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 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
We don’t live for 150 years, making the 24 years more relevant. Further, if trends do not follow previous history, then we must adjust. When you didn’t see the crash as you expected, you that your position must change and you can’t ignore the reality of the real results. We have to use the results to drive new thinking. Keeping the same track is stupidity.
If that’s what you believe, you should invest pursuant to that belief, Anonymous. But you do not get to decide for anyone else. I do not share your belief re this matter. So I cannot invest pursuant to your belief. And there are thousands of our fellow community members who have expressed a desire to hear both sides of the story. They have a right to hear both sides and to decide for themselves which path to follow.
The reason why 150 years matters is that 150 years of data does a better job of revealing how the stock market works than does 24 years. 24 years is a blip of time in the grand scheme of things. Is there any reason to believe that all of the rules by which the market always functioned in the past suddenly changed overnight in 1996 and that things will never again return to what they were in the past? If there is any reason to believe that, I haven’t heard it.
Yes, the data for the past 24 years has been anomalous. But the anomaly can be explained. I have written several articles going into it and so has Jeremy Grantham. If we see a 70 percent crash in the next year or two or three, the anomaly goes away and we are right back to how things have always gone in the past. I think it is better that people hear about that possibility now so that they can decide for themselves whether they should take the possibility into consideration in their planning or not. That’s the point of dispute between us.
I don’t say that there is zero chance that everything changed in 1996. But I personally am not convinced. And I believe strongly that the posts that go up with my name on them should set forth what I believe. So that’s the way I write them. It is healthy for others to offer other perspectives. I am all for that sort of thing. I learn from those sorts of posts and other do too. But no one learns from intimidation posts. Intimidation posts shut down learning experiences. Intimidation posts are garbage.
My sincere take.
Rob
“ If we see a 70 percent crash in the next year or two or three, ”
You have made this same prediction for more than a decade, which proves how worthless and dangerous your predictions are.
We disagree.
Stocks are more risky when they are priced for a 70 percent price drop than they are at times when they are not priced for such a price drop. Intelligent stock investing is a risk management game. When stocks get priced so crazy, you have to adjust your stock allocation to reflect the added risk present in the market. That is the entire point of Valuation-Informed Indexing. That is what it is all about.
You are saying that taking on crazy risk doesn’t matter so long as you get away with it for awhile. I wouldn’t tell someone who makes it a practice to drive drunk to keep on doing it because the fact that he is alive proves that there is no penalty attached to taking on crazy risk. I would tell him that he has been lucky so far but that he should stop driving drunk TODAY.
That’s what I say to Buy-and-Holders. It can work for 24-year time-periods. But never yet has it worked for the length of an investing lifetime. It is the most risky strategy imaginable, going by the last 39 years of peer-reviewed research in this field. That matters. It is not necessary to take on such insane amounts of risk to achieve good results with stocks. I would just go with a research-backed approach (I mean all of the research, including the stuff from 1981 forward).
The trouble with ignoring risk when investing your retirement money is that there are no do-overs in this game. No one is going to give you the money back in the event that stocks really do perform this time somewhat in the same manner as they always have going back as far as we have good records. Those who wants to protect their retirements need to do so now. So I believe that we should be permitting honest posting at every site now.
My best wishes to you.
Rob
“ We disagree.”
It is beyond a disagreement. It is fact. You said there was going to be a crash and you gave dates. Your scheme is based on timing. You were wrong on the dates. It is no longer a disagreement as it is not a factual outcome.
“ That’s what I say to Buy-and-Holders. It can work for 24-year time-periods. But never yet has it worked for the length of an investing lifetime.”
The average length of retirement is around 30 years. Being wrong for 24 years is 80% of that time. That is a retirement disaster. That is why anyone would be foolish to follow your advice.
“It is beyond a disagreement. It is fact. You said there was going to be a crash and you gave dates. Your scheme is based on timing. You were wrong on the dates. It is no longer a disagreement as it is not a factual outcome.”
No. It is a fact that my crash prediction did not prove out. But it is also a fact that, when I made the crash prediction, I noted that short-term timing doesn’t work and that therefore my crash prediction might not prove out.
