Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Taking 30 years to build up $6.3 million is a get rich quick scheme? Really?
It is.
Not entirely. Most of the wealth you have accumulated over that time is real. The U.S. economy is a highly productive economy. Buying stocks permits you to participate in this awesome wealth creation machine. So far, so good. All of that is wonderful.
But the part where you count irrational exuberance gains as real is not wonderful at all. That part is both self-destrucitve and destructive of our economic and political system when it is widely promoted as a research-based “strategy.” There is nothing “strategic” about counting irrational exuberance gains as real, thereby getting the numbers wildly wrong in safe withdrawal rate studies. The people who congregated at the Motley Fool board to learn about how to put together Retire Early plans had every right in the world to be able to talk about the 41 years of peer-reviewed research showing that it is impossible to calculate the safe withdrawal rate accurately without taking valuatiions into consideration. It is an obvious good to get the numbers right in retirement studies. There shouldn’t be any “controversy” over this.
So why is there?
The problem is that in the 1960s. when the Buy-and-Hold concept was being developed, Shiller had not yet published his Nobel-prize-winning research showing that market timing is always 100 percent required for every investor. The people developing Buy-and-Hold had to take a shot in the dark on some matters. There is solid research showing that short-term timing does not work. These people jumped to the hasty conclusion that, since short-term timing doesn’t work, maybe no form of timing is 100 percent required. So the genuine and helpful finding that short-term timing does not work became transformed into the loony tunes and harmful and 100 percent false claim that timing doesn’t. So, today, if people try to help investors out by telling them about the research showing how important it is to engage in long-term timing, Buy-and-Hold Goon Squads go into freak-out mode and threaten to murder their loved ones and destroy their careers and so forth because it makes the Buy-and-Holders look bad to show people that they are 41 years behind in their reading of the peer-reviewed research.
Otherwise kind and intelligent people have learned to keep it zipped re the collosal error made by the Buy-and-Holders. The result is that today’s CAPE value is 30. The fair-value CAPE value is 17. So every stock portfolio is today priced at nearly two times its fair value. People who think they have accumulated $1,000,000 in reality have accumulated only something more than $500,000. People who think that they have accumulated $200,000 have in reality only accumulated something more than $100,000, And so on and on. What do you think will happen when trillions of dollars of spending power disappears into the mist (irrational exuberance always disappears into the mist — there has never been one exception in the history of the U.S. market)? Those millions of people will cut back on spending. We will see millions of failed retirements. Hundreds of thoudsands of businesses going under. Millions of people thrown out of work. A dramatic increase in political frictions.
For what?
So that the Buy-and-Holders who made the colossal error back in the 1960s never have to learn how to pronounce those horrible (in their eyes — but in reality these words are tremendously empowering, they permit one to do better work in the future than one had ever been able to do in the past) word “I” and “Was” and “Wrong.” That’s. That’s the only possible “benefit” to anyone resulting from the internet-wide ban on honest posting re the last 41 years of peer-reviewed research in this field.
Irrational exuberance is the product of Get Rich Quick thinking. 100 percent. The U.S. economc system is a dynamo and stocks are an amazing asset class. But the relentless promotion of the pure Get Rich Quick/Buy-and-Hold “strategy” for investing in stocks is killing us as a nation. We should urge the Buy-and-Holders to acknowledge their colossal error and thereby to open up the possibility for thousands and thousands of good and intelligent people to make important contributions in this field. We would all benefit from those contributions. We would all live better lives as a result of them. There should be no “controversy” over whether ot not those people should be permitted to make them.
That’s my sincere take re these terribly important matters, in any event.
My best and warmest wishes to you, Anonymous.
Rob
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