Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Those are the same comments you make, so you must be the goon.
I believe that all humans have goonishness within them, Anonymous. We all also possess the ability to employ reason to enrich our lives. Shiller’s amazing advance points us to the way to make stock investing a less goonish experience and a more reason-filled one. Which means that we all will get to live better lives once we make the transition from Buy-and-Hold to Valuation-Informed Indexing. We are today in the process of working up the courage to achieve that transition.
Wish us luck!
Rob
You and Shiller have such a great track record at predicting crashes. At least most people don’t know you, so you don’t have as much to be embarrassed about. Shiller, on the other hand, went on CNBC in both 2015 and 2018 predicting large stock drops and we all know how that worked out.
Short-term predictions of price crashes have an extremely poor track record. My view is that that one should be beyond dispute. The evidence for it is overwhelming.
That fact is 100 percent in tune with Shiller’s “revolutionary” research findings. The difference between Buy-and-Hold and Valuation-Informed Indexing is that the Buy-and-Holders believe that it is economic developments that cause price changes while Valuation-Informed Indexers believe that investor emotion often plays a very big role. So, when one tries to predict price changes, he is trying to predict shifts in investor emotion. How does one go about doing that? It’s impossible. That’s why short-term predictions have such a poor track record.
The reality is very, very different with long-term predictions. Long-term predictions based on valuation levels ALWAYS work. There has never yet been an exception in the entire history of the market. Why the huge difference? Because all that needs to be so for long-term predictions to work is that the market must eventually get prices right. Getting prices right is what markets do. If the market didn’t eventually get prices right, it would eventually become so dysfunctional that it would collapse. So long-term predictions are a lock, or at least as close to one as one will ever get in this world.
Short-term predictions have such a poor track record that we shouldn’t even make them. Long-term predictions never fail. Given those two realities, we should be educating investors as to what the last 40 years of peer-reviewed research adds to our understanding of how stock investing works. When most people come to possess a better understanding, we won’t be hearing short-term predictions any more because everyone will know that they are nonsense But everyone who works in this field will be making long-term predictions on a daily basis because there is no way to know where things stand if you fail to make long-term predictions.
Please note that Buy-and-Holders make short-term predictions ALL THE TIME. When a Buy-and-Holder says “the market went up such and such today,” he is in essence making a prediction that his portfolio will from this day forward possess more buying power than it did yesterday. If that price increase took place at a time of massive irrational exuberance, he is 100 percent wrong. Adding more irrational exuberance to a huge pool of it adds nothing meaningful. But I cannot count the number of times that one of you Goons have made these sorts of wrong predictions.
It is not possible to invest in stocks and not make predictions. We all need to know how much value our stock portfolio will possess in future days and in a world in which irrational exuberance is a reality (the world we live in!), it is not possible to do this without making predictions, The difference is that the Valuation-Informed Indexers do this in a reasonable way (taking irrational exuberance into account) and the Buy-and-Holders do not (ignoring irrational exuberance).
The problem that we have today is that the Buy-and-Holders have trained investors to focus on the short-term (by treating nominal gains as real) and so it is hard to get investors to accept that the short-term simply cannot be known in world in which most price changes are driven by emotion shifts (the world we live in!). As knowledge of the far-reaching implications of Shiller’s amazing research spreads, we will be seeing fewer pointless short-term predictions and many more powerfully helpful long-term predictions.
Rob
You have quoted 10 years as long term. Those predictions didn’t work either. Also, just look at the gains in the S&P since 2015 and 2018. That is a huge amount of money to leave on the table. With market timing, you are always forced into making a decision on your allocation.
Marketing timing always requires a short term view because you have to decide when to get in and when to get out of stock. Buy and Hold is always a long term view. Putting that aside, all we have to do is look at outcomes. Marketing timing has not worked. We have never seen even one successful case.
You have quoted 10 years as long term. Those predictions didn’t work either. Also, just look at the gains in the S&P since 2015 and 2018. That is a huge amount of money to leave on the table. With market timing, you are always forced into making a decision on your allocation.
Everyone who invests in stocks is always forced to make a decision on his allocation. Sticking with the same allocations as you had yesterday is a choice. The difference is that it is a dumb choice, The intelligent thing to do is to stick with the same risk profile at all times (to Stay the Course in a meaningful way). In a world in which valuations affect long-term returns, this requires market timing. You are free to elect to let your risk profile get wildly out of whack. But the price you pay is lower long-term returns obtained at far greater risk.