Shiller’s research tells us when the risk of a price crash has increased. But it does not permit us to identify with precision when the crash will come. That’s the state of the world’s knowledge re stock investing today. We know some things, we do not know other things. We know that all investors should be going with lower stock allocations than they went with back when prices were at reasonable levels. But we are not able to say precisely when the crash will come
Rob
“ No. It is a fact that my crash prediction did not prove out. But it is also a fact that, when I made the crash prediction, I noted that short-term timing doesn’t work and that therefore my crash prediction might not prove out.”
10 years is not short term. 24 years is also not short term.
It doesn’t matter what investing strategy you use if it doesn’t work out over a 24 year period. No one can recover from that.
“The average length of retirement is around 30 years. Being wrong for 24 years is 80% of that time. That is a retirement disaster. That is why anyone would be foolish to follow your advice.”
The average length of an investing lifetime is 60 years.
Valuation-Informed Indexing hasn’t been wrong for ANY years. It properly warned investors that risk was sky high in 1996 and it properly warns them that risk is sky high today. Investors need to know that. That’s valuable information. It’s those who blame the economy when prices crash (Buy-and-Holders) who are wrong.
What happens to the person who experiences the crash in the first year of his retirement? I think it is better to give accurate information all along and have some retirees not experience the crash for a number of years (while being properly prepared in case it comes) than to give demonstrably false information all along and destroy millions of lives and then blame it all on a bad economy instead of on your reckless, inaccurate advice. Call me madcap!
Were the people who warned of the dangers of the Madoff fund wrong until it collapsed? I don’t think so. I think they were being helpful. I think that the people who waited until after the fund collapsed and then blamed investors who should have known that the claims for the fund were too good to be true were cowards. If the claims were too good to be true (they were), why didn’t these geniuses say anything publicly before the collapse. Some of these same geniuses are saying today that it is fine not to correct the errors in the safe withdrawal rate studies. Then, after millions of people suffer failed retirements, they will say “oh,you should have known.” I say that anyone who follows the peer-reviewed research should have spoken up. Then people would have known.
Were the people who warned of the floods in New Orleans wrong until the funds arrived? I don’t think so. They were issuing their warnings at a time when they could do some good. Warning about a flood or a stock crash after it happens doesn’t help anyone. The warnings should begin on the day that the CAPE value first touched insane levels.
Rob
“10 years is not short term. 24 years is also not short term.
It doesn’t matter what investing strategy you use if it doesn’t work out over a 24 year period. No one can recover from that.”
Ten years is the norm for how long it takes from the time stocks reach dangerous levels until prices crash hard. 24 years is the longest we have ever seen. But I don’t buy your idea that no one can recover from that. Investors who keep their risk profile stable over time always do very, very well in the long term and a LOT better than Buy-and-Holders. There is not one exception in the historical record.
You are saying that that may be the first exception. I cannot say with certainty that it will not be. But I consider that very much a long-shot bet. I prefer to avoid extreme long-shot bets with my retirement money. Call m madcap.
And there is a part of you that understands that it is a longshot bet. Nothing else could explain your behavior over the pas 18 years. You want the pure Get Rich Quick/Buy-and-Hold approach to work in the worst way. But you know that there is zero evidence in the peer-reviewed research that that could ever happen. So you feel great pain when someone brings up Shiller’s Nobel-prize-winning research and the insane, criminal behavior follows.
I think you need to be exposed to MORE honest posting, not less. I think you need to come to terms with your demons. Your approach is not a scientific approach. It is no a terribly close call.
Rob
“ 24 years is the longest we have ever seen. But I don’t buy your idea that no one can recover from that. ”
If I am showing you a strategy and it has a poor track record over 24 years, you would still be open to this strategy? Just a simple yes or no answer.
“ 24 years is the longest we have ever seen. But I don’t buy your idea that no one can recover from that. ”
That is completely absurd and not even worthy of a debate. We are not 20 year olds.
If I am showing you a strategy and it has a poor track record over 24 years, you would still be open to this strategy? Just a simple yes or no answer.
Yes.
The point you are making is the biggest reason why Buy-and-Hold remains dominant today. It is human nature to look at recent history, to go five years back or something like that rather than 150 years back. But that’s not science. Science goes 150 years back if there is 150 years of data to examine. Then science tries to explain to people why it is a mistake only to go five years back.
