Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
The market is crashing. Why are people blaming Coronavirus instead of buy and hold?
Because as of today Buy-and-Hold remains the dominant model for understanding how stock investing works.
The CAPE value has gone to 8 by the end of every earlier bull/bear cycle. If the CAPE value drops to 8 and then remains in that neighborhood for five yeas, people are going to start asking questions. When enough people are open to questioning, the 10 percent who believes that Shiller’s Nobel-prize-winning research is legitimate research will begin to feel safe posting their sincere views at investing boards and blog. And then knowledge of the realities will begin to spread.
That’s the way it is done. That’s the only way that it CAN be done. A paradigm doesn’t change in a day or a week or a month or a year. It takes time for people to work up the courage to question fundamental beliefs about a subject, thing that they have felt for a long time were certainly so. Galileo was put under house arrest by the Catholic church for saying that the earth was not the center of the universe, as the Bible indicated. Why didn’t people just refer to the same scientific information that Galileo was referring to? Because they had believed for a long time that it was impossible that the Bible could contain error. Their minds clicked off when evidence was presented that the earth is not the center of the universe, just as the minds of Buy-and-Holders click off when evidence is presented that it is not possible to calculate the safe withdrawal rate accurately without taking into consideration the valuation level that applies on the day the retirement begins.
But today it would be hard to find a reasonable person who believes that the earth is the center of the universe. Things change. People learn new things over time. Society advances in its understanding of how the world around it works.
Shiller is not our enemy. Shiller’s Nobel-prize-winning research promises to help us all live better lives. We just all need to unite on insisting on reasonable enforcement of the laws of the United States in discussions of how stock investing works for that to happen.
My best wishes to you.
Science Believing Rob
“The CAPE value has gone to 8 by the end of every earlier bull/bear cycle. If the CAPE value drops to 8 and then remains in that neighborhood for five yeas, people are going to start asking questions.”
Why don’t you hold yourself to that same standard. You said back in 2010 that the market was going to crash to a CAPE level of 8, yet it didn’t happen. You said above that people would be asking questions if it stayed in that neighborhood for 5 years….so hold yourself to that standard. 5 years later (2015) you stated that if the crash had not happened by that time, people should question VII. Here we are now in 2020, which is 10 years down the road from 2010 and we still haven’t seen that crash that you have predicted. If we then go back to when you pulled yourself out of the market, it has now been 24 years, right??? So much for market timing and VII.
I agree with the point that you are making, Anonymous. None of us know it all. Even someone who has an I.Q. of 140 doesn’t know it all. Because that person is only able to remain on Planet Earth for at most 80 or 90 years, he has a limited number of life experiences. That influences his thinking. So he may be very smart and still come to wrong conclusions. I don’t have an I.Q. of anything close to 140. So the point applies double to me.
I got out of stocks in the Summer of 1996. Yes, that’s 24 years. But you know what? If you go by Shiller’s research (which shows that valuations affect long-term returns), that 24-year time-period has been the worst 24-year time-period in the history of the United States to own stocks. Those investing in stocks during those 24 years obtained the lowest long-term return while taking on the highest level of risk of any investors who have ever lived. That’s somehow a good thing? Huh? I don’t see it.
The reason why you see it as a good thing is that you don’t adjust your current portfolio value for the effect of valuations. If you did that, you would come to very, very different conclusions. That’s the entire dispute, Should investors believe that valuations don’t matter, which is what the academics thought before Shiller published his Nobel-prize-winning research? Or should investors always take the effect of valuations into consideration when making decisions? You know what I think.
Have I been shocked and surprised and stunned that prices have remained so high for so long? I have been. We have never before seen a time-period like this. So, to someone who believes that the historical data can teach us much about how stock investing works, it has been surprising to see how things have played out. If someone said to me that, “given how things have played out over the past 24 years, I am just going to follow a Buy-and-Hold approach, no market timing for me,” I would not argue with that person. I would wish him the best of luck with it.
But I am not personally persuaded that that person would be doing the right thing. I am not personally persuaded that the results of the last 24 years show us that the market has changed in some fundamental way. I am more impressed by what has happened over the past 150 years than I am by what has happened over the past 24 years. If we see the sort of price crash that we have seen on every early occasion when stocks reached these valuation levels, then we will be right back where we always end up, with Buy-and-Hold causing another economic crisis. So it is not for me.
