I’ve posted Entry #495 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called We Should Want Stock Prices to Move to Fair-Value Levels Gradually.
Juicy Excerpt: My biggest concern from an investing standpoint is that the price drop will not stop when the CAPE level hits “16.” Shiller’s research teaches us that it is investor emotion, not economic developments, that play the biggest role in setting stock prices. Irrational exuberance produces the crazy high numbers that have been in evidence for many years now. But irrational exuberance never gives way to a period of reasonable prices. Emotional highs lead to emotional lows. Irrational exuberance becomes irrational depression. CAPE values of 26 do not give way to CAPE values of 16 but to CAPE values of 8. We can’t take a CAPE value of 8.
Why hasn’t Shiller enlisted your help in getting your story published in The New York Times? Why hasn’t Shiller set you up on a national speaking tour?
Maybe you could send Shiller a copy of your new book and he can write up a recommendation that you can use to help launch it.
You get right to the heart of things with these questions, Anonymous. All of these questions are reasonable ones. And what you are suggesting is exactly how things are ordinarily done. Shiller published research showing that there is precisely zero chance that the safe withdrawal rate is the same number. And yet when research (the Trinity study) came out claiming that it is always the same number, Shiller did not object. The Trinity study passed peer-review! It’s an amazing reality.
But it is our reality all the same. There’s no cause to get angry with me. I didn’t create this crazy reality. I have pointed it out. That’s all. That’s my job. That’s what journalists do. We point out important realities to people. People planning retirements need to know that the Buy-and-Hold retirement studies get the numbers wildly wrong. So I tell them that. You don’t want people learning that. So you demand that I be banned. And the beat goes on.
I will certainly send a copy of my book to Shiller. I want to work with him. And I will send copies to lots of people whom I respect on the Buy-and-Hold side of the table. I want to work with them too. I do not believe that I am going to get the response that I need to get until after the next price crash. At that point, Shiller’s amazing research findings will no longer be just a theoretical matter. At that point, we will all be able to look into the faces of millions of people whose lives have been destroyed by the mistake that the Buy-and-Holders made (thinking that market timing isn’t always required). So we will all pull together and get the problem fixed.
I will naturally do anything in my power to help things to go as easy as possible for everyone involved, including you Goons. I will not say that I believe that the Greaney study contains a valuation adjustment. Telling more lies would obviously send things backwards rather than forwards.
Had we all been thinking clearly back in 1981, we would have at that time launched a national debate on the far-reaching implications of Shiller’s research and we all would be living better livest today. There wouldn’t be any thought that there are different sides re the question of learning for the first time how stock investing works in the real world. We obviously were not all thinking clearly back in 1981, The problem was that Shiller’s research was just too big an advance. People’s minds couldn’t let it in. They suffered cognitive dissonance.
Now that there has been a 39-year cover-up, it’s harder than ever for the Buy-and-Holders to acknowledge their mistake. So we created a world controlled by the Goon Brain to make sure that we never learn what the last 39 years of peer-reviewed research is trying to teach us. Um — lucky us! Um — right?
What would you have me do? What do you want from me? Should I say that I believe that Greaney’s study contained a valuation adjustment after all although I obviously do not believe that? Is that the answer? Somehow, I do not think that that is the answer.
I think that the answer is that I get the book written and that I continue to wrote weekly columns and that I do my best to respond to questions or comments put forward by you Goons (those that rein in the impulse to engage in criminally abusive behavior at least enough so that people who read the exchanges might be able to learn something from them) and that I wait for people like Shiller to come to the realization that the current state of play is just not sustainable in the long term. Obviously I would like to be working with Shiller and obviously he should be happy to work with me. I have this funny thought that the reason why he is holding back is that he does not like the idea of seeing people on the internet threaten to murder his loved ones. What a wacky idea!
We’ll see how it goes. Shiller merited his Nobel prize. The last 39 years of peer-reviewed research is the most important 39 years of peer-reviewed research in the history of the investment advice field. I believe that we will as a society figure out a way to get the ball over the finish line in the days following the next price crash. We are not there today. We are all afraid to take that next step. Shiller’s Nobel-prize-winning research findings are a huge advance, the biggest advance in the history of personal finance. Valuation-Informed Indexing is the personal finance equivalent of the cure for cancer. Reducing the risk of stock investing by 70 percent is a very, very, very big deal.
That’s why you Goons cannot bear the thought of permitting honest posting. You didn’t come up with that advance. You fell for claims made for the discredited approach. All that you see when you hear about the cure for cancer is reduced profits at your chemotherapy centers. You are going to stop millions of people from finding out about the cure for cancer if you have to spend the rest of your lives in prison cells because of the criminal acts that you had to commit to stop the history train from moving forward. That’s the path that you have chosen and you are sticking to it.
I have chosen a different path. I think that learning about the cure for cancer is a good thing even if it means that we all have to acknowledge that there was an earlier time in our history when we didn’t know everything there was to know about how the world works. I vote for progress. I vote for opening every site on the internet to honest posting re the last 39 years of peer-reviewed research. I vote for Valuation-Informed Indexing over Buy-and-Hold.
I hope that that is okay by you, my dear Goon friend.
But the bottom line is that that is the path that I will choose regardless of whether it is okay by you or not. I love my country. That runs deep.
My best and warmest wishes.
Cancer-Curing (Or at Least Giving it a Good Try!) Rob
Rob,
There is a new subscription based forum where you can ask direct questions of Wade Pfau and other experts. You should join.
I know what Wade thinks of the Buy-and-Hold safe withdrawal rate studies. He said they are “dangerous.”
And I know what Wade thinks of Valuation-Informed Indexing. He said: “Yes, Virginia, Valuation-Informed Indexing works!”
And I know what Wade thinks of market timing. He co-authored a research paper with me that shows that stock investors who are willing to practice long-term market timing can thereby reduce the risk they are taking on by investing in stocks by nearly 70 percent.
I don’t need to ask Wade questions. I need him to get over his fear of what Buy-and-Holders will do to him if he speaks openly about what he believes about stock investing. He tried doing that for a bit and those were the happiest days of his life, So it is something that he personally wants to do. But he does not want to suffer career setbacks for doing it.
That’s the change we need to see. As a society, we all need to make Wade Pfau and all others who work in this field feel safe to tell us what they believe about how stock investing works. It makes all the sense in the world that we would make them feel that way since we all need to know how stock investing works. But there’s a problem. Learning how stock investing works means giving up our Get Rich Quick hope that there might be some magical world where it is not necessary to practice price discipline when buying stocks.
There’s no fee that I can pay to get us to that new and wonderful world, Anonymous. I believe that we are going to get there. But I believe that it is going to take an ocean of human misery to get us there. If stocks continue to perform in the future anything at all as they have always performed in the past, we will be seeing that ocean of human misery in the not-too-distant future. I don’t think that we are going to need to be paying fees to get good people like Wade Pfau to speak out at that time. I think that Wade and others will be speaking out at that time because their hearts will have been touched by what they have seen taking place around them.
We’ll see.
Rob