Does your doctor only go five years back when telling you whether you are at risk for a heart attack? A person could be overweight for 24 years and not have suffered a heart attack in that time. Should the doctor just conclude, “oh, everything is fine then.” Or should he encourage you try to lose weight on grounds that you are at great risk for a heart attack even though you have not had one for the 24 years since you first became overweight.
I was drawn to Buy-and-Hold once upon a time because of claims that it was rooted in science. If Buy-and-Holders are not willing to look at data that is more than 24 years old, then Buy-and-Hold is not science and Buy-and-Hold is not for me.
Yes, I am open to a strategy that has scientific backing and that has a poor track record for 24 years. I understand that that puts me at a marketing disadvantage. But I am not the only one looking for a strategy backed by science. It’s about 10 percent of all investors who are seeking that. That’s millions of people. Those millions of people have every right in the world to engage in whatever discussions they want to have re Valuation-Informed Indexing at whatever sites they want to have them. The Buy-and-Holders have every right to take a pass. But they do not have the right to disrupt the discussions that non-Buy-and-Holders are seeking to participate in.
That’s where I’m coming from, Anonymous.
Rob
“ Does your doctor only go five years back when telling you whether you are at risk for a heart attack? ”
If a doctor sees something that hasn’t worked as desired over the last 24 years, he won’t go that route. That would be malpractice. VII is malpractice.
That is completely absurd and not even worthy of a debate. We are not 20 year olds.
Say that you are 60 years old and that you lived through the 24-year time-period in which the CAPE level remained at higher levels than it has ever before remained for 24 years. Now say that within the next year or two or three you live through a 70 percent price crash. You would have been better off taking into consideration what the last 39 years of peer-reviewed research says.
How old you are doesn’t matter much. What matters a great deal is whether Fama is right and the market is efficient or whether Shiller is right and valuations affect long-term returns. If Fama is right, Buy-and-Hold is the ideal strategy. If Shiller is right, Buy-and-Hold is dangerous and Valuation-Informed Indexing is the ideal strategy.
We all should be trying to figure out whether it is Fama or Shiller who is right. We need to open every discussion board and blog on the internet to honest posting to figure that out. We all should feel free to say what we truly believe re these matters.
That’s my sincere take, in any event.
Rob
If a doctor sees something that hasn’t worked as desired over the last 24 years, he won’t go that route. That would be malpractice. VII is malpractice.
If there are two brothers and one watched his diet and the other is 100 pounds overweight and the former brother complained that his doctor had committed malpractice because his brother got to eat anything he wanted and still hadn’t died for 24 years, I would not agree with that claim. Buy-and-Hold hasn’t been working just because it has not yet brought on a devastating price crash. It increased stock investing risk to the highest levels ever before seen in U.S. history. This has been the worst time to own stocks ever. And it was Buy-and-Hold that did that.
You are acting as if high stock prices are a good thing. High stock prices are a very, very, very BAD thing.
That’s so IF Shiller’s Nobel-prize-winning research is legitimate research. I believe that it is. So I have to say it that way.
My best wishes to you.
Rob
“How old you are doesn’t matter much.”
None of your answers make sense and this particular comment shows just how far off your really are. A 60 year old does not invest the same way as a 20 year old.
I don’t think that a 60-year old should invest the same as a 20-year old. But I don’t think that either can afford to ignore valuations. If valuations are very high when you are 20 and very low when you are 60, you are better off going with a higher stock allocations when you are 60 than you did when you are 20. The added risk that comes with high valuations can be greater than the added risk that comes with being closer to retirement.
Your suggestion that that is not so shows how far YOU are off. You are repeating the conventional wisdom of Buy-and-Holders, which was discredited by the peer-reviewed research 39 years ago. Had everyone been exploring these issues everywhere for the past 39 years, there would not be confusion on these points. The fact that Buy-and-Holders have suppressed discussion for 39 years does not make them right. It shows how much Buy-and-Hold has hurt us.
If valuations affect long-term returns, then changes in valuations affect risk and investors need to take the change in risk into consideration when setting their stock allocation. You are the one who doesn’t make sense, Anonymous.
Rob
“ Your suggestion that that is not so shows how far YOU are off.”
Wrong. Results show you are wrong and your only answer is that we keep waiting until the end of times to see if you are eventually right. Sorry, but time is important.