10 years is long-term. I believe that the 10-year predictions will all work. You have to account for irrational exuberance when doing your calculations. You are not doing that. The price drops did not take place within 10 years in recent times, that’s so. That’s because as a society we have been pushing Get Rich Quick/Buy-and-Hold harder than ever before (you see that with today’s CAPE level). Pushing Get Rich Quick/Buy-and-Hold harder than ever doesn’t make things better, it makes things worse. The more irrational we all become with our investing behavior, the less productivity our economy is able to generate, which leaves us all poorer.
The mistake that you make over and over and over again is to treat nominal gains as real. Not “earning” irrational exuberance is not leaving money on the table. Irrational exuberance is fantasy money. It has no lasting value. All it does is confuse you as to how much wealth you possess, which makes it impossible for you to engage in effective financial planning. We would all be better off in a world in which we all were able to engage in effective financial planning, a world in which honest posting re the last 40 years of peer-reviewed research was permitted at every discussion board and blog on the internet, without a single exception.
Rob
The buy and holder sets an allocation and merely rebalances. Buy and Holder doesn’t have to make the emotionally driven decision of getting in or out of stocks.
Marketing timing always requires a short term view because you have to decide when to get in and when to get out of stock. Buy and Hold is always a long term view. Putting that aside, all we have to do is look at outcomes. Marketing timing has not worked. We have never seen even one successful case.
Market timing has been working since the day the stock market opened for business. There has never been one unsuccessful case. The peer-reviewed research that I co-authored with Wade Pfau shows that beyond any doubt whatsoever.
Buy-and-Hold take an extreme short-term view. You count the nominal value of your stock portfolio as if it were real even at times when the CAPE value is 38. Huh? What the f? Do you think the numbers on your stock portfolio accurately reflect the long-term value of that portfolio? If you do, you don’t understand Shiller’s amazing, Nobel-prize-winning research findings.
Market timers don’t need to make any decisions as to when to increase or lower their stock allocations. The CAPE value tells them that. They change their stock allocation to keep their risk profile constant in a world in which the risk associated with stock ownership is ever-changing. Those who fail to engage in market timing are permitting big changes in their risk profile for no good reason whatsoever.
To say that, because short-term timing doesn’t work, market timing doesn’t work, is like saying that, because drunk driving doesn’t work, no one should ever get behind the wheel of a car. It’s a good thing that we are able to drive cars and it’s a good thing that market timing always works.
Rob
The buy and holder sets an allocation and merely rebalances. Buy and Holder doesn’t have to make the emotionally driven decision of getting in or out of stocks.
It’s an emotionally drive decision to permit your risk profile to get wildly out of whack when you could easily do something about it (lower your darn stock allocations!).
The entire appeal of Buy-and-Hold is the Get Rich Quick element of it. Not one person alive on Planet Earth thinks it is a good idea to fail to exercise price discipline in the purchases of anything other than stocks. When price discipline (market timing!) is taken out of the picture, investors come to feel that it is reasonable to treat the mountains of irrational exuberance in their portfolio as if it possessed lasting economic significance.
We all were born with a desire to get something for nothing, with a Get Rich Quick impulse. Buy-and-Hold plays to that impulse. Hard. Hey! Price discipline is not required. Market timing doesn’t work. Stay the Course. It’s science!
Rob
“10 years is long-term. I believe that the 10-year predictions will all work. ”
But it didn’t. Go back and look at your prediction in 2010 and then every year after that.
If you push the emotional stuff hard enough, you can keep prices high for a long time. But if you end up losing a high percentage of your life savings in an economic crisis, you would have been better off going with a research-based approach.
When you say “every year after that,” you are talking about years in which the CAPE was at insanely high levels. Did you subtract for irrational exuberance when coming to the conclusion that those predictions did not work? If not, why not?
To say that going with a purely emotional strategy is a good idea because stock investors are more emotional today than they have ever been before does not follow for me. I would like to see stock investors become LESS emotional, not more so. The emotional stuff we see today (a CAPE of 38!) scares me.
Rob
The Rob math is all made up. The scorecard is your portfolio statement and what you can spend.
