Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Will you have any emotions crash when you realize that you won’t get your fantasy of a $500 million windfall and that there won’t be any jury trials or goons going to your make believe prisons?
No.
I don’t need $500 million and I don’t need anyone to be in prison. So, if those things did not happen, that reality would not cause an emotional crash for me.
What I need is to post honestly. I didn’t feel totally good about myself in the days before I worked up the courage to post honestly re these matters. Now that I have done so, it would feel even worse to go back to not doing so. So, if I were ever to agree to hold back from posting honestly again, that would cause an emotional crash for me. That’s the one that I fear enough that I would never give even two seconds of consideration to going there.
The $500 million and the prison sentences are not in a direct sense a biggie for me. But they follow from the thing that is a biggie — me posting honestly re safe withdrawal rates and re scores of other critically important investment-related topics. For me to post honestly re these mattes, the internet needs to be opened to honest posting. If the internet is opened to honest posting, it follows logically that we are going to see prison sentences and $500 million payments. So I expect to see those things happen. But that’s different. That’s not the same thing as saying that I need to see those things happen or even that I want to see those things happen. I don’t like thinking about the prison sentences. If it takes prison sentences to get the internet opened to honest posting, I am certainly okay with prison sentences. But in other circumstances thinking of my old friends going to prison would make me very sad.
The way that this should have worked is that there should have been a national debate launched on the implications of Shiller’s research immediately after he published it in 1981. I of course wish that it had happened that way. But of course that has not been the reality. Now that there has been a 39-year cover-up, there are a lot of obstacles to getting things to a good place. It’s not just you Goons. There are thousands of smart and good people who are going to feel embarrassed to have millions of investors learn about the 39-year cover-up. If there were a way to teach millions of people what they need to know about stock investing without embarrassing those thousands of good and smart people, I would of course pursue that way. But it is just not possible. We need to go through the rough stuff to get to the good, life-affirming stuff.
And the rough stuff gets rougher the longer we avoid going through it. So I have always been in favor of making the transition as soon as possible. There is not one academic model for understanding how stock investing works. There are two. That has been true for 39 years now. Everyone needs to know that. We need to get past this thing where people act all surprised that market timing might be required. People can of course think what they like. But there shouldn’t be one person today saying that it is a sure thing that market timing doesn’t work. That claim has at least been under question for those who are familiar with the peer-reviewed research for 39 years now.
So — no emotions crash re the money or the prison sentences. But posting dishonestly (pretending that the safe withdrawal rate might always be the same number) is out of the question. I will never go back to that way of handling things. I cannot control what the rest of the world does. But I control what I do, And I can never go back to that cowardly and lazy and selfish way of handling things. I do not believe that the Greaney retirement study contains a valuation adjustment and I am going to continue to point that out to people at any site at which the study is promoted as a tool for planning retirements and at which I am permitted to post.
My best wishes.
Rob
Why haven’t things worked out the way you said they would? Why didn’t we see the big crash?
This is a big question. If Shiller’s Nobel-prize-winning research is legitimate research (I believe that it is), then this is a question that we should be examining at every investing site on the internet on a daily basis. If Shiller is right, then when stocks are priced as they are today, half of our portfolio value has no economic substance to it and is comprised of nothing more than irrational exuberance. The question of when prices will return to reasonable levels is huge. Knowing that tells us when hundreds of thousands of businesses will fail and when millions of retirements will fail and when we will see a spike in political frictions and on and on. So we all need to come to a better understanding of why the crash has been delayed (this is the longest time-period in U.S. history in which prices have remained at super high levels).
The key to understanding this is to avoid falling into the trap of seeking economic explanations of what has happened. That’s pre-Shiller thinking. What Shiller showed is that much of what happens in the stock market has no economic foundation — it is rooted in investor mood swings. So we need to focus on investor psychology. What is different about investor psychology today that we have been able to keep stock prices up at super high levels for longer than ever before? That is what you are asking.
A book could be written on this question. But I think that the basic thing that is going on is that people are scared. An irony of economic progress is that, the richer people are, the more vulnerable they are to setbacks. Lots of people are okay with how they are living today. But they feel that they are on the edge. They do not feel secure. So they cannot even imagine how it would feel to experience a loss of 50 percent of their life savings, which is what we would see if today’s irrational exuberance were to disappear, as it must if the market is to continue to function.
So they block the thought of those losses out of their mind. So long as people do not think about the losses, they cannot take steps to avoid them. So people are not lowering their stock allocations. Which is what we would need to see for prices to come down. We are scared and paralyzed. If we were to act in our own best interests, we would lower our stock allocations. Doing that would bring on the price crash that we fear. So we don’t act. We cross our fingers and hope for the best.
I don’t favor this approach. I believe that it would be better to face our problems frankly. Then we could manage a price drop and keep it from getting out of control. But I am not seeing any signs that we are going to manage things. We are going to put off the day of reckoning just as long as we can. Then when it comes, we will panic. Not ideal. But panic is a natural result when we set things up so that the huge price crash comes as a surprise.
Think about an alcoholic, Anonymous. Say that at age 30 all bis friends predict that his life will crash by ago 40. But it doesn’t happen. The guy is very talented and has a will of steel. He makes it to 54. He still is in great danger of seeing his life fall apart but it hasn’t happened yet. To what would you attribute the long delay in his coming to terms with his alcoholism? I would say it is fear. The longer his addiction remains in place, the harder it is for him to fix his marriage and his career and his friendships and his health and his financial affairs. It doesn’t get easier over time, it gets harder.
But of course sooner or later he has to set things right. While it becomes harder to face the addiction as time passes, it also becomes more imperative that the job be completed. We are deep into a price addiction today. It has gone on so long that it has become very, very hard even to think about what it would mean to permit prices to return to reasonable levels. But we know somewhere inside that we have no choice but to let this happen. But as of today, the thought is — put it off, put it off, put it off. It’s been like that for a long time now.
I hope that that helps at least a tiny bit.
Rob