I have posted Entry #568 to my weekly Valuation-Informed Indexing column at the Value Walk site. It is called Why the Reluctance to Use CAPE to Manage Risk?
Juicy Excerpt: I have come over time to believe that the most effective way to challenge the emotionalism of investors is to challenge it head on. I like to make direct statements that market timing always works and that market timing is always required for those seeking to keep their risk profile constant over time. No, most investors don’t bite the first time they hear those sorts of words. But the thing that is going to change attitudes is the next price crash and all the pain that it will cause in the event that Shiller’s Nobel-prize-winning research turns out to be saying something useful and important. At that time investors will want to know what happened to the larger half of their retirement money and clear statements of the realities will be more persuasive than efforts to state things in gentle and indirect and less clear ways.
Flip this around. You have a group of people that built up a significant retirement nest egg well beyond you thought they would. Because of this, you have to ask yourself as to why you were wrong on your previous predictions.
Is this retirement nest egg composed of real economic gains or is it mostly irrational exuberance? That’s the question.
Say that we had a policy where the speed limit was personalized depending on how confident the drive was in his driving abilities. You would have drunks saying that it is “100 percent safe” for them to drive 90 miles per hour.
To escape the irrationality of an addiction, you need to have some objective criteria. That’s why we have people do peer-reviewed research. 100 percent of the peer-reviewed research we have in this field says that it is a bad idea to give in entirely to your Get Rich Quick/Buy-and-Hold urges. Gee, I wonder why. If there were some rational case to be made that it is not always necessary to practice long-term market timing, the Buy-and-Holders would have put it forward many years ago. In that scenario, we never would have seen a single death threat advanced.
My sincere take.
Rob
“Is this retirement nest egg composed of real economic gains or is it mostly irrational exuberance? That’s the question.”
No, the question has been already asked. Why did things turn out different than you predicted? You were wrong and now you have to ask yourself why.
I wasn’t wrong. You asked how I thought things might go and I answered based on how things had gone in the past, noting that short-term predictions often do not turn out. The current bull market is the longest that we have ever seen in the history of the United States. That’s the obvious reason why “predictions” (really just reports on what had happened in the past) did not work out.
It’s not as if longer bull markets are a good thing. Bull markets are wealth destroyed. Bull markets are built on irrational exuberance. The bull market is more irrational today than it has ever been in U.S. history. Is that something to celebrate? I see that as the best reason to permit honest posting re the last 40 years of peer-reviewed research. If we had been permitting honest posting since the afternoon of May 13, 2002, we wouldn’t have a CAPE value of 39 today and we would all be looking forward to far richer and more rewarding lives than what we can realistically expect to see given today’s CAPE value.
If you want to keep irrational exuberance (stock investing risk) under control, you have to encourage market timing. It’s the only way to keep things sane given the strong Get Rich Quick/Buy-and-Hold urge residing within all of us.
Again, that’s my sincere take.
Rob
“I wasn’t wrong. ”
Yes, you were wrong and still wrong. Those that followed your market timing have much smaller portfolios. You even admitted to having a depleted portfolio and that you would have to go back to work. Your portfolio balance is your score card. Your predictions were not short term predictions. You have predictions of this that are more than 10 years old.
We don’t agree. I would say that your scorecard is your nominal portfolio value adjusted for the effect of irrational exuberance. Calculating the numbers honestly and accurately yields very, very different answers. I always adjust for irrational exuberance. You never do. That’s the difference between Buy-and-Hold and Valuation-Informed Indexing. That’s the difference between going with a pure Get Rich Quick approach and permitting yourself to be influenced by the last 40 years of peer-reviewed research in this field.
Stay the Course! Get Rich Quick! Buy-and-Hold! Science!
Rob
“We don’t agree. I would say that your scorecard is your nominal portfolio value adjusted for the effect of irrational exuberance. ”
You mean like irrational exuberance over getting a $500 million windfall payment? I can spend my $6.5 million. Can you spend your $500 million? If you put 100 people in a room and asked them if they wanted my $6.5 million portfolio or your $500 million windfall expectation, do you think you would have even one person that would want your windfall plan?
Back when I hit $3 million, you told me that it would be cut in half. When I hit $4 million, you told me that it would be cut in half. Here I am at $6.5 million. Look at how much I would have lost out on by taking your advice.
You would have missed out on a lot of irrational exuberance. Irrational exuberance isn’t real, it’s a fantasy. You would have missed out on a fantasy. The benefit of the last 40 years of peer-reviewed research in this field is that it protects us from fantasies (if we permit ourselves to discuss it).
The $500 million is not a “windfall.” It is money that I have earned. I pointed out the error in the Buy-and-Hold retirement studies in my famous post to the Retire Early board from the morning of May 13, 2002. If we had done something about you Goons on the morning of May 13, 2002, as I proposed at the time, we would’t have a CAPE value of 39 today. I mean, please give me a freakin’ break. Every investor on the planet would benefit from us permitting honest posting re the last 40 years of peer-reviewed research and I first proposed that 19 years ago. If that ain’t worth $500 million, I have a hard time imagining what would be worth $500 million.
You are of course right that most people would choose the $6.5 million portfolio. Most people choose Buy-and-Hold today. That’s why we have a CAPE value of 39. How many people do you think will still choose Buy-and-Hold if the CAPE value drops to 8, as it has in the wake of earlier Buy-and-Hold Crises? How many do you think will choose the $6.5 million portfolio when it is only valued at $2 million or less. At that time. many will wish that they had those years back to do their retirement planning over, this time based on the last 40 years of peer-reviewed research.
