Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
I will address issues one at a time
https://mpra.ub.uni-muenchen.de/29448/1/MPRA_paper_29448.pdf
I will use the page numbers at the bottom of each page of the document (the first page is unnumbered)
Figure II page 8 2nd line in table
Stocks return 8.60
Market Timing Return
historical median 8.80
historical mean 9.11
rolling mean 8.61
rolling median 8.59
Market timing based on the mean and median for the whole period showed out performance (9.11 and 8.80 versus 8.60), however the investor can’t know those averages ahead of time
The rolling mean and median are calculated using the figures that the investor would have known at the time. This shows no out performance (8.61 and 8.59 versus 8.60)
Conclusion, using valuation based market timing would not have outperformed the market using information available at the time of the investment decision. If you had a crystal ball and had been able to predict the averages ahead of time you could have out performed, however such a crystal ball does not exist.
My conclusion, this proves that VII (as defined in this paper) does not outperform the market.
Do you agree Rob? If not, why not?
Thanks for offering your thoughts, Evidence. I am going to post your analysis as a blog entry in the first available slot. That will be roughly two months out, I think that anyone considering going with a Valuation-Informed Indexing strategy should consider what you say before doing so. I don’t view your comments as unreasonable.
I have said thousands of times that I would like to see every discussion board and blog opened to honest posting re the last 42 years of research. That way, there will be lots of different thoughts offered on lots of different questions. It is by being exposed to all sorts of ways of looking at things that we all enjoy a powerful learning experience. We haven’t even begin the learning experience because we have not yet opened every site to honest posting re the research. That’s the critical first step. All of the good stuff happens after we make that huge leap forward.
We don’t have enough years of historical data to know precisely how things are going to go in any onw time-period. We have 150 years of data, which sounds like a lot. But it takes 40 years or so for a bull/bear cycle to play out. So we only have three fully completed cycles to look at. That’s not enough to achieve much precision. We know a lot. But we certainly don’t know all that we would like to know. Any claims advanced should be advanced with caveats attached to them, in my viee. We are still on a learning curve.
If Shiller’s Nobel-prize-winning research is legitimate research, it is a logical impossibility that market timing/price discipline would not work on a risk-adjusted basis. That’s my sstarting point. We know that irrational exuberance is a real thing. We know that it hurts investors. So we should all be working together to do battle with it. And the only tool we have to overcome irrational exuberance is market timing/price discipline. So I believe that we should all be making use of that tool. That said, I have zero problem with people saying that they only intend to make limited use of it. Those people may see something that I do not see. I feel that it would be foolish for me to try to silence them when they are sharing views that might end up helping me to become a more successful investor.
The only one that really bothers me is when someone says that he is so certain that the market timing should not ever be employed that he advocates silencing of all Valuation-Informed Indexers. That “idea” has been holding us all back for 21 years now, or for 42 years if you count back to when Shiller published his Nobel-prizr-winning research. I would permit each community member to post his or her sincere thoughts, without a single exception. I oppose the use of abusive posting or criminal acts to suppress honest discussion of this critically important topic.
That’s where I’m coming from re this one, Evidence. Please take good care.
Rob
You mentioned when I first posted this, that you would post it as a separate blog entry and that it would appear in a couple of months.
Sure enough it has arrived.
What has not arrived is any response from you to the points I made.
You complain relentlessly about being banned from various discussion boards but this illustrates that even if you were permitted to post on those other boards you have neither the ability nor willingness to actually engage on investing issues.
You claim shared ownership to the paper that Wade published but show no inclination to actually have a discussion about it.
As I mentioned, I intended to make more posts about the paper but I don’t see the point given your reluctance to discuss it.
My primary complaint is not that I have been banned from numerous discussion boards and blogs. I certainly don’t think that I should have been banned from a single board. But I don’t want to see anyone prohibited from posting honestly re the last 42 years of peer-reviewed research. We learn as a nation of people by having everyone contribute what he or she can. You add up all of the millions of contributions and you end up achieving some amazing advances. That’s what we have been missing out on for 42 years now. That’s what needs to change.