And I cannot tell others that I think it is a good way to go. I don’t believe that. So I shouldn’t say it. I can wish people who follow Buy-and-Hold the best of luck with it. But I cannot tell them that I personally believe that they are doing the right thing. I can acknowledge that the last 24 years have been surprising. But I cannot say that I am persuaded that those 24 years have persuaded me that the market has changed in some fundamental way. I can say that my Buy-and-Hold friends are smart and good and hard-working people who have helped us all with many powerful insights. But I cannot say that I believe that they are infallible and should never be questioned or challenged. I believe that we all think harder and better when our friends question and challenge us. So I believe that I am helping my Buy-and-Hold friends out when I do that. I do it as an act of friendship, which I believe that they have merited as a result of the many good things that they have done for me.
That’s where I am coming from, in any event. my dear Goon friend.
My best and warmest wishes to you and yours.
Surprised and Stunned and Shocked (But Not Persuaded of the Buy-and-Hold Case ) Rob
You don’t understand how to apply risk factors. You apply on a going forward basis, not in arrears as there is already an outcome. Anyone that followed your investment advice would have experienced a failed retirement, as you have experienced.
We certainly do not agree re this one, Anonymous.
You are saying that we already know the outcome for the past 24 years. I say that that is not so. You have a temporary result. Investors created some Pretend Money for themselves and they have not yet paid the price for doing so. So what? What matters is the Lifetime Return for the investors, not the temporary, Get Rich Quick, Buy-and-Hold return. All that investors do when they follow a pure Get Rich Quick/Buy-and-Hold approach is borrow money from the future. They have to pay that money back somewhere down the line. That’s where we all see a huge bear market and the economic crisis that always follows from it. We all would be better off if we just permitted honest posting, as we do in all other fields of human endeavor, and never experienced these crazy bull markets and all the human misery that follows from them.
Someone wants a car but doesn’t have the money to pay for it. So he takes out $20,000 from his credit card. You Goons declare that a great outcome. I don’t see it. He is going to have to pay the $20,000 back at some point. The Great Outcome is a temporary thing. It is a fantasy. The reality is that he cannot afford the car today. He would be better off saving up for it. So it is with early retirement. Greaney told people that it would be “100 percent safe” to retire years before the peer-reviewed research showed that it would be safe. I don’t see that as a great outcome. I prefer to report the numbers honestly and accurately.
Call me madcap, you know?
Buy-and-Hold is a marketing gimmick. There is no “there” there. If Buy-and-Hold were a real thing, we never would have seen a single death threat.
Real-World Rob
It looks like the people over on the City Data Forum are also saying you are wrong on SWRs. They point out the Michael Kitces work. You better get over there and straighten them out.
https://www.city-data.com/forum/investing/3160252-wade-pfau-4-rule-now-2-a.html
Every last one of us should be trying to straighten them out, Anonymous. We all want the same things. We all need to know how to invest effectively. There are no different sides re this one. We should all be advocating that every discussion board and blog on the internet be opened to honest posting re the last 39 years of peer-reviewed research. We incorporate new knowledge into our understanding of how the world works by talking it over from all sorts of angles. We need everyone participating without fear because each person brings something different to the table.
The safe withdrawal rate is the product of a mathematical calculation. So this should not be even a tiny bit controversial. The reason why it is controversial is that Shiller is challenging the idea that investors are 100 percent rational. He is saying that they are highly emotional. That’s a game-changer. The Buy-and-Holders see it as an insult to have their rationality questioned. But the very fact that they get so upset shows that Shiller is right that they are emotional. If the Buy-and-Holders were as rational as they claim to be, we never would have seen a single criminal act engaged in as part of a “defense” of Buy-and-Hold.
The battle is a battle of reason (research) versus emotion (death threats, etc.) 100 percent of the evidence supports the claim that valuations must be considered when calculating the safe withdrawal rate, 0 percent of the evidence supports the claim that it is is not necessary to take valuations into account. But reason and emotion speak different languages. When the Buy-and-Holders hear Wade Pfau saying that the 4 percent rule is dangerous nonsense, their response is to threaten to get him fired from his job.
