I’ve posted Entry #682 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The CAPE Value Translates Emotion Into a Number — That’s Huge!
Juicy Excerpt: Saying that “valuations matter” and not offering more specific guidance is like saying “drive safely.” Sure, you should drive safely. But there’s more value in advice to stay under the speed limit or not to drive when you are feeling sleepy or not to drive when you have been drinking or to be sure to check the air pressure in your tires from time to time.
“Stocks no longer need to be as risky as they have always been throughout history.”
Stocks will always be risky, it is the nature of the beast. Some people cannot stomach such risk and are best investing in other less risky securities. Of course those people will then miss out on the rewards that go along with the risk of stocks.
We disagree, Evidence.
The Bennett/Pfau ressearch shows that most of the risk of stock investing results from investors failing to act to rein in irrational exuberance (through market timing!). The reaons why research is so great is that it permits us all to live better lives. Being able to invest in stocks whle only taking on minimal risk is a huge advance from how things were in pre-Shiller days.
Of course we need to open every site to honest posting re the research to obtain these benefits! The words “I” and “Was” and “Wrong” can possess an almost magical power.
Rob
“Being able to invest in stocks whle only taking on minimal risk is a huge advance from how things were in pre-Shiller days.”
If that was true you wouldn’t have stayed at a 0% stock allocation for over 25 years.
Stocks are extremely risky today. The CAPE value is just a notch below the level that brought on the Great Depression.
But that is a 100 percent optional situation. We could open every site to honest posting. We could all work together as a nation of people to pull that CAPE value down to a reasonable level. Then we could all enjoy the benefits on investing in an asset class that offers high returns at minimal risk.
We’ve seen that there are millions of investors who want to learn how to invest in stocks in research-based ways and a good number of experts who would like to advance their own understanding and help all the rest of us to advance ours. So what the heck is holding us back?
It’s our fear of what you Goons will do to us if we “cross” you by posting honestly re the last 42 years of peer-reviewed research. I have been urging everyone within hearing distance to stand up to your Goons going back to the morning of May 13, 2002. If you Goons could think back to what your aims were when you were getting started in investing, back before you made it your life’s goal to make sure that no one every learned anything new about this important subject, you would be working with me, not against me.
That’s my sincere take, Evidence. Learning new things in the one true free lunch on thie troubled world of ours.
Rob
“Stocks are extremely risky today. The CAPE value is just a notch below the level that brought on the Great Depression.”
You want other people, who currently own stocks, to sell you stocks at a price much lower than the current market price.
Those other people feel no desire to sell those stocks to you.
No matter how many articles you write that is unlikely to change.
You don’t seem to realize that if your cheap non volatile stocks ever did appear, the market would react by pouncing on those amazing investments and hence driving the price up.
The world you want to exist simply can’t happen.
If it did happen, you would be outbid by other investors eager to snap up those amazing bargains.
We disagree.
It’s in the interest of every investor for stocks to be priced properly. Every investor would work to see that that happened if only he were properly informed. The only thing missing today is that we need to open every site to honest posting re the peer-reviewed research for us all to become properly informed.
There was a time when the Buy-and-Holders argued that investors should look to the peer-reviewed research for guidance on how to invest. I think they got it right the first time!
Rob
If you don’t like the price of sticks, don’t buy them. The rest of us will decide if we will pay the price. We don’t need your silly opinions. Your track record shows that people should ignore you.
You can only speak for yourself, Anonymous. Thousands of our fellow community members have expressed a desire to be able to hear what the research says and to decide for themselves how to invest their retirement money. Once a board tolerates abusive behavior aimed at supressing the discussion of the research, that board becomes a fraudulent entity.
That’s where I’m coming from re this thing.
Rob
“ Stocks are extremely risky today. ”
That’s the same thing you have been saying for the last 25 years. How did your predictions work out?
“ You can only speak for yourself, Anonymous. ”
No, that is how it goes for everyone. Each person decides what they want to buy at the price that is being offered. No one is forced to buy stock, like anything else.
Who made you the dictator to decide what constitutes peer reviewed research? Why does anyone have to believe your allegations when you lack any evidence of such?
That’sthe same thing you have been saying for the last 25 years. How did your predictions work out?
Saying that stocks are risky is not a prediction. It is a statement of current-day reality. The statements that I made were all based on the peer-reviewed research in this field. CAPE values have been high in recent years. I have been the one saying that we should do something about that. If we all pulled together, we could get that CAPE value down.
Have you helped?
Rob
Each person decides what they want to buy at the price that is being offered. No one is forced to buy stock, like anything else.