The Rob math is all made up. The scorecard is your portfolio statement and what you can spend.
That’s our point of disagreement, Anonymous.
If the numbers on your portfolio statement were real, they would reflect the economic realities. If they reflected the economic realities, there would be no correlation between today’s valuation level and the stock return that applies over the next 10 years because prices would follow the path of a random walk. Shiller was awarded a Nobel prize for showing that there is a strong correlation. When the CAPE value is above 17, part of the stock price is the product of irrational exuberance and irrational exuberance has no lasting economic significance. For so long as the CAPE value exceeds 17, additional stock gains yield no additional buying power. They are an illusion, a phantom. Investors who treat gains backed only by irrational exuberance as something of real economic consequence are not able to plan their financial futures effectively.
That’s Valuation-Informed Indexing. That’s the concept. We don’t treat irrational exuberance as something real because Shiller showed that it is not real. Fantasy, emotion-based gains are not the same as real, economics-backed gains. Everything else (safe withdrawal rates, etc.) follows from that core research-backed insight.
My best wishes to you.
Rob
Can I spend the $6.5 million on my statements? Yes, I can. Can you spend even one dime of your $500 million fantasy? Of course not.
If both of us were faced with an emergency that required $1 million, which one of us could pay that bill? Easy answer.
Only in the short term. In the long term, I am far more likely to be able to spend the $500 million than you are to spend the $6.5 million.
If you cheated on your taxes to the tune of $1 million, you could say “oh, I am so smart, now I have $1 million more in spending power!” What good is that spending power when you are placed in a prison cell? I would rather earn the money legitimately. Then you don’t have to be looking over your shoulder wondering when the next price crash is going to take it away from you.
My sincere take.
Rob
You mentioned that your wife and priest think you should be getting a job. Do they also believe that you are getting the $500 million and that the so called “goons” are going to prison, or do they not believe that either?
I would say that they do not believe that I will receive a $500 million settlement. We never discussed that particular aspect of things directly. But their skeptical attitudes certainly suggest that they do not believe that there is a $500 million settlement coming. My priest once suggested that, if I thought that this work was going to bring in millions, I should go to a bank and see if the bank would be willing to lend me millions. I think that suggestion reveals where his head is at re this matter.
I’ve never spoken to them about the prison sentences. I brought that up to you Goons because I was friends with a good number of you in the days before I pointed out the error in the Greaney study and I would like to keep your prison sentences as limited as possible. So I felt obligated to point out to you the dangers that you were placing yourself in. I don’t think that average people care about that issue today. They will probably care about it after their retirement money is gone. That is what we saw in the Madoff case.
Rob
Your wife and priest sound like very reasonable and rational people. Why won’t you listen to them? Why won’t you listen to anyone? Haven’t you at least considered that you have it all wrong and that you are merely coming up with these stories as justification?
Neither one of them was able to point me to a section of the Greaney retirement study that contains a valuation adjustment. I am with Evidence. I don’t believe that there is one.
I understand why people have a hard time believing the story. This is by far the biggest case of financial fraud in the history of the United States. One of the most important purposes of my book is to explain how something like this could happen. In the event that stocks continue in the future to perform somewhat as they always have in the past, we are all going to have to come to terms with this in the days following the next price crash. I hope to be able to help in that regard.
If I got it all wrong, then why would someone like Evidence now be saying that I got it all right — that the Greaney study really does lack a valuation adjustment, just like I said in my famous post from the morning of May 13, 2002? If there is even a one-in-a-hundred chance that Shiller’s Nobel-prize-winning research is legitimate research, we should have begun talking about this stuff at every site going back to 1981. It is of critical importance that we all know how stock investing works. Each time one of us who believes that Shiller’s research is legitimate permits himself to be intimidated by you Goons, it sets back everyone else who wants to post honestly. Further intimidation is certainly not the answer. We need to take this in very different direction.
Rob
“ I would say that they do not believe that I will receive a $500 million settlement. We never discussed that particular aspect of things directly. But their skeptical attitudes certainly suggest that they do not believe that there is a $500 million settlement coming. My priest once suggested that, if I thought that this work was going to bring in millions, I should go to a bank and see if the bank would be willing to lend me millions. I think that suggestion reveals where his head is at re this matter.”