That doesn’t persuade me or anyone else who has not gotten caught up in a Get Rich Quick scam. But it shuts Wade up or at least causes him to be more careful about where he says out loud what he truly believes. But a death threat or a career destruction threat is not a good argument. It is just emotion evidencing itself. The entire Buy-and-Hold “idea” that market timing (price discipline!) is not required is just emotion evidencing itself. It’s like an alcoholic banging on the table and screaming that he can quit at any time. It is not a claim that should be taken seriously given the manner in which it is delivered.
I believe that as a nation we are going to need to find a way to provide millions of investors access to honest and accurate reports of what the last 39 years of peer-reviewed research teaches us about how stock investing works, I believe that in the days following the next price crash enough of us will work up the courage to stand up to you Goons to help us all get us to where we need to go. But we will see, you know?
I wish you all the best that this life has to offer a person, in any event.
Sober Investing Advocate Rob
“ Every last one of us should be trying to straighten them out, Anonymous.”
You need to do that. You are the SWR expert. You said this was your job.
It’s definitely my job. It’s definitely your job too, Anonymous. And it’s definitely everyone else’s job.
Buy-and-Hold/Get Rich Quick investment strategies always cause an economic crisis sooner or later. An economic crisis is the financial equivalent of a hurricane. Would you say that it is only one person’s job to warn people when a hurricane is coming? I would not. I think that we should all pull together in that sort of circumstance. Anyone who has ever obtained any benefits from our economic system should be letting as many other people as possible know if they see a safe withdrawal rate study that lacks an adjustment for the valuation level that applies on the day the retirement begins. I mean, come on.
This is the rare issue re which there are not two sides. Every single person on the planet benefits when we all learn how stock investing works in the real world. This should 100 percent be a group endeavor. There’s a good reason why we have laws against the sorts of tactics that you Goons have employed to keep people in the dark. Those laws reflect our core beliefs as a people.
That’s my sincere take, in any event.
My best wishes to you.
Community Guy Rob
“ It’s definitely my job. It’s definitely your job too, Anonymous. And it’s definitely everyone else’s job.”
No, it is only your job as we choose are jobs. You chose your pathway, now it is your job to set people straight.
My conscience is clear, Anonymous. I feel that I have done my part and then some more on top of that and then some more on top of that. If you took a poll of the American people and described the situation and asked “Has Rob Bennett worked this hard enough?” I am 100 percent confident that 90 percent of the population would say that I have worked it too hard and too long, not too light and for not a long enough time. I know that because of what friends and family members tell me. People think that I have traveled too far from the herd. That’s virtually a universal opinion.
I don’t regret anything that I have done. Someone had to do this so that as a people we can come to terms with what we have done to ourselves when we have experienced the ocean of human misery that we will experience when the next price crash arrives. I couldn’t live with myself if I knew (as I did indeed come to know) that millions of people were going to get hurt as a result of continued promotion of the Buy-and-Hold stuff and I did nothing about it. It would be like knowing in advance of the 911 attacks and just keeping my mouth shut out of fear that I might suffer personally in some way for speaking up in defense of my country. I cannot go there. So I did what I had to do given the cards that were dealt to me.
But I am not Superman. This is not a one-man job. If we are going to as a society advance in our understanding of how stock investing works, we are all going to need to play our parts in getting the word out about the last 39 years of peer-reviewed research and in asking good questions and all that sort of thing. It’s silly to think that one person could pull off what I am trying to pull off all by himself or herself.
I will always be available to help. If I see in the days following the next price crash that there is a greater willingness on the part of the Normals to stand up to you Goons, then I am certainly going to do what I can to help the good guys advance the ball. Obviously. But I offer no apologies for not offering to get my head bashed against a wall on a daily basis anymore. I have said what needed to be said, I have done what a reasonable person could do.
My goal of opening the entire internet to honest posting re the last 39 years of peer-reviewed research is a goal that benefits every investor on the planet, If we don’t get more people involved, we are not going to achieve that goal and we will all suffer the consequence. If we get more people involved, we can make huge strides in a very short amount of time. I’ll be there on the front lines when the time comes when progress can be made. But I have been involved in enough of this lone soldier stuff to last 20 lifetimes. Everyone has a limit and it took a lot longer for me to reach mine than it did for most others. But I have a limit too , and, when it comes to the lone soldier stuff, I crossed that point some time ago.
It will be interesting to see how it all plays out.
I naturally wish you all good things.
Lone Soldier (But No More!) Rob