A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

Comments

  1. To understand the stock market and how it works, you have to oook at who really owns the stock. Read this:

    https://www.fool.com/research/how-many-americans-own-stock/

    The top 10% own about 90% of all stock and they continue to own a larger piece of the pie every year. The average family owns only $40k worth of stock. What we are seeing is the game of Monopoly has been playing out over the last several decades. The wealthy hold what they have and grab up even more during stock drops. They can do so, because they have liquidity during tough times. Plus, they have an income stream of interest and dividends, so they don’t need to sell stock to cover the bills. These wealthy own all these public companies while the bottom 90% are solely reliant on their income. The 90% basically work for the owners of all these companies (the top 10%) and basically give back all their wages to the owners when buying goods and services. The top 10% do not spend all their income. They just keep buying more stock (own more companies) regardless of price because it will just add more income in the end. They know during tough times that the bottom 10% can’t afford down markets and will sell their stock at bargain basement prices. Think again about Monopoly. If you already own 90% of the property on the board, does it matter if the remaining properties cost more? No, because you will still make even more money. In the end, you are either a customer or an owner. Which one do you want to be?

    Now, what does this mean for VII? The withdrawal rate means nothing to 90+% of Americans because their savings is inadequate. Some of these in the bottom think they can try and make up the gap with market timing. It doesn’t work. Just look at all the charts on the Motley Fool site. Who is winning and who is losing? The top 10% are winning. They just keep buying more, regardless.

    So, how do you win? Three ways. The first way is to be born into wealth. You merely live off the interest and dividends, yet continue to take a portion of that to buy more assets. This increases long term income. The second way is to start your own business. It is higher risk, but as the owner, you will make all the profits and can use those profits to create more income. The third way is to work extremely hard and have a substantial savings rate that allows you to quickly build your passive income. You find the fastest way to where your passive income exceeds your living expense and then use the excess income to buy assets, including stocks.

  2. If safe withdrawal rates don’t matter, why post studies purporting to reveal what they are? Why have discussion boards where people meet to discuss safe withdrawal rates? If peer-reviewed research doesn’t matter. why have peer-reviewed journals in which peer-reviewed research is published?

    I think it’s important to know how the stock market works. I think it is better to get the numbers right in safe withdrwal rate studies than to get the numbers wrong in safe withdrawal rate studies.

    I think it is weird that there are some people who are fine with the idea of getting the numbers wrong in safe withdrawal rate studies. I think that the explanation of that weirdness is that those people are emotional. Which of course is what Shiller says. The difference between Shiller and the Biuy-and-Holders is that Shiller says that investors are emotional and the Buy-and-Holdes say that they are 100 percent rational. The behavior that I have seen over the paat 20 years tells me that Shiller is on to something.

    What is he’s right? What if irrational exuberance is a real thing?

    Rob

  3. If you have a different opinion vs what is in the Motley fool article then post it. The numbers speak for themselves. The bottom 90% will blow through their savings regardless of their withdrawal rate. The money doesn’t just magically appear. Further, you will note that but and hold has worked for the top 10%. The chart shows that they not only hold what they gave, but keep buying. They don’t need or want to sell.

  4. Lots of people have to sell for the CAPE level to drop from 25 or higher (where it goes in bull markets) to 8 (where it goes in bear markets). And it always does. So lots of people always sell.

    We would all be better off if we just permitted honest posting re the last 41 years of peer-reviewed research. Then we could do away with most of the risk of stock investing. We would see price gains of 6.5 percent real because those are supported by increases in economic productivity. But we would not see the crazy ups and crazy downs that the relentless promotion of a pure Get Rich Quick/Buy-and-Hold strategy always brings on. We could all retire years earlier and we could all plan our financial affairs much more effectively.

    Please mark me down as being 100 percent IN FAVOR of permitting honest posting re the last 41 years of peer-reviewed research at every site.

    Rob

  5. “ Lots of people have to sell for the CAPE level to drop from 25 or higher (where it goes in bull markets) to 8 (where it goes in bear markets). And it always does. So lots of people always sell.”

    Lots of people have to sell assets, including stocks, when they have inadequate savings. Increases or decreases in stock price have nothing to do with having to sell.

    Now, back to the facts. 90% of people have very little to no wealth in stock. Stock increases and demand erases mean nothing because they have such small amounts. The top 10% own most of the stock and they just keep buying as we see how the continue to own more year after year. If you don’t agree with the Motley Fool charts, the show how they are wrong.

