), market timing is a bad thing. According to the last 39 years of peer-reviewed research in this field, market timing is the key to long-term success. Say that it costs us as a society $100,000 each time someone says “market timing might not work” instead of “market timing is price discipline and is always, always, always required,” That adds up to trillions of dollars in lost wealth over time. Yikes!
So I want to do a good job. I want to be sure to get it right. I am close. But it appears that it may take me another three months to have a book in hand that meets my standards.
Wish me luck!
Rob the Scribe
Uh oh, Robert Shiller days you are wrong, Rob. The stock market dropping is due to the uncertainty of the Coronavirus and he never blames buy and hold. He even talks about the previous stock market strength has been the result is low unemployment, not buy and hold.
https://qz.com/1818061/robert-shiller-says-the-coronavirus-disruption-is-different-from-other-economic-crises/
There’s nothing that Shiller says in that article that I disagree with.
I certainly believe that the Coronavirus matter is causing genuine economic disruptions. There are economic causes for the drop in stock prices that we have seen. The trouble with Buy-and-Hold (price indifference) is that it greatly increases the odds that economic disruptions will cause terrifying price crashes rather than manageable price drops.
If we were at fair-value prices (a CAPE of 16) when the Coronovirus became an issue, we would see a price drip, perhaps down to a CAPE value of 13. That’s a 20 percent drop. But we were at a CAPE value of near 30 when the Coronavirus became an issue. A drop from 30 to 13 is far more devastating to millions of people than a drop from 16 to 13. A price drop that big can transform the irrational exuberance into irrational depression and bring the CAPE value all the way down to 8. Then you have a total price drop of near 70 percent, which would bring on a huge economic contraction because of the massive loss of consumer buying power.
I believe that Shiller would agree with these ideas if he were presented with them and asked to comment on them. It is of course entirely possibly that he would offer a somewhat different spin. That would be normal and healthy. What is not normal and healthy is this insane situation where we have groups of insanely abusive Buy-and-Holders (the Lindaurheads and the Greaney Goons) engaging in criminal acts to block millions of people from hearing what the last 39 years of peer-reviewed research in this field teaches us all about how stock investing works. We should be encouraging EVERYONE to post honestly because it is through honest posting that we all learn. There should not be a ban on honest posting re safe withdrawal rates or any other investment-related topic at even a single site.
Once we open every site to honest posting re the peer-reviewed research, we should all pull together and make it a community project to always keep the CAPE value as close to 16 as possible. Small moves away from fair-value price levels do not hurt much, So I wouldn’t be concerned if I saw the CAPE value rise to 18 or drop to 14. There are always going to be small ups and downs. But we should all be working to see that we never again experience a CAPE value of 25 or more. Those sorts of CAPE values create extremely painful experiences for all of us. It is because we have tolerated insane CAPE values in recent years that we are in the mess that we are in today.
It all comes down to permitting honest posting. Investors love, love, love the idea of being able to reduce the risk of stock investing dramatically. The peer-reviewed research that I co-authored with Wade Pfau showed investors how to reduce the risk of stock investing by nearly 70 percent (by being sure to always, always, always practice market timing/price discipline when buying stocks). There’s a reason why you Goons threatened to get Wade fired from his job if he continued doing honest work in this field. When people learn the realities, Buy-and-Hold goes down because all of the research shows that market timing/price discipline is 100 percent required for the stock market to function smoothly, just as it is for any other market to function smoothly.
That’s my sincere take, Anonymous. The continued promotion of Buy-and-Hold for 39 years after the peer-reviewed research was published showing that there is precisely zero chance that such a :”strategy” could ever work for even a single investor has put us all in a very bad situation. The answer is to let Buy-and-Hold go down and let the first true research-based strategy (Valuation-Informed Indexing) replace it.
My best wishes to you.
Rob
“ I certainly believe that the Coronavirus matter is causing genuine economic disruptions. There are economic causes for the drop in stock prices that we have seen”
And that is why you won’t see a dime of the $500 million. There is always something to blame for the drops.
We’ll see.
