Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
You said there are “thousands”. How would that be separated from the pack?
The first 21 years of our discussions show that about 10 percent of the population of U.S. stock investors believe that Robert Shiller’s Nobel-prize-winning research showing that valuations affect long-term returns (that the stock market is NOT efficient/rational) is legitimate research. That’s MILLIONS of people. But there are ten times as many people who believe that Buy-and-Hold is a legitimate strategy, that market timing/price discipline is not always 100 percent required for every investor (that the stock market IS efficient/rational). So the people who believe this are a small minority. They are not an insignificant minority. Millions of people are a lot of people. But the number is small enough today that the minority feels a need to zip it when it comes to discussions of whether or not market timing.price discipline is always 100 percent required for investors who want to keep their risk profile stable over time.
There are other issues where we permit people who hold beliefs held by only 10 percent of the population to express those beliefs openly. But the belief that market timing/price discipline is always 100 percent required for all stock investors is a belief that causes a particularly great amount of anguish among the majroity of people who hold the majority belief, that market timing is not required, that market timing doesn’t work, that the number on their portfolio statement provides an accuratre and real and lasting indication of the value of their stock holdings. People use their stock holdings to finance their future lives. It affects them in hundreds of ways, one of those ways being that it affects whether they have saved enough to retire or not.
So it is extremely upsetting to them to learn that there is 42 years of peer-reviewed research showing that the number on their portfolio statement (a number that according to current practice is NOT adjusted for the amount of irrational exuberance present in the stock price at the time that portfolio statement is developed) is wildly off the mark. So the 90 percent for 42 years has suppressed discussion of the far-reaching how-to implications of Shiller’s Nobel-prize-winning research findings. A social taboo has developed prohibiting discussions of these matters. I violated that social taboo when I questioned whether we should be considering the effect of valuations when calculating the safe withdrawal rate. Hence the many board bannings.
I believe that as a nation of people we need to do away with the taboo on honest discussion re these matters. Today’s CAPE value is 30. That’s scary. The stock market is priced today for an ocean of human misery to be delivered in the next year or two or three in the event that stocks continue to perform in the future somewhat as they have always performed in the past. Shiller’s research is powerful, amazing research. But it has not achieved results in the practical realm. If we took Shiller’s research seriously, we never again could as a nation of people permit the CAPE value to reach such a dangerous level. We have elected as a nation of people to ignore the last 42 years of peer-reviewed research and to continue to invest in ways that cause periodic (about once every 40 years) economic collapses.
I believe that we should as a nation of people give ourselves permission to openly discuss what the research shows us all about how stock investing works in the real world at every discusion board and blog on the internet, without a single exception. You Goons would prefer that Greaney not need to correct the error he made in his retirement study (it lacks an adjustment for the valuation level that applies on the day the retirement begins). Thus, you would like to see the taboo on honest discussion of Shiller’s research to continue and we are working at cross purposes. That’s the conflict. That’s been the conflict going back to the morning of May 13, 2002. You refuse to permit honest posting and I refuse to say that I believe that the Greaney study contains a valuation adjustment (and of course I believe that Shiller’s Nobel-prize-winning research contains a valuation adjustment).
Anyone who says that market timing/price discipline is required when buying stocks separates himself from the pack by doing so. I believe that, to advance in our understanding of how stock investing works beyond what it was in 1980, we need as a nation of people to overturn the taboo and give ourselves permission to explore the far-reaching implications of Shiller’s amazing research. I have separated myself from the pack. I have violated the taboo. Hence, all of the horrible consequences that have been visited on me, which you Goons make reference to and celebrate in nearly every post that you advance. I feel that to capitulate to your demands that I keep it zipped re the error in the Greaney study would just make matters worse. I feel that everyone, Buy-and-Holders and Valuation-Informed Indexers alike, should be posting honestly. So I have elected not to capitulate. I continue to post honestly and to say that I believe that the Greaney study LACKS a valuation adjustment, intimidation tactics be darned.
My best wishes to you.
Rob
“ The stock market is priced today for an ocean of human misery to be delivered in the next year or two or three in the event that stocks continue to perform in the future somewhat as they have always performed in the past.”
You have said the same thing for the last 20 years. Each prediction has failed. When you were pressed over 10 years ago for an actual date, you said that if the crash did not occur by 2015, VII should be questioned. Along the way, you keep telling us to “see how it all plays out”. We have waited for well over 2 decades. How long are we to wait?
I can’t answer the question with any precision. Half of today’s stock price is irrational exuberance. It will disappear in time if stocks continue to perform in the future somewhat as it has always performed in the past. But, given that we are talking about something that is by definition irrational, predictions rooted in rational considerations are not possible. Prices will drop when investors lose confidence in Get Rich Quich/Buy-and-Hold strategies. There was never any rational reason to believe in them in the first place. So who can say precisely when large numbers of people will lose confidence in them?
It’s healthy if Valuation-Informed Indexing is questioned. I sure would not want people accepting it on faith, Where we differ is that you say that people should not be permitted to hear about it. I say that people should be permitted to hear both the Get Rich Quick/Buy-and-Hold stuff and the research-based/Valuation-Informed Indexing stuff and decide for themselves. You don’t have a right to decide for anyone but you.
My best wishes, etc.
Rob
“ I can’t answer the question with any precision.”
And that is a big problem. That is a big part of why you are broke and your timing scheme failed. In fact, you said that the current market is not acting like you thought it would.