Wade should never have been threatened. I want to hear his sincere thoughts about all sorts of investment topics. If you were thinking clearly, you would too. Bernstein said that claims that 4 percent is always the safe withdrawal rate are wildly off the mark way back in 2002. I think we should have listened to him when he said that and intitiated a debate on the question at every site on the internet. I saw a potential breakthrough when John Bogle put up his post saying that he could see how there are some circumstances in which market timing could work. We should have used that as an opportinity to change the nature of these discussions. We should have put the intinidation stuff asiide and focused on learning as much as we can possibly learn. That would benefit each and every one of us.
That’s where I’m coming from re this one, Evidence.
Rob
In short, you just want everyone to agree with your opinion and if they don’t they need to keep their mouth shut. Got it.
I want every investor to hear both sides and decide for himself or herself whether or not to engage in market timing/price discipline when buying stocks. Saying that the market is efficient and that therefore mispricing is impossible and market timing is not required is obviously very different from saying that valuations affect long-term returns and that irrational exuberance is a real thing that eventually will cause an investor great pain if he fails to engage in market timing. We need to as a nation of people figure out which model for understanding stock investing is the right one. So we need to be talking this out on a daily basis on every site on the internet, without a single exception.
That’s where I’m coming from re this one, Anonymous. My best wishes to you.
Rob
We already figured out your timing scheme doesn’t work and we moved on. You can stay broke if you want, but the rest of us don’t like that option.
Okay, Anonymous.
I do wish you all the best that this life has to offer a person regardless of what investment strategy you elect to pursue, in any event.
Rob
“rolling mean 8.61
Stocks return 8.60
rolling median 8.59”
The figures in the paper show clearly that valuation based market timing does not increase the return to the investor.
Do you agree?
If not can you explain why you believe that it does increase return to the investor?
The entire paper shows that market timing increases the return to the investor (while also diminishing risk). That was the entire point of the project. Wade and I exchanged emails almost daily. He always expressed amazement that it was possible to increase return while also diminishing risk. According to the Buy-and-Hold Model, that shouldn’t be possible. He would ask hmself: “Am I missing something?” Then he would check the numbers once again and find that, yes, they said what they said.
This is the breakthrough. This is the Shiller revolution. This is the future of stock investing.
It shouldn’t be possible. But it IS the reality. The explanation is that, when you add market timing to the mix, you are providing the market a means by which to correct error. Any time irrational exuberance is created, the market has made a mistake. It has hurt itself. The best thing for investors would be to always price stocks properly. Market timing is the tool we have available to us to correct mistakes that we make. That market timing away and we all live poorer lives. To rule out market timing even when it is needed is to destroy wealth. Not a good thing.,
That’s where I am coming from re this one, Evidence. I wish you all good things.
Rob
“The entire paper shows that market timing increases the return to the investor (while also diminishing risk).”
Can you back up that statement with numbers?
I quoted numbers from that paper, can you do the same?
The paper is the paper, Evidence. I had been saying at the Bogleheads Forum that market timing is 100 percent required for every investor at all times and Wade found my arguments intirguing and he asked if I would be willing to work with him on research re the ideas. I said “sure” and he surveyed the entite literature and never found one iota of evidence that market timing is not always 100 percent required. So he declared that: “Yes, Virginia, Valuation-Informed Indexing [which is Buy-and-Hold with market timing added] works!” And then he wrote the words of the paper to give the details.
We should be discussing that paper at every site, without a single exception. We should have been doing that all along. There never should have been a single act of extortion directed at Wade. He helped us all in a big way by working with me on that piece of research.
That’s where I’m coming from.
Rob
“We should be discussing that paper at every site, without a single exception.”
I am attempting to discuss that paper right here.
You seem unwilling or unable to do so.
Okay.
I wish you all good things, old friend.
Rob
“ We should be discussing that paper at every site, without a single exception.”
Yet you won’t discuss it here on your website?
I’m so bad, Anonymous!
Why do I have to be so bad?
Rob
Try answering questions instead of being an ass.
Please take good care, old friend.
Rob