“The Question Should Be — Why Would Anyone Ever Want to Take Rationality OUT of Stock Investing? That’s the Crazy Thing. OF COURSE You Want to Practice Price Discipline When Buying Stocks. You Practice It When Buying Everything Else You Buy, Do You Not?”

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

“Say that there is a 1 in 100 chance that I was right in what I said in my famous post from the morning of May 13, 2002 — that the retirement study posted at John Greaney’s web site lacks an adjustment for the valuation level that applies on the day the retirement begins.”

I understand why you keep harping on about Greaney’s study not including a valuation adjustment.

Because it’s easy.

You always take the easy path.

The more difficult path is to try and explain why you think it should contain a valuation adjustment and persuade others that it should. You have failed miserably to do that and you have clearly given up even trying to

All of the wonderful fruits of the first 20 years of our discussions resulted from me working up the courage to put that amazing question on the table on the morning of May 13, 2002. I wouldn’t be 80 percent finished writing a book on how stock investing works in the real world if I had not asked that question. I wasn’t even terribly interested in the subject of stock invesitng at that time. I wouldn’t have produced the Bennett/Pfau research, research that I think can faily be described as the most important research published in this field in the last 30 years, had I not asked that question. I wouldn’t have the five unique calculators that exist at this site today had I not asked that question. As you pointed out just the other day, i knew that the Greaney study was wrong on the morning of May 13, 2002, but I didn’t know the accurate safe withdrsawal rate numbers at the time. Now we do. Because I asked that question.

What you are describing is the subject of investment analysis. Investment analysis is explaining to people why, despite that Get Rich Quick impulse that resides within them and tells them that it might not be necessary this one time for some magical, nystical reason, they always, always, always must practice market timing/price discipline. That’s the job. We will be talking about that until there are no more stock markets on the planet. That’s the entire deal.

The super short version is that we know that we must take valuxations into consideration because Shiller’s Nobel-prize-winning research shows us that we must. But Shiller’s research is really just the starting point. We are never going to complete all of the follow-up research that will continue to enhance our lives for many, many. many years to come, God willing. Market timing/price discipline brings rationality to stock investing. The question should be — why would anyone ever want to take rationality OUT of stock investing? That’s the crazy thing. OF COURSE you want to practice price discipline when buying stocks. You practice it when buying everything else you buy, do you not?

Shiller has described the intellectual leap from the finding that short-term price changes are unpredictable (University of Chicago Economics Professor Eugene Fama showed this in research published in the 1960s) to the Buy-and-Hold belief that the market sets prices properly as “one of the most remarkable errors in the history of economics.” Buy-and-Hold (at least the part about market timing not always being 100 percent required) was a MIsTAKE. The question you should be asking is why we would we not want to bring rationality to the stock investing project just as we bring it to every other human project? Because we live better lives when we bring rationality to the projects that appear before us.

There’s nothing easy or hard about it. It’s just something that you do when you are a human. You approach things rationally. The people who developed Buy-and-Hold made a mistake thinking that market timing might not be 100 percent requied (because of that awful Efficient Market thing, that some academics once believed in). Now it’s just a question of getting off the mistake track and getting on the rationality track, which is what works in every other field of human endeavor.

We all want the same thing. We all need to know how to invest in stocks effectively. There shouldn’t be any “controversy” over any of this. It’s natural that we all not take the same positions on every question. But there should not be any hostility. We should all want to learn as much as we possibly can as quickly as we possibly can.

Rob