All evidence that I have seen indicates that short-term timing doesn’t work. I am 100 percent with the Buy-and-Holders re that one.
I don’t see it as a “problem.” I would describe it as a reality. Is it a “problem” that humans cannot flap their wings and fly? It’s just the way things are. It’s something that a person needs to accept.
Rob
You have stated that 10 years is long term. The last two decades have been miserable for market timers. Now look at current 60 year olds. If they had been using your timing scheme during their working years, they would not be in a position to retire, whereas the buy and holder would be doing great. Once again, there is the problem. These 60 year olds cannot just sit around “waiting to see how things play out”. It is now too late for them.
So long as the investor ends up ahead over the course of an investing lifetime, he is better off following a Valuation-Informed Indexing strategy. The Bennett/Pfau research shows that Valuation-Informed Indexers have been ending up ahead of Buy-and-Holders over the course of an investing lifetime for as long as there has been a market.
I think we should be permitting honest posting re the last 42 years of peer-reviewed research at every site, without a single exception. It is up to each individual investor whether to follow a research-based strategy or go pure Get Rich Quick/Buy-and-Hold.
My sincere take.
Rob
“ So long as the investor ends up ahead over the course of an investing lifetime, he is better off following a Valuation-Informed Indexing strategy. ”
You are at zero, I am at $7 million. We are both now at retirement age. Which strategy worked.
How much have you subtracted from the $7 million for the effect of irrational exuberance?
If you don’t feel that you can report accurate numbers, that tells me that I am doing very important work trying to get every site opened to honest posting re the peer-reviewed research and will likely be compensated for that work to the tune of many millions in the days and years following the onset of the next Buy-and-Hold Crisis. That would put my far, far ahead of your adjusted number.
The Get Rich Quick/Buy-and-Hold urge that resides within all of us is a terrible thing, Anonymous. I think it would be fair to think of it as the cancer of the personal finance world. There is nothing more important to us as a nation of people than working up the courage to face that urge and overcome it.
If you don’t subtract for irrational exuberance, you’re not even trying. You’re just ignoring 42 years of peer-reviewed research. Not this boy, you know?
My sincere take.
Rob
You said the same thing 5 year ago. You said the same thing 10 years ago. You said the same thing 15 years ago. You said the same thing 20 years ago. Look at what happened to my investment balance over that length of time (long term results). Based on history, my money will double again in the next 10 years.
How much will your $0 investment account be worth in 10 years? Didn’t we learn in math class that zero times any number is still zero.
Based on history, research-based will beat Get Rich Quick over the course of an investing lifetime. There has never been a single exception. The entire purpose of doing research is to develop an ability to see through the emotional stuff.
Irrational exuberance is all emotion, no economic substance. That’s why you can’t stand the thought of permitting honest posting re the research. Hearing what the research says causes you to question the value of irrational exuberance.
Rob
Based on history, Buy and Hold has always worked and market timing has always failed. There has never been a single exception. Broke people make up stories because of emotional issues. You even admitted to emotional issues being the cause of you not being able to finish a book. Irrational hocomania is all emotion and no economic substance. You can’t stand the thought on posting truthfully.
Okay, Anonymous.
I wish you all the best that this life has to offer a person regardless of what investment strategy you elect to follow, in any event.
Rob
Seriously, Rob. You are about 64 or 65 now, right? If you are lucky, you might be able to work another 5 or 6 years. With no recent work experience, it will be difficult to make more than $50-60K/year. That means you will be lucky to make another $250-300K and taxes will take 30% of that. Deduct living expenses and maybe you are left with $40-50K. That is being optimistic. So, for all the others like you out there, how can you still recommend that they just wait to see how things turn out?
Someone who follows a Valuation-Informed Indexing strategy determines what their stock allocation should be and then they just stick with that. They don’t permit irrational exuberance to push them off course. They Stay the Course in a meaningful way.
Irrational exuberance always subtracts. It never adds.
Rob
So someone in their 60’s with no retirement savings should just stay the course? Really?
We should open every discussion board and blog to honest posting re the last 42 years of peer-reviewed research. Really.
Rob
Let us know when you plan to finally be honest (truthful).
I’ll let you know if there are any big changes in my point of view. Anonymous..
I hope that you will do the same coming back the other way.
Please take good care.
Rob
Call me crazy, but I prefer to have large nest egg in my 60’s versus being broke.
You’re crazy, Anonymous!
Not because you want a large nest egg. Because you don’t make an adjustment for the effect of irratonal exuberance when calculating the size of that nest egg. It’s not possible to engage in effective financial planning if you do not know where you stand.
My best wishes, etc.
Rob
How much of an adjustment are you making to your $0 market timing portfolio?
$500 million plus.
Not for irrational exuberance. For crazy and out-of-control reactions to efforts to discuss the effects of irrational exuberabe.
I win!
Rob
So, in your mind, my $7 million is almost worthless and your $0 is worth $500 million. How much can I spend and how much can you spend?
I never got an important number wrong in a retirement study and did great harm to the lives of lots of my friends. So, yes, I am far ahead.
If I ever did get an important number wrong in a retirement study, I like to think that I would correct it within 24 hours of becoming aware of the error.
The fact that there are many Buy-and-Holders who are okay with Greaney not correcting his study tells us all something important about the Buy-and-Hold strategy. It doesn’t tell us anything good.
Rob