You lose the fantasy stuff. Love it, love it, love it, love it. I get it. I don’t go for the fantasy stuff. It hurts people too much for my tastes. Today’s CAPE value is higher than the one that brought on the Great Depression. Watch “The Grapes of Wrath” if you want to get a sense of why I am dubious re the Ban on Honest Posting re the last 40 years of peer-reviewed research in this field. Not this boy, you know? Thanks but no thanks.
My best and warmest wishes to you and yours.
Rob
“If that ain’t worth $500 million, I have a hard time imagining what would be worth $500 million.”
My $6.5 million sitting my account today is fantasy, but your dream of getting $500 million is not?
You recently stated that you came to this number by saying your could sell $100 worth of material to 5 million people, yet you don’t have any material and no one has asked to buy anything from you. If you had anything of value, you could monetize it. How about this website? Website are sold every day. If what you say is true, you would have people offering you significant sums of money to buy what you have. How many offers have you received? I have a funny feeling you haven’t had any approaches.
Yes, your $6.5 million figure is a fantasy, You haven’t adjusted the number for the effect of irrational exuberance.
The behavior of you Goons over the past 19 years shows the value of my work. We have seen thousands of our fellow community members express a desire that honest posting be permitted. I have had numerous people praise my work in the most effusive terms imaginable, including a good number of the top experts in this field. If you Goons didn’t think that that was worth a whole big bunch more than $500 million, you never would have engaged in a single criminal acts. The criminal stuff is desperation stuff. Greaney doesn’t want to correct his study and you see now other way to keep the cover-up going than to engage in criminal behavior to scare people and shut them up. Not good, my dear Goon friends.
I naturally wish you all the best that this life has to offer a person, regardless of what investment strategy you elect to follow.
Rob
“Yes, your $6.5 million figure is a fantasy, You haven’t adjusted the number for the effect of irrational exuberance.”
I can spend my $6.5 million. You can’t spend even one dollar of your $500 million expected windfall. I think we know which one of us is irrational.
“I have had numerous people praise my work in the most effusive terms imaginable, including a good number of the top experts in this field.”
Where are they? There is not one single post in support of you here.
You won’t be able to spend the $6.5 million in the days following the next price crash.
If you were not worried that the thousands who have posted in support of me would not in time turn into tens of thousands and then hundreds of thousands, you never would have engaged in a single criminal act to suppress free and honest and open discussion. There’s no other possible explanation of your behavior.
Rob
“You won’t be able to spend the $6.5 million in the days following the next price crash.”
You said that when I was at $3 million and were wrong. Same at $4 million. Stocks go up and down, but have always gone on to new highs. Timings has never worked and it didn’t work for you. Instead, you make up stories about criminal acts because you don’t have any track record of success.
Long-term market timing has been working since the day the market opened for business. It always dramatically reduces risk while also dramatically increasing return. The peer-reviewed research that I co-authored with Wade Pfau shows that beyond any doubt whatsoever. Your response to Wade talking about our research at the Bogleheads Forum was to threaten to destroy his career if he continued doing honest work in this field.
Yes, extortion is a felony.
Rob
Why does your retirement plan hinge on the success of getting your $500 million windfall versus having a retirement portfolio built up by investing your nest egg utilizing your VII strategy?
There is no windfall. That’s absurd Goon talk.
The $500 million settlement payment is just how our system works. When someone commits crime in an effort to hold back someone else’s career, the person who is held back can sue for damages. Part of the process is that you have to show the damages suffered. The shift from Buy-and-Hold to Valuation-Informed Indexing is the biggest advance in the history of personal finance. It helps every investor on the planet to a huge extent. It would protect us from future economic crises. I obviously would have earned a whole big bunch more than $500 million had you Goons not engaged in criminal behavior to hold me back. I just put forward the $500 million number to indicate that I personally would be happy to settle for that amount. It’s an awfully big number. So I just don’t see a need to the fuss and bother of trying to seek more. I
If the lawyers want to make a case that I should go for more, I will let them have their say. But my personal view at this point in the proceedings is that it would make sense to settle for $500 million. That way, we can put all the ugliness behind us and work together to create a huge Learning Together experience for everyone. That’s where I am coming from re that one. I obviously expect to be compensated for the work that I have done. But my preference is to put all the ugliness behind us as soon as possible and move on to more fun stuff.
Does all of that not make perfect sense?
Rob
What crime? What business did you establish? What lawyers?
What valuation adjustment?
Rob
“What valuation adjustment?”
None, because it wasn’t needed. I guess that is the same answer to my questions.
And what if I think it is needed? Should I lie to appease you Goons?
Rob
You do whatever your want. The problem is you expect everyone else to fall in line with you. You have been told this thousands of times.
That’s my message to you. It doesn’t bother me if you follow a Buy-and-Hold strategy. It doesn’t bother me if you persuade lots of others to follow a Buy-and-Hold strategy. That’s all part of the wonderful game.
What bothers me is when you engage in criminal acts to pressure me into pretending that I believe that a Buy-and-Hold strategy can work. I do not believe that for two seconds. And I believe that all of us who believe that Shiller’s Nobel-prize-winning research is legitimate research should insist on our right to post honestly at every discussion board and blog on the internet.
That’s the only way that we are ever going to get the horrible mistake that the Buy-and-Holders made in the 1960s (the idea that the market is efficient and that therefore market timing is not required for every investor seeking to keep his risk profile constant over time) corrected.
We all make mistakes. Humans didn’t come to Planet Earth with an instruction manual for how to invest in stocks. The way that we learn about our mistakes and get the corrected over time is through honest discussion. So all of us who believe that Shiller’s Nobel-prize-winning research is legitimate research have an absolute responsibility to ourselves, to other investors and to the Buy-and-Holders most of all to insist that out right to post honestly be respected at every discussion board and blog on the internet, without a single exception.
So says Rob Bennett.
My best and warmest wishes to you.
Rob