A Rich Life

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

Valuation-Informed Indexing #618: The Day on Which Shiller Suggested That Market Timing Might Not Always Work

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I’ve posted #618 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Day on Which Shiller Suggested That Market Timing Might Not Always Work.

Juicy Excerpt: “It’s not a timing mechanism.” That’s a direct quote from the master. He’s saying that timing doesn’t work, is he not?

Comments

  3. Wade Pfau has never recommended Mamet timing to anyone. Read his books and website. You are broke and divorced. Learn from it.

  4. The entire paper, which has Wade’s name on it, makes the case for market timing. He never retracted that paper, even when he was threatened.

    In contrast, there is not one research paper showing that long-term timing does not work. Wade devoted 16 months of his life to trying to find one and never came up with anything. He said that he was amazed by this, he kept thinking that he must have been making some mistake. But that was the reality.

    100 percent of the evidence supports market timing. 0 percent supports Buy-and-Hold (price indifference). Hence, all of the crazy behavior on the part of the Buy-and-Holders. We need to open every discussion board and blog to honest posting.

    Rob

  5. “He never retracted that paper”

    He would if anyone ever asked him about it. In fact he’d be mortified, because its conclusion was disastrously wrong. At least he defined his market timing scheme (unlike you) and it would have had the investor in 0% stocks every year except one, going back over 30 years. Anyone following that scheme would have been irreparably crushed by buy-and-hold. Like you were.

    As with all market timing schemes, it fell apart almost to the day it got published.

    Why don’t you ask him for a follow-up? He was “extremely grateful” to you, so he owes you that much.

  6. I don’t believe that Wade would retract the paper. I think he is very, very proud of it. It could be that he would like to keep quiet about it until the days following the next Buy-and-Hold Crisis, when I believe that every site on the internet will be opened to honest posting. I believe that Wade and I will be working together again in those days. So we will do a follow-up then.

    The paper shows what the paper shows. It doesn’t make any claims about when the next Buy-and-Hold Crisis is going to take place. It shows that Valuation-Informed Indexing has been far superior to Buy-and-Hold for the entire history of the U.S. market. Do I believe that the stock market may continue to perform in the future somwhat as it has always performed in the past? I do indeed. But that’s opinion. That’s not in the paper. The paper presents the historical return data showing that Valuation-Informed Indexing has always far outperformed Buy-and-Hold. The historical record is not opinion. The historical record is fact.

    I believe that every investor on the planet needs to see and discuss that paper before investing one dime in stocks. I believe that it is the most important research done in this field since the 1980s. I believe that when all is said and done Wade may be awarded a Nobel prize for the work he did on that paper. I view it as the most important accomplishment of my life. No apologies whatsoever.

    It will be interesting to see how it all plays out.

    Rob

  7. I gave you simple objective facts about Wade’s paper. As usual, you replied with “I believe” over and over. What amazes me about you (and to be honest, an alarmingly large part of the US population today) is that they act according to their unfounded beliefs, and ignore objective facts. Going by your beliefs instead of facts has cost you so much. It’s no exaggeration to say it ruined your life.

    Now tell me again how Greaney’s 20 year old study was the worst thing that ever happened. Or so you believe.

  8. Now tell me again how Greaney’s 20 year old study was the worst thing that ever happened. Or so you believe.

    I believe that the posting of the Grreaney study was a positive. I’ve said that on numerous occasions. I gave the Greaney study a five-star review on Soapbox.com. There were many people at the Retire Early board who would have used withdrawal rates of higher than 4 percent had Greaney not posted his study. He helped move people’s thinking in the right direction.

    I also believe that he should have corrected the error in the study (it lacks a valuation adjustment) when it was pointed out to him. The cover-up of the error is in the process of causing an ocean of human misery. It is horrifying to think about what will happen to millions of middle-class investors during the next Buy-and-Hold Crisis in the event that stocks continue to perfrom in the future somewhat as they have always performed in the past. We have seen thousands of our fellow community members express a desire that honest posting be permitted at every site. I think they were right to do so.

    Rob

  9. Wade’s firm charges clients a percentage of their investment balance. If your market timing scheme worked, they would follow it because they would think that they could make more money. They see that timing hasn’t worked and that the last 2 decades have been a disaster for people like you. That’s why they don’t push VII. Results matter.

  10. Market timing has always worked. The Bennett/Pfau research shows that beyond any doubt whatsoever. It is absurd to think that there could ever come a time when market timing would not work. Market timing is price discipline. Price discipline is the magic that makes markets function properly. Take away market timing from the stock investing project and you are eventually going to see a price crash/economic crisis. It’s inevitable once you make the market dysfunctional/price indifferent.

    The issue is that market timing only works in the long run. Get Rich Quick/Buy-and-Hold strategies often provide good short-term results. After the next Buy-and-Hold Crisis, when every internet site has been opened to honest posting re the past 41 years of peer-reviewed research, I am confident that Wade will do right by his clients. Most people who work in this field long to be able to be helpful to their clients. Open every internet site to honest posting and they will be able to make money doing so. It’s a win/win/win/win/win.

    My sincere take.

    Rob

  11. As it stands today, no one in the investment community will talk to you, your savings are depleted and your wife divorced you. Despite all this, you somehow won’t admit you have been wrong. My question is this: what scenario would have to occur for you to finally admit you are wrong? Is there any scenario or will you just continue with the same response saying that you “ want to see how things turn out”?

  12. You cite the abusive stuff and its effects over and over and over again as if that supports the Buy-and-Hold case, I see it just the other way around. If Buy-and-Hold were a real thing, we never would have seen a single abusive post, much less any of the criminal stuff. If Buy-and-Hold were a real thing, Buy-and-Holders could be friends with Valuation-Informed Indexers.