39 years of peer-reviewed research and a Nobel prize count as “results” in my book, Anonymous.
I very much agree that time is important. That’s why it is so important to discuss this stuff everywhere with the aim of figuring it out. If we see a 70 percent price drop, a lot of people will lose a lot of the limited amount of time that they have to finance a retirement. Perhaps that had two years of saving to go before the crash and the crash leaves them 20 years short. That’s a big deal. Letting those people learn what the peer-reviewed research says could spare them 18 years of retirement-saving time. That’s a very big deal.
Rob
“39 years of peer-reviewed research and a Nobel prize count as “results” in my book, Anonymous.”
An interpretation of someone else’s work doesn’t pay the bills. Results matter. If it isn’t in your investment account, it doesn’t matter. If someone sat on the sidelines for 24 years, they can never make up for that amount of time. As you said, you are not a “numbers” guy. That has become painfully obvious.
It’s not just my “interpretation” that shows that Shiller added something important to the mix. Shiller was awarded a Nobel prize. That wouldn’t have happened if he was just saying the same thing as everybody who came before him.
The irrational exuberance reflected on your investment account isn’t really IN your investment account, It is illusory. Treating those amounts as real is like treating the amounts that were in the accounts of the Madoff fund because of fake transactions as real. You need to know what your account looks like when the irrational exuberance garbage is subtracted.
I am not a numbers guy. But I like to think that I can tell when I am being conned. When I point out an error in a guy’s retirement study and he responds by threatening to kill my wife and children, I develop a funny feeling that that fellow is working a con. Call me madcap.
Rob
Funny feelings and interpretations don’t pay the bills. Don’t just take my word for it. Try buying a new house with your interpretation or funny feelings.
I am a journalist. Journalists sell stories. This is the biggest story in the history of personal finance.
No, I can’t today buy a house with the asset that I have built over the past 18 years. But it’s not at all hard for me to see how that could change after a 70 percent price crash. This story has hundreds of angles to it. And I have an 18-year head-start on everyone else when it comes to the exploration of those angles. And this is a money field.
Bill Gates has lots of money, right? He has taken on a lot of charitable causes. What if he sees the human misery caused by Buy-and-Hold in the days following the next price crash and elects to spend $100 million spreading the word re the last 39 years of peer-reviewed research in this field? Who has more of a storehouse of material re Valuation-Informed Indexing than yours truly?
It doesn’t have to be Bill Gates. It could be someone who has a following on the internet and who loves his or her country. People love a good story. And the reason why many do not want to hear it today (that it scares them to hear that their portfolio is worth only half of what they thought) disappears after a 70 percent price crash. At that point Shiller’s research becomes GOOD news. If the CAPE is down to 8, opening the internet to honest posting would mean pushing it to 16.
I think my work has huge importance. I have been blessed to have fallen into it, I haven’t been blessed to have become the target of the biggest and longest-lasting smear campaign in the history of the internet. But I am blessed to be able to tell this amazing story. If you were not afraid that it is going to make me millions, you wouldn’t be showing up here every day. We all know where this is headed.
But we’ll see, you know? I think it will end up paying a lot of bills. But we will just have to wait a bit to find out for sure.
Rob
“ I think my work has huge importance.”
You are a legend in your own mind.
I have a chapter in my book titled “No One Can Tell the Full Truth About Stock Investing Today — Including Me.” The point is that we learn by talking things over with each other. And, when as a society we adopt a taboo against pointing out that there is 39 years of peer-reviewed research showing that there is precisely zero chance that a Buy-and-Hold strategy could ever work for a single long-term investor, we all stop learning. I don’t follow the taboo. But the taboo holds me back from learning too because I do not get the feedback both from people that agree with me and from people that disagree with me that I otherwise would get.
Someone who is a legend in his own mind is shutting out what the rest of the world has to say. I am doing the opposite of that. I am INSISTING on my right to hear what the rest of the world has to say. I sent e-mails to 30,000 academic researchers to find out their thoughts. I would not have done that if I wanted to preserve my image of myself as a legend. I wanted to see if any of those researchers could identify something that I overlooked. When I saw that none of them did so, that increased my confidence in what I am saying. If 30,000 researchers cannot find any flaws, maybe I really am on to something.
