Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
To have an credibility, your theory has to match up to outcomes. After 2 decades it has failed to do so. You try to package this up like it is in line with Shiller, but it is not. It is counter to what he has said. Why would anyone put their money behind your strategy?
The theory behind Valuation-Informed Indexing has been matching up to outcomes for 150 years now. The peer-reviewed research that I co-authored with Wade Pfau shows that beyond any reasonable doubt whatsoever. If you didn’t think that our research was of huge importance, you never would have engaged in a single criminal act to block people from learning about it.
Every word that I have ever said about stock investing is rooted in Shiller’s Nobel-prize-winning research finding that valuations affect long-term returns. If that is so, there is zero chance that the safe withdrawal rate is the same number at all valuation levels. It is a logical impossibility. If you thought that there was anything more than a 1 in 100 chance that you could get Shiller to say that he believes that the safe withdrawal rate is the same number at all valuation levels, you would accept my challenge to invite him to the Bogleheads Forum to discuss the matter.
If you want to know why hundreds of our fellow community members have said that my stuff is the best work that they have ever seen on stock investing, ask them. It’s up to each investor to decide how to invest his money, not to a gang of internet Goons to decide the matter for them.
You are right that we haven’t seen the price crash yet. That is certainly surprising. I have written several articles explaining the factors that may have caused the long delay. Jeremy Grantham has written similar articles. Again, it is up to each investor to decide whether he finds those articles convincing or not. Those who engage in criminal acts to block people from hearing both sides of the story are liable for damages in the event that stocks continue to perform in the future somewhat as they always have in the past and those investors suffer losses that could have been avoided had you Goons permitted honest posting re the last 40 years of peer-reviewed research in this field.
My best wishes to you.
Rob
How do you measure successful investing for retirement?
I agree with everything that the Buy-and-Holders say with the exception of their “idea” that there might be some alternate universe somewhere in which market timing (price discipline!) is not 100 percent required for every investor. Buy-and-Holders view the number on their portfolio statement indicating the size of their stock portfolio as being an accurate reflection of the real and lasting value of their holdings. I do not. I believe that the investor must account for the effect of irrational exuberance. I believed that permitting yourself to be fooled by the number on the portfolio statement is a dangerous mistake. I believe that Shiller’s Nobel-prize-winning research is legitimate research.
Rob
Wrong. Buy and holders know that in the long term their portfolio value will be even higher as time goes on, based on history. We know that no one has ever been successful with market timing, but if you hold for the long term, the market has always recovered and gone on to new highs.
It’s a logical impossibility that prices would not in time recover from any fall and go on to new highs. Stock prices ultimately reflect the economic realities. And the core economic reality in the United States is that the underlying companies have always been sufficiently profitable to generate an average annual return of 6.5 percent real. So prices are indeed always going to come back and then go on to new highs. We certainly agree on that much.
I do not believe that it follows even a tiny bit that it is a good idea for us to lie to people about how big their portfolios are and about what the safe withdrawal rate is and all that sort of thing. If investors were thinking clearly (that is, if they were informed of what the peer-reviewed research teaches us about these matters and gave that research enough consideration to take it to heart), they would price stocks to reflect that core reality that the average long-term return is 6.5 percent real. So, when prices went up by more than that, they would see that the going-forward return was likely to be lower than 6.5 percent real and would lower their stock allocation as needed to get their risk profile where they had determined it should be.
So long as most investors followed this practice, irrational exuberance could never get too far out of control. We would still get those great 6.5 percent real returns. But we wouldn’t see the ocean of human misery that inevitably follows every time our Wall Street Con Men friends are successful in persuading a large number of us that there might be some alternative universe where a pure Get Rich Quick/Buy-and-Hold “strategy” (no market timing now!) might work for one or two long-term investors. You wouldn’t see the millions of failed retirements or the hundreds of thousands of business failures or the millions of people thrown out of work or the increase in political frictions that are synonymous with the pure Get Rich Quick/Buy-and-Hold approach.
All of the nasty stuff is optional today (and has been since Shiller published his Nobel-prize-winning research in 1981). We can all elect to live better lives from this point forward by putting irrational exuberance behind us. Or we can continue down the path of turning a blind eye to the suffering of our fellow humans for the sake of turning a quick buck yet one more time (even though there are plenty of bucks to be turned advancing sensible, research-based strategies). You can probably tell which approach gets my vote.
Rob