    They could post at the same board communities without any friction evidencing itself. There would be disagreements. Disagreements are healthy. They generate learning experiences. But there would never be any abusive stuff. There would never be any board bannings. There would never be any depleted savings. There would never be any divorces. There would be people having fun together learning about an important subject.

    Point me to a site where Buy-and-Holders and Valuation-Informed Indexers post together on a daily basis in peace. I am not aware of any such site. If there is one, I want to go there and post there and enjoy the learning experiences that I would be able to enjoy there.

    I don’t trust anything that is said at a site at which people of all opinions do not feel free to post their honest views. There’s too much of a danger at such a place of groupthink setting in. That’s what I see going on at all of the big investing sites. Buy-and-Hold groupthink has taken over. The people who participate are smart enough. But they are only hearing one side of the story. So the same perspective gets reinforced over and over and over again. It’s not healthy.

    There’s nothing that could be said at that kind of site that could persuade me. I once was a Buy-and-Holder myself because I believed that Buy-and-Hold was science. When I saw the intimidation tactics tolerated at the Retire Early board after I pointed out the error in the Greaney retirement study, I knew that Buy-and-Hold was not real. It’s an emotion-based strategy. Investors create irrational exuberance by failing to practice market timing/price discipline and then they become defensive about the phony gains that they have created for themselves.

    Something has to break that cycle. The only thing that could break it is to permit honest posting re the peer-reviewed research. Permitting honest posting re the peer-reviewed research would keep people honest. It would be hard for them to let their emotions get too out of control because each time they crossed a line there would be people pointing out the dangers of doing that.

    That’s what I need to see. I doubt very much that everything that I have said is right. What are the chances of that given the number of things I have said? I want to learn where I have made mistakes and develop a better understanding. But I cannot trust things being said by people engaging in intimidation. The use of intimidation tactics tells me that those people do not have confidence themselves in what they are saying. People don’t engage in intimidation when they are confident of what they are saying.

    We need to normalize investing discussions. We need to apply the same laws that apply in every field other than the investing advice field in the investing advice field as well. There is no amount of intimidation that will persuade me. I need to see civil and reasoned discussion of the how-to implications of the last 41 years of peer-reviewed research in this field. The stuff that is your greatest fear is the stuff that I need to see to be persuaded that there’s merit in what you are saying.

    My best and warmest wishes to you.

    Rob

  13. “ You cite the abusive stuff and its effects over and over and over again as if that supports the Buy-and-Hold case, I see it just the other way around.”

    What abusive stuff? It is merely facts. You stated that you have depleted your savings. You stated that you are divorced.

    Like always, you want to blame everyone else and part of that is you making up things to support your position. Further, you also do this as a way of avoiding the question asked. Try again to answer the question.

  16. It’s an honest answer from the person to whom you directed the question. If you want to hear a different answer, direct the question to a different person.

    Rob

  18. It’s not quite true that I “wonder” about that. It’s not the norm. So it surprises me. And I certainly think about it often. But, if you take into consideration how humans behave in other areas of life endeavor, it is not all that terribly difficult to figure out what is going on.

    New ideas scare people. People get used to one way of living and they don’t like thinking that they are going to need to adjust to something different. Most of us can handle small changes. But big, fundamental changes can mess with our minds. Shiller’s Nobel-prize-winning research findings are the biggest advance in our understanding of how stock investing works ever achieved in the history of the planet. They are extrmely positive changes for all of us. But, for those of us who are emotionally invested in the old understanding (Buy-and-Hold), they represent a shocking change. They turn the world on its head.

    Many Buy-and-Holders react to the fear they feel when confronted with the possibility that they didn’t always know it all by trying to silence the voices speaking of the new findings. That’s not an acceptable response. Silencing discussion of the realities hurts everyone, including the people doing the silencing. So that’s not the answer. But it is not 100 percent beyond human understanding why Buy-and-Holders respond to Shiller’s research in the way they do.

    I like to put a positive spin on things. I think it would be fair to say that in the usual case the amount of resistance to a new idea is a signifier of the power of that idea. In this case, the resistance has been greater than anything that I have ever witnessed. To come up with a comparable, you would have to suggest something like the reaction we saw to the idea that all races should be treated equally in the eyes of the law. That one messed with people’s minds something terribly. That’s what we have here.

    People fight and fight and fight and fight. But, in the end, they are going to have to accept that the research says what the research says. You can’t have a society of people in which discussions of what 41 years of peer-reviewed research tells us all about stock investing is banned at every site on the internet. That’s not just a situation that has long-term viability. So we know that as a society, we will be moving forward in time, presumably in the days following the next Buy-and-Hold Crisis. Given that reality, the charitable thing to do is to do what you can to see that the transition is made as quickly as possible.

    The intense resistance to Shiller’s breakthrough research findings is an exceedingly strange thing. But it is also an exceedingtly human thing. Humans have a problem with change. And it is exceedingly positive thing. We will all live better lives when we are able to earn far higher returns on our stock investments while taking on only a fraction of the risk that we were required to take on in the pre-Shiller years.

    It’s a shame that we have caused ourselves so much pain with our insane resistance to hearing about the research. But the good news here is 20 times more good than the bad news here is bad. Humans are imperfect creatures. We get scared when something threatens to shake up our understanding of how the world operates, even when the change is a very, very positive change. But, after some struggle with a new idea, we usually eventually work up the courage to embrace a better future. I think that that is what will happen in this case as it has in so many others.

    Rob