You Goons would never do something like that in a million years. You are not willing to follow the posting rules at any of the sites at which you participate for fear that someone who believes that Shiller’s Nobel-prize-winning research is legitimate research will ask you a question that you do not know how to answer. THAT’S being a legend in your own mind, living in isolation so that your view of yourself as infallible can never be challenged.
I invite challenges. I want them to be within the confine of U.S. law. They need to be if the discussions are going to be productive. But, if I were a legend in my own mind, the last thing in the world that I would want is for the entire internet to be opened to honest posting. If I were a legend in my own mind, the thought of that happening would scare me to death. Yet that is what I have been calling for since the morning of May 13, 2002, It is those who cannot bear to entertain questions from people with opposing views who are legends in their own minds. Not the one who is happy to take on all comers (so long as they remain within the limits of U.S. law).
My sincere take.
Rob
You spam people with your opinions. You are not seeking their opinions.
Investors care about results and your track record is one full of failures.
I’ve never spammed anyone in my life. Not one time. I put up a post on the morning of May 13, 2002, asking a question — Should we adjust for valuations when calculating the safe withdrawal rate? That post generated hundreds of positive responses. It also generated lots of hate. But even the hateful posts often contained questions worthy of a response. And I responded to those. Responding to questions is not spamming. It’s not hard to tell the difference.
I am interested in hearing other opinions. But the relentless repetition of marketing slogans gets a bit boring at some point. I have heard Buy-and-Holders say “timing doesn’t work” tens of thousands of times. Not once has one of them pointed to peer-reviewed research showing this to be so. I can’t help but wonder why. Wade Pfau spent 16 months searching the literature trying to find a single study casting doubt on the value of market timing. He never was able to come up with anything. So I will acknowledge wondering at this point whether the primary reason why Buy-and-Holders say “timing doesn’t work” is that that claim turns Buy-and-Hold into a Get Rich Quick approach and there is so much easy money to be made pushing Get Rich Quick investing strategies.
I have co-authored peer-reviewed research showing that Valuation-Informed Indexing has been delivering far higher returns than Buy-and-Hold at a fraction of the risk for as far back as we have records of stock prices. If that’s failure, I only pray that I can enjoy failure more often. The fact that you Goons threatened to get Wade fired from his job if he continued doing honest work in this field shows that you understand how persuasive that research would be for millions of investors if they were able to learn about it. Some of this investing stuff is so darn hard to figure out!
My best wishes.
Rob
Sending out 30,000 emails to people you don’t know is called spam. Filling up the comments section with your long winded posts with a ratio of 10:1 of your words vs someone else is spam.
There is zero evidence you are interested in someone else’s opinion, unless you think you can spin it in a way that supports your position.
Those 30,000 people are people who work in this field. The 18-year cover-up of the error in the Buy-and-Hold retirement studies is the biggest act of fraud ever seen in this field. I was letting those people know about something that they very much needed to know about and that they were unlikely to learn about from other sources (the penalties for posting honestly re these matters is severe). If someone contacted authorities prior to the 911 bombings, would that have been spam? I was performing a public service by sending those e-mails.
My posts are longer than the posts of most others. They need to be. The Great Buy-and-Hold Con has put millions of retirements at risk. It is an amazing story. If I am going to tell the story in a way that makes sense to people, I need to supply some background. Once the entire internet has been opened to discussion of this massive act of financial fraud, my posts will no longer need to be so long because everyone will be familiar with the background. It is the 39-year cover-up that has made these matters confusing and required long posts to put things in a proper context.
Every post that I have put forward shows my interest in other people’s opinions. I don’t speak to others in the manner in which you do, Anonymous. Not one time. Not ever. It doesn’t happen.
I am not interested in more fraud. That’s the rub. I said on the morning of May 13, 2002, that the retirement study posted at John Greaney’s web site lacks an adjustment for the valuation level that applies on the day that the retirement begins. It shouldn’t take 18 years to check out whether I was right about that or not.
It’s a big claim — that the entire investment advice field has become corrupted during the Buy-and-Hold Era. I had no idea what I was getting into on the morning of May 13, 2002. I bit off more than any human being on the planet could possibly chew in a short amount of time. But it’s important. People need honest and accurate numbers to plan their retirements. There’s no getting around it. I am sure.
My best wishes to you.
Rob