Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
It really isn’t that hard to look up, Rob.
Try this:
https://www.macrotrends.net/countries/USA/united-states/consumer-spending
Notice how your comments about the 1970’s stagflation go out the window when you look at the bar chart.
Consumer spending generally goes up over time for the same reason that stock prices generally go up over time — the economy is growing over time. But the loss of trillions of dollars of irrational exuberance is obviously going to cause the growth in consumer spending to be less than what it would be if we permitted honest posting re the peer-reviewed research and both stock market prices and the economic system (of which the stock market is a part) were stabilzed.
Here is a graphic showing consumer spending over a long period of time:
https://fred.stlouisfed.org/series/DPCERE1Q156NBEA
There’s a drop in the 1960s and 1970s, when we were recovering from the high stock prices of the early 1960s. Look at the years after the early 1980s, when the bull market that we are currently in was beginning. Consumer spending is a rocket ship. When stock prices drop 70 percent (we usually drop to a CAPE of 8 when a bull market comes to an end), you are going to see that rocket ship reverse course. How could it be otherwise?
The question on the table is — Should we just accept the 6.5 percent annual gain that is the product of real economic growth? Or should we be pumping the market up for a time with the Get Rich Quick/Buy-and-Hold stuff, thereby bringing on economic crises that cause an ocean of human misery. I am fine with 6.5 percent annual gains without all of the human misery that we cause when we tell people that there is no need to practice market timing/price discipline when buying stocks.
Rob
The stock market is not the economy, moron. Stock is primarily held by the top 10%. With drops in the market, you are mostly impacting rich people.
The loss of trillions and trillions of spending power affects every business that exists within the economy. I agree that the stock market is only part of the economy, not the entire thing. But when trillions of dollars of irrational exuberance are created (through the relenstless promotion of the pure Get Rich Quick/Buy-and-Hold “strategy,” we insuren an economic collapse when it disappears, as it always does. We would be better of just pricing stocks at their fair value all along. But of course to do that, we would need to permit honest posting re the 42 years of peer-reviewed research showing why market timing/price discipline is every bit as important in the stock market as it is in every other market thst has ever existed.
That’s where I am coming from re this one in any event, Anonymous.
I naturally wish you all the best that this life has to offer a person.
Rob
No. Business spending power if based on their cash level, not their stock level. If Home Depot stock rises on Monday, how does that increase their spending power? It doesn’t. Stock price merely reflects what people think is the value of the company.
It is just like a house. If a house is worth more next week, how does that impact the spending power of the homeowner? It doesn’t.
If you have two people who have the same amount of wealth outdside of their houses and the first one has a house valued at $300,000 and the second one has a house valued at $100,000, the first one is going to feel more comfortable taking on an expense than the second one. He knows that he has that money there if he needs it. If the price of his house collapses, he is going to be more careful with his spending.
The stock price SHOULD reflect what people think is the value of the company. But please remember that there is a ban on honest posting re the last 42 years of peer-reviewed research at every large investment site on the internet. If we permitted people to learn about Shiller’s Nobel-prize-winning research, they would be far less likely to treat the irrational exuberance portion of their portfolio as real. People cannot arrive at the correct value if they are not permitted to learn what the peer-reviewed research says.
My best wishes, etc,
Rob
Read your other post again. You said loss of spending power. Spending power is based on what you have for cash. The rise or fall of a stock price does not impact the amount of spending power that a publicly held business has. Same goes with a house. If you decide to spend more just because you feel good, you are a financial moron. Basic financial math says to spend less than you earn.
The entire problem with Get Rich Quick/Buy-and-Hold is that it encourages people to spend more just because they feel good. Yes, it is moronic. That’s why the title of Shiller’s book is IRRATIONAL Exuberance. It would be better if we didn’t do moronic things. What do you propose, that we lower our stock allocation when there is so much irrational exuberance that the going-forward return drops dramatically? That would be the rational thing to do, yes. But do you not see that that would be market timing, that it would upset the Buy-and-Holders for people to do that?
The rational/non-moronic thing would be for investors to act in their self-interest and not count irrational exuberance gains as if they were real. Rob Arnott said that people who work in this field are afraid of “basic financial math.” Facing the basic financial math would require the experts to acknowledge the mistake they made back in the days before Shiller published his Nobel-prize-winning research. We didn’t always know everything that we know today. Moving forward requires that we acknoeldge the mistakes we made before the lasst 42 years of research was published.
I hope that that helps at least a small bit.
Rob
It and holders don’t spend more. They continue to save and buy more stock. Market timers are driven by emotions. Even you said you haven’t finished your book due to emotional issues.
It is irrational exuberance that is created by investor emotionalism. The purpose of market timing is to COUNTER investor emotionalism, to bring stock prices back to where they should be according to the economic realities. Without market timing, there is no way to rein in investor emotionalism (the desire to push stock prices higher than those justified by the economic realities). If investors were not emotional, there would be no need for market timing. The CAPE value would always remain somewhere in the neighborhood of 17.