  6. People who follow a Get Rich Quick/Buy-and-Hold “strategy” always feel pressured to sell stocks sooner or later. The common-sense and research-based way to buy stocks is to maintain the same risk profile throughout your investment lifetime. A stock investor who determines that a 60 percent stock allocation is right for him when the CAPE is 17 is taking on far too much risk for someone with his risk profile if he continues with a 60 percent stock allocation when the CAPE level is 44. I mean, come on.

    That’s the problem with Get Rich Quick/Buy-and-Hold. It increases risk dramactically while also diminishing return dramatically. I believe that we should permit honest posting re rhe last 41 years of peer-reviewed research. Call me madcap.

    Rob

  8. Nothing in the article persuades me that John Greaney included an adjustment for the valuation level that applies on the day the retirement begins in the safe withdrawal rate study posted at his web site.

    Rob

  9. He didn’t include an adjustment, because he didn’t need to you. That doesn’t explain why you ignore the point of the article.

  10. Do you believe that Robert Shiller’s Nobel-prize-winning research showing that valuations affect long-term returns is legitimate research?

    Rob

  11. Shiller said that you should not use CAPE to time the market. I followed his advice and have over $6 million. How much do you have in your accounts today?

  12. Shiller obviously never said that. If you truly thought that he believed that, you would have no concern with inviting him to the Bogleheads Forum to ask him whether he believes that it is possible to calculate the safe withdrawal rate without taking valuations into consideration. It’s not an accident that you have in 20 years never done that. You have a pretty good idea what he would say. He would not have titled his book “Irrational Exuberance” if he did not believe in irrational exuberance and the only way to combat irrational exuberance is with market timing. So he would be going against his entire life’s work to say that market timing is not always required. And of course in 1996 he published an entire paper recommending market timing for people who had high stock allocations at the time.

    Shiller should be more aggressive in his advocacy of market timing. I certainly agree with that much. But the problem there is the intimidation tactics employed by the Buy-and-Holders trying to keep people in the dark re the message of the last 41 years of peer-reviewed research in this field. That’s why I am always saying that we need to open ever discussion board and blog to honest posting re the last 41 years of peer-reviewed research. It is by talking about this stuff that we learn about it and advance in our knowledge of how stock investing works in the real world.

    You never followed Shiller’s advice in any way. And you don’t have $6 million of real money in your account. You don’t subtract for the effect of irrational exuberance. So you don’t know what you have. I believe that the first thing that anyone who wants to become a successful stock investor needs to do is to know how much he has. You can’t even get to that step. Because acknowleding the effect of irrational exuberance would require you to set the Buy-and-Hold dogmas aside.

    If you had followed the published rules of the various sites and indeed the laws of the United States, I would have hundreds of millions in my account today because of the huge interest that people have shown in learning the realities of stock investing. If you think that it is somehow a good mark for Buy-and-Hold that you have been able to keep me from earning that money with your abusive behavior, all that I can say is that I strongly disagree. If Buy-and-Hold were a real thing, all Buy-and-Holders would welcome research-based challenges to their thinking. The insanely defensive reactions show that even people who follow Buy-and-Hold strategies have experienced doubts that they do not want to grapple with. I believe that, when you experience doubts re something as important as this, you need to grapple with them, not silence them.

    My best wishes to you.

    Rob

  13. “ Shiller obviously never said that.”

    Actually, he did and links were posted here. At that time, you said that he made those comments because he was afraid of the goons.

  14. He never said it the way you report him as saying it.

    He did make an offhand comment in an interview suggesting that he does have some doubts about market timing that he did not hold at an earlier time. We need to hear him speak about these matters at length so that we can gain a better fix on what he truly believes. Anything that anyone says based on a tiny number of words spoken in a single interview is largely speculative.

    It appeared to me that he was thinking about the advice that he gave in the wake of the 2008 crash not to get back in stocks until the CAPE value dropped below 10. Going strictly by the historical data, that was sensible advice. In every earlier secular bear market, the CAPE value had dropped to 8. So one could reasonably conclude that “it’s probably going to drop to 8 this time.” But there’s just not enough historical data to say something like that for sure. There was always a chance that we were not going to see a drop to 8 that time and indeed the lowsest that the CAPE ever fell in the wake of the 2008 crash was 13. I pointed that out in a RobCast that I recorded at the time. There was definitely good reason to believe that the CAPE might fall to 8 but there was definitely no cause for certainty that it would do so.