I am guessing that your wife and priest have continued to pressure you to get a job, but you really don’t want to do so. Instead, you have told them that you have to finish your book first. Oddly enough, the book has taken way longer than expected, so the job search has had repeated delays. Have I got that right?
You’ve got it essentially right. My oldest boy (Timothy) is probably the person who is most supportive of me. But even Timothy has lost patience with my failing to meet self-imposed deadlines for finishing the book. If this project is so important, then I should buckle down and finish it, you know? I get it. I see the logic. There’s no good reason that I can advance for why the book is not finished after all this time. I kick myself for it.
But….
I also forgive myself. The reason why I have not finished the book is the reason why millions of us have not acknowledged that the Greaney retirement study gets the numbers wildly wrong. On the surface, that doesn’t make any sense either. We all have to invest in stocks. We all should want the retirement studies that we use to get the numbers right. Why is there even one person (including Greaney himself) who is reluctant to acknowledge the error in the study (it lacks a valuation adjustment)?
That’s the problem that we need to solve to advance in our understanding of how stock investing works. The answer is that we all possess a Get Rich Quick impulse and tending to it is very important to us. Permit honest calculation of the numbers and Get Rich Quick strategies are no longer viable and the only money in our retirement accounts will be money that we have actually earned either through our labor or through true economic gains on our invested earnings. Yucko! Who wants that, you know? Can’t we just banish these people who try to report the retirement numbers accurately and honestly?
I told the truth re safe withdrawal rates on the morning of May 13, 2002. It took me three years to work up the courage. But that’s done. So you might think that my fear of doing that is in the past and I am free now to just move on into the future. To some extent, that’s so. I say that the Greaney study is in error all the time. So, yes, that one has gotten pretty easy. But there are lots of other related truths that I tell in the book. The purpose of the book is to explain how it is that as a society we have kept the error in the Greaney study covered up for 19 years now. One of the explanations is that we have as a society ignored the criminal acts that you Goons have engaged in for 10 years now. When I talk about that in the book, I am not just finding fault with Greaney and the members of his Goon Squad, I am finding fault with every member of our society, ever human on the face of Planet Earth really.
That’s hard. I am separating myself from all of my fellow humans when I do that. It needs to be done. It is important that as a society we advance in our understanding of how stock investing works. So this book very much needs to be written. But I am turning myself into a pariah by writing it. And on some layer of consciousness I am aware of that. A good writer works on his sentences until he gets them just right. That way they are more powerful. But the clearer I make my sentences,the more I turn myself into a pariah So there is a little voice in my head that says “don’t go there, don’t make the words more clear, leave it sort of weak, maybe people won’t hate you quite as much that way.” Being a good writer endangers me. So part of me resists doing the things I need to do to make this a good book.
That’s why it has taken so long. The intellectual work involved in writing the book is nothing special. If that’s all there was to writing this book, I would have completed it years ago. The struggle is an emotional one. Emotionally, this is a very, very, very, very difficult book to write. So don’t write it, right? Find another topic that is less emotional that you can get down on paper in a reasonable amount of time, write that book instead. You have a better chance of making money from your efforts if you write that book.
That’s what all others have elected to do. Shiller wrote an amazing book. He makes money. So one can write at least some important truths about stock investing and survive to tell the tale. Good for Shiller. But I think that all the truths that Shiller ducked (Shiller did not write about safe withdrawal rates, for example) need to be told as well. That is the project that I have taken on, to tell the truth that Shiller dared not touch, the IMPLICATIONS of Shiller’s amazing research findings. It is more emotionally difficult to tell the truths that Shiller dared not touch than to just repeat the ones that he advanced in his book.
It is telling the truths that Shiller dared not touch that makes my book valuable. So I absolutely must go there. That’s the entire point of the project. But it is very, very, very hard work to go there. Anyone who hasn’t tried to do it has no idea how hard. But that’s also the value of the project. Pull it off and you have changed the world for the better by climbing that mountain. It is my intent to climb that mountain. If it takes a long time, it takes a long time. It is what it is. But I believe that someone needs to climb that mountain for the good of our entire nation and it appears to me that the universe has elected me to be the person to do it.