Rob
True buy and holders are, by definition, not persuaded by emotions. Regardless of what is going on, they continue to buy and stock and hold it. Market timers are driven by fear ( strong emotion) to sell and then greed (a strong emotion) when they think they will get rich with a stock movement the other way. As said before, you have admitted to emotions keeping you from finishing a book and you are the leader of VII, a market timing scheme.
We do not agree, Anonymous.
But I naturally wish you the best of luck with whatever investment strategy you elect to follow in any event.
Rob
You don’t really disagree. You have a problem with buy and holders continually buying stock and holding onto it, regardless of price. That means they are not driven by emotion. You, on the other hand, have admitted to emotions impacting you.
If you disagree, you are just disagreeing with yourself on previous postings.
I strongly disagree with the “regardless of price” thing. The rest of Buy-and-Hold would work if they dropped that part. It is an INTENSELY emotional choice to ignore price when buying something. That is not a good idea in any market other than the stock market and the last 42 years of peer-reviewed research shows that it is not a good idea in the stock market either. It’s price indifference, plain and simple.
Rob
Again, you are proving just the opposite. Emotions are ignored. Buy and Hold is just doing the same thing over and over again without letting emotions get in the way. Emotions allow unfounded fear of a crash freeze you in your tracks and then you miss out. Look at what has happened to market timers in the last two decades. They have been left in the dust and can never recover (which is what has happened to you).
We disagree. I think that investors should always take price into consideration when setting their stock allocation.
It’s true that we have seen the longest stretch of high prices in the history of the market in recent years. You talk about that as if it is a good thing. I see it as a very bad thing. When prices are far removed from their fair-value levels, investors are not able to engage in effective financial planning because they do not know the true, lasting value of their portfolo. It would be better if we permitted honest posting re the last 42 years of peer-reviewed research at every site. Then investors could become better informed as to how stock investing works in the real world (price discipline is essential!) and could act effectively in their own self-interest.
My sincere take.
Rob
The problem for market timers like you is that you are broke. No matter what happens in the market, you can no longer change your situation. Given that the top 10% own most of the stock, the large majority are like you. They will be in the same situation regardless of what happens in the stock market and for the rest of their lives.
And yet the Bennett/Pfau research shows that strategies that call for market timing when prices get out of hand have provided FAR superior long-term results for as long as there has been a stock market. How odd!
The idea that price discipline is not required was a MISTAKE. Those who follow the peer-reviewed research have known it was a mistake for 42 years now. We should all move on. Short-term timing, which requires the investor to guess when price shifts will take place, really doesn’t work. We should continue to disccourage that. But long-term market timing is price discipline When price discipline is removed from the market, it becomes dysfunctional and we all suffer the effects of a Buy-and-Hold Crisis. I could live without another Buy-and-Hold Crisis. I believe that we should be encoraging the approach to market timing that always works at every internet site, without a single exception.
Rob
How come the Bennett research didn’t build up your $400K nest egg into millions instead of going to nothing? Did you ignore Greaney’s work and go with too high of a withdrawal rate or was it just poor returns?
I certainly didn’t follow the Greaney study, which is in error. It lacks an adjustment for the valuation level that applies on the day the retirement begins.
The only financial problem I have had has been as a result of the abusive behavior of those posting in “defense” of Lindaier and Greaney. If it has not been for that abusive behavior, Valuation-Informed Indexing would have replaced Buy-and-Hold as the dominant model for understanding stock investing many years ago and I would be a multi-millionaire. I can live with that. We need to as a nation of people work up the courage to stand up to those who engage in abusive posting to “defend” the claim of the Buy-and-Holders that market timing/price discipline is not required when buying stocks.
Even Evidence-Based Investing now acknowledges that the Greaney study lacks a valuation adjustment! Evidence is one of the generals in Greaney’s army of goons.
Rob
So if you kept working a job, followed buy and hold as well as Greaney’s work, you would have millions of dollars right now and would still be married. Yet you still prefer your current situation of being broke and divorced to that alternative? Why?
For one thing, I’ll have five-hundred times a million in hand once I receive my settlement.
For another, I will help millions and millions of people with my journalism work once every site has been opened to honest posting re the last 42 years of peer-reviewed research, as they should have been going back to 2002 (or, better yet, 1981).
Not exactly a close call, you know?
The divorce hurts. That’s been the most painful experience of my life. But I am confident that my ex would have made the same decisions had she seen all that I have seen. That hard thing for her is believing that was has happened is real. And of course that’s the difficulty for all of us. I had a hard time believing it was real in the early days. And every site owner who banned honest posting re the peer-reviewed research had to struggle with that question. Could it really be that honest posting re what the last 42 years of peer-reviewed research teaches us is banned at every site today? It’s super hard to accept that that is so.
But anyone who cares to know the realities can take a look at the Greaney study and check if it contains a valuation adjustment. We are where we are whether where we are is a hard-to-believe reality or not.
I do wish you all good things, in any event.
Rob