I agree that there is always something to blame. That’s true of everything. There is always something to blame for anything.
The question is whether a drop in the CAPE value from 32 (two times fair value) to 8 (one-half of fair value) changes investor psychology. If Shiller is right that shifts in investor emotion play a big role in causing stock price changes (I believe that he is), then a change in the CAPE value from 32 to 8 is going to signal a huge change in investor psychology. Will an investor with a true portfolio value of $400,000 who for a time was led by the Buy-and-Holders to believe that his portfolio had a value of $800,000 and who is a short time later told that his portfolio value is only $200,000 become more open to hearing what the last 39 years of peer-reviewed research teaches us all about this important subject?
I believe that he will become more open. And I believe that that will make all the difference in the world. But we are just going to have to wait to see how it all plays out to find out for sure.
I naturally wish you all the best of luck with it, in any event.
Confident (At Least Reasonably So!) Rob
A true buy and holder knows that drops are temporary and will stay invested for the long term. Market timers will be the ones that get hurt, just like they always have.
We disagree, Anonymous.
The peer-reviewed research that I co-authored with Wade Pfau shows that abandoning Buy-and-Hold and going with a true research-based strategy that calls for the investor ALWAYS to practice market timing (price discipline!) reduces his stock investing risk by 70 percent and permits him to retire many years earlier. I can live with that!
I don’t think that there is any mystery as to why you Buy-and-Holders elected to take on a risk of going to prison for a long time in the days following the next price crash by threatening to get Wade fired from his job if he continued to do honest work in this field. Holy moly!
My best and warmest wishes.
Market Timing (and Price Disciplining!) Rob
This is all playing out to be your worst case scenario.
It’s not entirely clear to me what you are trying to suggest here.
If you are suggesting that the coronavirus matter might provide enough of a negative economic shock to send stock prices from a CAPE value of 30 to a CAPE value of 8 and that a price drop of that size will bring on an ocean of human misery, then, yes, you are right that the idea that something like that could happen has indeed long been my worst-case scenario. I pray that it doesn’t happen. But I certainly worry about the possibility. And I have been worrying about this possibility for many years now.
The other side of the story is that a horrible experience like this could be what we need to open the entire internet to honest posting re the last 39 years of peer-reviewed research in this field and that could in time bring on positive economic effects bigger than the negative economic effects of the crash experienced. I think that Shiller’s research points us to an amazing economic advance and I very much want us all to begin reaping the benefits of that advance. If going through a scary rough patch is what it takes to reap those benefits, then I guess that that is what it takes. I hate the idea. Hate it, hate it, hate it. But nobody asked my opinion before setting things up in the way that they have been set up. I have to play the cards that I am dealt whether I like what I see in my hand or not.
I am scared of what may happen. Please feel free to quote me re that one.
I am also very excited about the good stuff that we may see on the other side of this thing. I am obviously going to do everything in my power to minimize the bad and to heighten the good. I can do no more and I can do no less.
Please pray with me that we are all able to make it to the other side in one piece. The risks here are very big. If that is the suggestion that you are intending to advance, I get it loud and clear.
Worried Rob
The person who has a $4 million balance the drops to $2 million,is in much better shape versus the person with $400k that drops to $200k. The first person will not spend down as much of his portfolio and can easily wait for the market return to normal.
The “normal” market of which you speak is one in which market timing is always required of every investor who wants to keep his risk profile constant over time. The Bennett/Pfau peer-reviewed research shows that beyond any doubt whatsoever. That’s why you Buy-and-Hold Goons threatened to get Wade fired from his job if he continued doing honest work in this field.
It is better to have $2 million than to have $200,000. But it is also better to follow a research-based strategy than to go with a pure Get Rich Quick approach. If two investors earn the same income and one is a Valuation-Informed Indexer and the other is a Buy-and-Holder, the Valuation-Informed Indexer has a much better chance of ending up with $2 million and the Buy-and-Holder has a much better chance of ending up with $200,000. Following a research-based approach pays off big time in the long-run.
My sincere take.
Rob, the Two-Million-Dollar Man