A lot of things that Freud said were embarrassing to many people. He talked about family members having sublimated sexual desire for each other and all this sort of thing People don’t like to talk about that stuff. So a lot of people told him to just shut up. But he didn’t. And the reason why we all recognize his name today is because other people found value in what he said and built on his insights. I think it was good that Freud gave voice to truths that some people very much did not want to hear. Martin Luther King was killed because he told truths that some people very much did not want to hear. I admire him for what he did. The fact that what he did made him a social pariah in some circles does not cause me to dismiss him. All I look at is whether the difficult truths he advanced really were true or not.
It’s not wanting to be a social pariah that holds me back.It is my belief that we all need to know the accurate retirement planning numbers that pushes me forward. The conflict between those two goals causes me a lot of anguish. But I don’t stop. I do some work on the book every day. I’ll get there. The catch phrase that I have been using going back to the early days is: “I can do no more and I can do no less.”
I hope that helps a tiny bit.
Rob
“ You’ve got it essentially right. My oldest boy (Timothy) is probably the person who is most supportive of me. But even Timothy has lost patience with my failing to meet self-imposed deadlines for finishing the book. If this project is so important, then I should buckle down and finish it, you know? I get it. I see the logic. There’s no good reason that I can advance for why the book is not finished after all this time. I kick myself for it.”
Does Timothy have a job and/ or desire to work? Don’t you worry about the example you set?
A big factor in all my decisions is setting a good example for Timothy. Tim is in college. He works full time during the Summer and has a great work ethic. I have demonstrated to him not just through words but also through actions that a single person can do amazing things to make the world a better place if he works hard and ethically. I have accomplished 50 times more than the best that I thought was possible when I was a young man and I believe that Tim can do the same. American is a place of great opportunity. There are people who will try to hold you back but you need to just tune out the negativity and move forward one step at a time.
Rob
“ You’ve got it essentially right. My oldest boy (Timothy) is probably the person who is most supportive of me. But even Timothy has lost patience with my failing to meet self-imposed deadlines for finishing the book.”
So even your post supportive person doesn’t agree with you and says you should be getting a job. Keep in mind that a child never wants to go against a parent, yet your son doesn’t agree with you. Shouldn’t that be your wake up call. When you have lost your wife, your son and your priest……..you know you are wrong.
My son lives in the United States. So, if the United States goes down, my son and my son’s future family goes down with it. So I am going to continue fighting for the people of the United States, hoping that they prevail over you Goons.
We’ll see.
Rob
The United States is not going down. It has managed through every fiscal situation. The whole Buy and Hold conspiracy is all invented in your mind. Your family will only go down if you can’t pay the bills.
We have always managed to survive. But it was a close call on the four earlier occasions on which we permitted irrational exuberance to reach anything like the levels it is at today. Read about the Buy-and-Hold crisis of the early years of the 20th Century, which came within a whisker or putting us into a Great Depression. Or about the Buy-and-Hold Crisis of 1929, which really did put us into a Great Depression. Or about the Buy-and-Hold Crisis of the 1970s, which caused stagflation and causes a lot of political change by putting Reagan into the White House. Or about the Buy-and-Hold Crisis of 2008, which scared a lot of people and started a lot of the political unrest that we see today (both the Occupy Wall Street movement and the Tea Party movement had their origins in that Buy-and-Hold Crisis.
Today’s CAPE level (38) is a good bit higher than the one that launched the Great Depression (33). I certainly hope that we will survive the next Buy-and-Hold Crisis, as we survived the four earlier ones. But I believe that the prudent thing to do would be to pull together and do what we can to stop it from happening in the first place, given that we live in a time when Shiller’s “revolutionary” (his word) research findings are available to us to help us do just that.
You say that this is all invented in my mind. But of course there was a time when you said that my claim that the Greaney retirement study lacks a valuation adjustment was all invested in my mind too. And now we heard one of the generals in Greaney’ s Goon army saying that I was right all along, that there really is no valuation adjustment in the study, that “nobody” believes that there is one. So I am not so sure. I am going to continue to post honestly re safe withdrawal rates and re scores of other critically important investment-related topics and see how things play out in the days following the next price crash.
My best and warmest wishes to you and yours.
Rob
There was no buy and hold crisis and there is zero academic support for such a statement. You know you have lost when your own family and priest have to try and talk sense into you.
Okay, Anonymous.
I do wish you all the best that this life has to offer a person, regardless of what investment strategy you elect to follow.
Rob