Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
If your wife really believed your story, she would no have divorced you as she would have been convinced you had a big windfall coming.
I don’t think that she believes that I am going to receive a huge settlement payment.
That general way of thinking about things is widespread. I say that I am going to receive a settlement payment in the hundreds of millions. Wade Pfau believed in Valuation-Informed Indexing. He devoted 16 months of his life to researching my ideas in great depth and concluded that: “Yes, Virginia, Valuation-Informed Indexing works!” But, when you Goons threatened to destroy his career, he flipped. Why not just hang in there and obtain a huge settlement in the days following the next Buy-and-Hold Crisis?
It’s because our brains perceive what we can see as being what is real. Wade feels more comfortable receiving whatever salary he is being paid in the present to obtaining a $500 million settlement payment at some unknown time in the future. That’s how my ex felt about it. Full truth be told, that’s how pretty much everyone feels about it.
Buy-and-Hold says that the dollar amount of your portfolio value reported on your statement is your real portfolio value. That makes sense, doesn’t it? One of my favorite comments that you Goons ever advanced was when one of you asked “if you cash in your holdings, how much will they pay you?” The answer is they will pay you the full amount reported on your statement. You would think that the people at the mutual fund companies wouldn’t want to pay you more than your portfolio is really worth. But they do. They do it every day. Haven’t they read Shiller? If they have, it appears that they did not pay very close attention to what they were reading.
Shiller revolutionized the field. His findings change our understanding of how stock investing works in a fundamental way. It’s hard for most people to get their heads around how big an advance in our understanding we have achieved. The number on the portfolio statement is not accurate. That’s what this comes to. That number is not accurate and you cannot use that amount in your retirement planning. You have to adjust that amount for the effect of irrational exuberance.
Irrational exuberance gains are pretend gains. They are not real. They are not lasting, So you should not count them for retirement planning purposes. But they SEEM real. I’m not calling people dumb for falling for the irrational exuberance con. I fell for it. When I put forward my famous post of May 13, 2002, I was still a Buy-and-Holder. I didn’t believe in the 4 percent rule. But I still believed in Buy-and-Hold. It wasn’t until I saw 200 Buy-and-Holders endorse Greaney’s death threat that I saw that the whole thing is a crock. I didn’t fail to see it because I was dumb. I failed to see it because it is somewhat counter-intuitive to not count the number on the portfolio statement as real. You have to think about this stuff a bit before it all clicks.
This is why I say that we need to permit discussions of the last 41 years of research at every site. The more we talk about this stuff, the better we will come to understand it.
My ex believes that I am on to something important. She told me that. But she has experienced the same difficulties coming to a full understanding of all this as have lots of others. It’s a fact that lots of good and smart people do not fully understand it today. Today’s CAPE value tells us that. But they COULD understand it. They need to be able to enter discussions and ask questions and all that sort of thing. In time, it will all click. The advance from Buy-and-Holfd to Valuation-Informed Indexing is a huge advance, That’s why Shiller was awarded a Nobel prize for his amazing research.
Rob
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