Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“Because, if someone says that one of the things that I say is right, they know that they will be led by logic to saying that all of the things that I say are right. “
And to the opposite, when we see you say several things that are clearly wrong, then we look at everything you say with suspect and doubt.
Of course.
But there has never been one time in 19 years in which you have shown that I got something wrong. The only point you make is “well, other people don’t say these things.” That’s so. But you never consider the insane level of hostility you show when people do say these things (and there have been many, many occasions in which they have). The hostility silences people. You were hostile from the moment that I pointed out that the Greaney retirement study lacks a valuation adjustment. Insanely hostile. And entirely without cause. I have been proven 100 percent correct in my claim that that Greaney retirement study lacks a valuation adjustment. But it has not been corrected to this day. And the hostility has continued. If anything, it has increased. So we don’t have people saying it all the time. People are afraid to do so. But on every occasion on which someone has calmly looked at the study to determine whether or not it contains a valuation adjustment, the person has discovered that I was right all along on a very important point.
There has never been any intellectual debate. Every piece of evidence that we have looked at has lent support to the claim that market timing is always required. But, no, you don’t often hear people say that. The problem is not that it is not true or that the truth is not a terribly important one. The problem is that we have thousands of people who have built careers around the idea that market timing is not required or might not even always work. So there is huge institutional pressure to keep Shiller’s Nobel-prize-winning findings covered up.
The other side of the story is that, if Shiller is right that more than half of the value of today’s market is just irrational exuberance with no lasting economic substance, we are as a society going to get killed in the next price crash. We are going to see millions of retirements fail and hundreds of thousands of businesses go under and millions of people thrown out of work and a big increase in political frictions. And all of this will have been 100 percent unavoidable. All that we needed to do was to apply the same laws that apply in every field of human endeavor other than the investment advice field in the investment advice field as well and none of this bad stuff would have taken place. Permitting honest posting re the last 40 years of peer-reviewed research in this field is good stuff piled on top of good stuff piles on top of good stuff.
The “idea” that there might be some mystical, magical alternate universe in which market timing (price discipline!) is not always required for all investors is the worst mistake ever made in the history of personal finance. The amazing thing is that even our Buy-and-Hold friends would very, very, very much like to be released from the trap in which they find themselves so that they could direct their human energies to doing good for people rather than destroying their lives. But how do we get there? Tell the truth today and you make the Buy-and-Holders feel very bad about the 40-year cover-up. The only way out of the trap is coming clean and the cover-up has already gone on so long that coming clean is going to hurt some people terribly.
My answer is to do everything we can to make the Buy-and-Holders feel better about the mistake they made by pointing out the dozens of powerful insights that that they developed and shared with us all while being 100 percent unwilling to continue engaging in criminal behavior to keep the cover-up going. It will be interesting to see how it all play put.
My best wishes to you.
Rob
I am at $6 million and you call it a mistake. Yet if I followed VII, I would probably be sitting on only $1 million. Gee, I hope I keep making these same dumb mistakes!
How much of the $6 million is real, lasting wealth and how much is irrational exuberance?
Every investor alive needs to know the answer to that question and we cannot as a society develop good answers to the question until we open every discussion board and blog on the internet to honest posting re the last 40 years of peer-reviewed research in this field. That’s the first step to achieving the biggest economic advance we have ever achieved in the history of personal finance.
You are free to make whatever mistakes you like with your own money. You are not free to engage in criminal behavior to block others who would like to learn about their mistakes and to correct them from doing so. What others do is not your call. Those others get to decide what they are going to do with their money.
My sincere take.
Rob
It is just simple math. Do you want $6 million or do you want $1 million. We are measuring outcomes.
The criminal behavior comments are just silly and farcical.
It’s simple math in which the most important part of the equation is being ignored by Buy-and-Holders.
Does 2 plus 3 plus 8 equal 5? It does if you ignore the most important factor in the calculation, as the Buy-and-Holders do.
If irrational exuberance exists, you need to consider it in all calculations If you consider it, you get a different answer than the Buy-and-Holders every time.
Simple math should be done honestly and accurately. Do it that way and the math helps you instead of hurting you. Get the calculations wrong and you turn math into a negative.
Rob
After 2 decades, we have LONG TERM results. The goal posts don’t keep changing. We have an outcome to look at. Simple math, Rob.
We don’t have two decades of records of stock returns. We have 15 decades of results (good records go back to 1970). During those 150 years, valuations have always affected long-term returns. Market timing has always been required for investors who want to keep their risk profile constant over time.
The last two decades are part of the longest and strongest bull market in history. We have never seen so much irrational exuberance. This is the time when we most need to be looking at the peer-reviewed research. And the Buy-and-Holders are 100 percent opposed to the idea. Gee, I wonder why. It’s because, when you account for irrational exuberance, you see that the bull market, which was caused by the promotion of Buy-and-Hold (price indifferent) strategies, has caused an ocean of human misery and is positioned to cause another ocean of human misery in the not-too-distant.
Please mark me down as being 100 percent opposed to the criminal stuff and 100 percent in favor of opening every discussion board and blog to honest posting re the last 40 years of research.
