“I Only Post About One Subject. But It Is a Very Important Subject and There Are Hundreds of Angles To It. So Posting About That One Subject Keeps Me Busy. The One Subject Is Long-Term Market Timing.”

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:

How about posting something of value. You have repeated this same stuff over and over again. Try posting something new. While you are at it, why don’t you explain to readers as to why you won’t provide and proof (links) to your claims of job threats and death threats.

I only post about one subject. But it is a very important subject and there are hundreds of angles to it. So posting about that one subject keeps me busy.

The one subject is long-term market timing. There was research in the 1960s that showed that short-term timing doesn’t work. People did not know at the time of the need to distinguish short-term timing from long-term timing. So it became common practice just to say that “timing doesn’t work.” We now know that long-term timing always works and is always 100 percent required for investors seeking to keep their risk profile constant over time. But all the people who have been saying for years that long-term timing is not required feel that it makes them look bad for people to learn the realities. So you still hear this kind of thing today, 39 years after the research was published showing that the market is not efficient and that therefore long-term timing (price discipline!) always works and is always required.

It’s a big deal. If the market is efficient, the safe withdrawal rate would always be the same number (4 percent). If valuations affect long-term returns, as Shiller’s research shows, the safe withdrawal rate is a number that varies from 1.6 percent to 9.0 percent, depending on the CAPE level that applies on the day the retirement begins. The biggest reason why people seek out investment advice is to plan their retirements effectively. If the old way of thinking about how stock investing works (Buy-and-Hold) is producing wildly wrong retirement planning numbers, we need to get that fixed. This is not optional. It is 100 percent imperative.

And it affects lots of other stuff too. Wade Pfau and I co-authored peer-reviewed research showing that investors can reduce stock investing risk by nearly 70 percent just by being willing to engage in long-term timing. That’s amazing. Stocks are not nearly as risky an asset class as we have been led to believe. The risk that many people see in stocks is just the result of the investment strategy (Buy-and-Hold) that was developed in the days before Robert Shiller published his Nobel-prize-winning research showing that valuations affect long-term returns. That research changes everything that we once thought we knew about how stock investing works.

I’ve been writing about the transition that we need to make from Buy-and-Hold to Valuation-Informed Indexing for 18 years now. I could write about it for another 18 years and never come close to running out of material. It is exciting stuff. Shiller’s research shows us all how to live far richer lives. Most people want to live richer lives. So I like telling them about it. But the Buy-and-Holders don’t like the idea of people learning the realities as revealed by the peer-reviewed research one little bit. But I think that as a society we are going to need to get past that. Eventually, I don’t think that we are going to have any other choice.

I hope that helps a tiny bit.

Rob