    We know some things about price movements and we don’s know some things about price movements. That Buy-and-Holders pretend that we don’t know anything, that market timing adds nothing to the picture. That is an extremely dangerous take. If stock investors don’t engage in market timing to pull prices down when they get out of control, the market is going to eventually crash them and bring on an economic crisis. So market timing is absolutely essential. But, no, we cannot be so precise about our predictions as to say “stay out of stocks until the CAPE is below 10.” that’s too strong a statement. Shiller recognized that and has pulled back from the position he took in the days following the 2008 crash.

    But he has never advanced a clear statement that market timing in general is not absolutely required. I don’t believe that he ever will. I believe that in the days following the next Buy-and-Hold Crisis, he will be much more forthright about his views re how investors should go about market timing for long-term investing success. It would not surprise me one bit if we see Shiller publish a sequel to “Irrational Exberance” in the days following the next Buy-and-Hold Crisis in which he explore the far-reaching how-to implications of his amazing research in considerable depth and detail.

    We’ll see.

    Rob

  16. I don’t object to you posting the link. What Shiller said is important. People should be discussing what he said from all sorts of angles at every site on the internet.

    Rob

  17. Remember this?

    https://arichlife.passionsaving.com/2019/10/09/if-large-numbers-of-investors-fail-to-practice-price-discipline-when-buying-stocks-the-market-eventually-crashes-because-there-is-no-other-way-to-get-prices-down-it-is-the-markets-core-function/

    Note the section where you said this:

    “ You are correct, though, that he made a statement more recently suggesting that he does not think that it is a good idea to use CAPE values to time the market. I don’t agree even a tiny bit re that one. I think he said it because he is embarrassed that his earlier predictions about where stock prices were headed did not play out well.”

    Yet above you claim Shiller never said this.

  18. There’s no inconsistency in the two statements. Shiller obviously believes that irrational exuberance is a real thing and he obviously believes that it is a bad thing. So he obviously believes that market timing is always required. Which is why he has advocated it in a very clear manner on several different occasions. When someone says that anyone who stiocks with their high stock allocation despite today’s crazy high prices is going to regret it within 10 years, that’s advocacy of market timing. I don’t know what could be more clear. Shiller is a market timer, as am I. I got there largely from reading Shiller.

    Now —

    Shiller does not directly advocate market timing in his book. That’s very strange. People read books on stock investing because they want to know what to know about the how-to stuff. Shiller should have addressed that stuff in great detail and he did not not. That’s where the Goon stuff comes in. People know how much the last 41 years of peer-reviewed research upsets the Buy-and-Holders. So they pull their punches. We see this all the time from lots and lots of different people. Valuation-Informed Indexing is a huge advance over Buy-and-Hold and people are reluctant to upset the Buy-and-Holders since they are in the majority.

    We need to hear Shiller explain where he comes down on all sorts of questions. I do think that he regrets what he said in the days following the 2008 crash, when he said not to get back into stocks until the CAPE value drops beloew 8. I think he would take that one back if he could. So, yes, his views have changed a bit. But it doesn’t follow that he does not favor market timing at all We need to know precisely how he would go about doing it. To find out, we need to ask him in an environment in which he feels free to speak his honest views without being attacked or intimidated.

    We need to hear that sort of thing from EVERYONE in this field. Bogle said that he could see how market timing could work in some circumstances. That statement was in total conflict with his earlier statement that he did not think that market timing could ever work. We can’t talk things over with Bogle today because he is no longer with us. But we can talk things over with lots of Buy-and-Holders who have doubts re the dogtmatic positions favored by you Goons. When we have people like Shiller and Bogle offering contrary positions on different occasions, we need to do some digging. We need to open every site to honest posting so that we can hear everyone give voice to their sincere views in a calm environment.

    That’s always the answers — open every site to honest posting. Zero intimidation from this point forward.

    My sincere take.

    Rob

  19. “ There’s no inconsistency in the two statements. ”

    Of course there is. Today you said that Shiller never said that, yet the link shows that you agreed that Shiller made the comment. Those two comments are the exact opposite.

    This yet another example as to why no one can have a normal conversation with you as well as why you get kicked off of boards.

  20. Do you think that Shiller believes that irrational exuberance is a thing, Anonymous? He wrote a book with those two words as the title.

    Do you think that he views irrational exuberance as a good thing or a bad thing?

    If bad, do you have any thoughts as to how he would propose that we rein it in when it threatens to get out of control?

    Rob