Rob
The buy and holder still comes out better with a stock market drop. Let’s say that the $1 million VII guy is following your advice and has only 30% in the market and the rest is in bonds, CDs, etc. Meanwhile, the buy and holder, who is now retiring, goes with the typical mix of 60% stock/40% Bonds/CDs/etc. The great crash comes and the market drops by 65%. The VII guy will now have $805,000 as his stock drops from $300K to $105K, while the rest of his portfolio remains the same. The Buy and Holder see his stock portion drop from $3,600,000 to $1,260,000 and his total portfolio balance is now $3,660,000 ($2.4 million in the bond/CD/Etc.) portion. The buy and holder can still rebalance a portion of his bond/Cd portfolio if he wishes and still have plenty of cash to pull from that portion, without touching the stock and he can ride our the market dip. Meanwhile, the VII guy has little upside in the stock market growth because he didn’t have as much to start with and cannot afford to divert much from his bond/CD portfolio to take advantage of a rise.
That comment has little bits of truth mixed in with big bunches of deception. If Buy-and-Hold were so great, there wouldn’t be one Buy-and-Holder arguing for continuation of the Ban on Honest Posting. If Buy-and-Hold were a real thing, the Buy-and-Holders would WANT honest posting because it would give them a chance to make their case.
It is a logical impossibility that irrational exuberance could ever be a good thing, Irrational exuberance makes it impossible for investors to know the true size of their portfolio. And that makes effective financial planning impossible. The only way to combat irrational exuberance is with market timing. So we should encourage all investors always to practice market timing (for the purpose of keeping their risk profile constant over time).
There are legitimate differences of opinion as to the degree to which investors should practice market timing. We do not know everything today. But there is no legitimate question over whether there are circumstances in which market timing is required. Even John Bogle acknowledged that it makes sense for investors to practice market timing six times in an investing lifetime, three times when prices are insanely high and three times when prices are insanely low. There shouldn’t be any controversy whatsoever re whether criminal acts should be employed to block millions of investors who have a desire to hear about what the peer-reviewed research says from doing so. I mean, come on.
Science!
Rob
It is all just simple math, Rob. Even if there is some big crash coming up, the math above still shows buy and hold has a better outcome.
It will not.
It is indeed a math exercise. We agree on that. But there are lots of different circumstances that apply. There are probably as many different sets of circumstances as there are investors.
One big thing is whether Buy-and-Holders will stick with their high stock allocations long enough for prices to rise again, Lots of them say that they will. But it is one thing to say that before you have experienced huge losses and something very, very different to do it after you have suffered losses. Taylor Larimore was asked prior to the 2008 crash if he would stick with his high stock allocation if there were a crash. He said that he absolutely would, that there was zero chance that he would even think of lowering his allocation. Then prices fell and he changed his mind. He said that he couldn’t afford to lose so much of the money that he was planning to retire on.
Millions of Buy-and-Holders sell heavily when prices crash.How do I know that? I know because prices fall so hard in the wake of crashes. Prices couldn’t fall that hard if everyone weren’t selling. We have gone to a CAPE of 8 in the days following earlier crashes. That is insane. It is irrational depression. The only people who could ever get that depressed about stocks are people who at earlier time swore that stocks are worth buying at any price. Emotional extremes beget emotional extremes.
You can’t do the math so long as you are so emotionally worked up, Anonymous. I have hopes that a number of us will be able to start having reasoned and civil discussions in the days following the next crash. Then we will all enjoy an amazing learning experience. I think it would be fair to say that that is not going to happen for you for so long as you are so emotional that you are engaging in criminal behavior. The behavior of you Goons illustrates Shiller’s key finding — stock investing is a highly emotional endeavor. If all investors were 100 percent rational, as the Buy-and-Holders assume, we never would have seen a single death threat.
Or so that Rob Bennett fellow sincerely believes, in any event.
My best wishes to you.
Rob
“ One big thing is whether Buy-and-Holders will stick with their high stock allocations long enough for prices to rise again, ”
That is definition of buy and hold. Otherwise, you are a market timer. The buy and holder already kept holding and buying during previous downturns.
The definition does not take the realities of human nature into account. We went to a CAPE of 8 at the end of every earlier bull/bear cycle. That means that the entire stock market was priced at one-half of its real value. That couldn’t happen if all the people who said that they believed in Buy-and-Hold strategies prior to the crashes held all their stocks.
Taylor Larimore wrote a book on Buy-and-Hold. If Taylor doesn’t have what it takes to stick with his stock allocation following a crash, no one does.
Buy-and-Hold would work if investors were 100 percent rational, as was believed to be the case at the time it was developed. They are not. Shiller’s Nobel-prize-winning research shows that.
Rob
A buy and holder does just that. A market timer does not. It is crystal clear.
Please provide the records showing what percentage of Buy-and-Holders stuck with their high stock allocation the last time the CAPE value dropped to 8. Common sense tells us that Valuation-Informed Indexers are far better positioned to stay the course since they are always careful to engage in whatever amount of market timing is required to keep their risk profile constant over time.
Rob
“Please provide the records showing what percentage of Buy-and-Holders stuck with their high stock allocation the last time the CAPE value dropped to 8.”
By definition, that would be 100%. Given the buy and holder started with $6 million, he has plenty in the bond/cd allocation that he doesn’t have to do anything with the stock, except for keep buying and making more money on the dips, just like he has for the last 2 decades.
Okay, Anonymous.
Rob