When someone purchases a pack of cigarettes, he is given a warning that there is research showing that smoking causes cancer. It should work the same way with retirement studies. If someone pushes a study saying that the safe withdrawal rate is the same number at all valuation levels, anyone hearing that message should be warned that there is 43 years of peer-reviewed research showing that valuations affect long-term returns. We should all be united in insisting that such warnings be given whenever anyone makes a false claim about safe withdrawal rates.
People use retirement studies to plan retirements. I’ve seen this happen.
Rob
“ The words “I” and “Was” and “Wrong” can possess an almost magical power.”
We are still waiting for you to say those words. Until then, expect to see the same horrible results.
Okay, Anonymous.
My best wishes to you.
Rob
There has to be seller for a buy and holder to keep buying stock. That means the stock market is actually controlled by market timers trying to get in and out. Any crisis, therefore, would be the fault of market timing.
I don’t agree even a tiny bit.
The cause of the crisis is that the demand for stocks is insufficiently flexible. The way that markets work is that demand for the item available for sale waxes and wanes in response to changes in the appeal of that item. We need the demand for stocks to be more flexible. Valuation-Informed Indexers are open to buying more stock or less stocks when the price changes. Buy-and-Holders are not. Their demand is inflexible.
That’s the problem. Prices go up and they don’t do anything about it. They just keep buying the same amount of stocks regardless of changes in price. Huh? The unwillingness of Buy-and-Holders to consider price when making purchases renders the market dysfunctional. There is no market that can continue to function properly once price discipline is taken out of the equation and that’s exactly what Buy-and-Holders do. They encourage investors to stick with the same stock allocation at all price points. That inevitably causes bull markets, which cause bear markets, which cause economic crises.
We all should be taking price into consideration when buying stocks. Buy-and-Hold is a price indifferent strategy. It defies common sense.
Rob
Someone has to be selling for someone else to buy. I guess you just think you have a better timing scheme vs the rest.
No one is forcing anyone else to buy stocks. If you think stocks (companies they represent) are too expensive for you, then don’t buy. Simple as that. If a buy and holder wants to keep buying, that is their right. Meanwhile , don’t expect the rest of us to sell us stocks to you at a cheap price just to make you happy.
What I have is a price discipline scheme. I am inn complete agreement with the Buy-and-Holders that it is not possible to identify when price shifts will take place. So there’s no dispute there. The problem is that the Buy-and-Holders, after making a highly convincing case that short-term timng never works, got sloppy in their thinking and their speaking and slipped into thinking that perhaps long-term timing is not always 100 percent necessary either.
That’s preposterous. Price discipline is the thing that makes all markets work. All that Shiller really did is to show that the stock market works in the same way that every other market that has ever existed. It’s a huge advance only because the Buy-and-Holders got it so wrong and because their upside-down approach fits in so perfectly with the human impulse to want something for nothing. Investors were failing to exercise privc discipline and we were experiencing out-of-control bull markets and out-of-control bear markets long before the Buy-and-Holders ever came on the scene. We want to believe that Get Rich Quick strategies can work. The Buy-and-Holders made Get Rich Quick stock investing respectable with their crazy claim that they have a funny feeling that there might be some secret peer-reviewed research somewhere that supports this nonsense approach. Um — sure there is.
I don’t want to force anyone to do anything. I want to inform people aboutb what the last 42 years of peer-reviewed research shows us about how stock investing works in the real world. So, when some con man comes along with a “study” showing that the safe withdrawal rate is the same number at all valuation levels, people can educate themselves as to the dangers of such a claim.
I believe in research-based strategies. Buy-and-Hold is not a research-based strategy. I believe that it was intended to be one. But, with a true research-based strategy, you have to make adjustments as new research is publshed. Shiller’s Nobel-prize-winning research brought about a huge advance in our understsanding of how stock investing works. That advance should have been incorpoated into the Buy-and-Hold Model. When you incorporate it, you get Valuation-Informed Indexing. VII is Buy-and-Hold with market timing added..
There’s not a switch that you can flip to have everyone drop Buy-and-Hold and adopt Valuation-Informed Indexing on the day that Buy-and-Hold is discredited by new research. People have to be educated as to what the new research says and then they need to ask questions about it and ponder the answers they hear and gradually become persuaded of the merit of the findings of the new research. That process should have begun in 1981. The abusive and in some cases crininal behavior of the Buy-and-Holders has been holding us all back for 43 years now. This is why I say all the time that we need to open every site to honest posting. That’s how we get the transition process started.
If Buy-and-Hold were a real thing, the Buy-and-Holders would be thrilled with the idea of discussing the new research. Their extreme defensiveness shows that they have doubts themselves about whether a pure Get Rich Quick approach can work out well in the lonf run. They want to believe in Buy-and-Hold. Their lives reputations and their fianncial futures are riding on it. But they possess no confidence that the strategy can survive informed debate. So they desperatel oppose the idea of opening even a single large site to honest discussion of the new research. Not good.
Rob