Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
The Brad Pitt character had a job. Even he lost his job, he would then go get another job. His character was successful, you are not. You are nothing like his character. You don’t have one single thing in common with that character.
There were numerous references in the movie to how he was an idiot who was going to lose his job. It was an important theme. The guys who believed in the pre-research stuff hated him as much as you Goons hate me. Research was as much of a threat to them as it is to you.
I think that the research-based strategy will prevail in the end. But we’ll see, you know?
Rob
Rob,
Did you know that Robert Shiller does not agree with you? You keep saying we should look at stock price, like we look at buying groceries, etc. You say you have based your beliefs by what Robert Shiller says. Unfortunately, Robert Shiller says you are wrong. Note what he says in this article:
https://www.tker.co/p/robert-shiller-cape-ratio
Quoting Robert Shiller: “It has come down into the low 30s,” he said. “It kind of puts us where we were in other times in history that were relatively extreme.”
“But you know, the stock market has performed very well over the last 100 years,” he added. “I like to look at long-term time horizons. And so when it’s highly priced, it doesn’t necessarily make it a horrible investment.”
This totally blows apart your insinuations that Shiller believes in market timing. Of course you already knew that when he previously said that we shouldn’t time the market with CAPE. Not to mention, you went broke with your market timing scheme.
Uh, oh. There goes that $500 million windfall.
I agree with the words of Shiller that you quoted.
The CAPE level is very, very high today. Stocks are much more risky than they would be if they were priced reasonably. But that does not necessarily make stocks a horrible investment. We have seen times when stocksn were priced very high and then performed well for a number of years. That absolutely happens. The logical thing to do is to lower your stock allocation enough to keep your risk profile where you want it to be but to keep some money in stocks so that you will participate in any gains. My recommendation for the typical investor who goes with a 60 percent stock allocation when prices are reasonable is that he lower his stock allocation to 30 percent when the CAPE value is where it is today.
Rob
So all your posts about buying stock like you would buy bananas, eggs, cars, etc. were wrong.
No. All of those comments are correct. The price you pay for stocks has a HUGE effect on the returns they will provide you. Paying attention to price is the single most important thing that an investor needs to focus on. It is 70 percent of the stock investing game.
Rob
I just borrowed the second edition of “The Four Pillars of Investing” from our local library, I saw recently that he had published a revised version last year.
Some juicy excerpts
Chapter 19, A Final Word
“First and foremost, risk and return are joined at the hip.”
“…stock ownership sooner or later always serves up fearsome and unavoidable losses, and if you can’t handle them, then you should not own equities.”
“The promise of high returns with low risk is a reliable marker for fraud”
It would be worth your time to reread William Bernstein. If you don’t have a copy the Loudoun County Public Library does.
So, we should only buy half the banana. Got it.
I read the book. I read the entire thing two times and I read the chapter on valuations about six times. That chapter is covered in yellow highlighting in my copy of the book.
He does make statements like that in the book. Everything except the valuations chapter is pure Buy-and-Hold. It is my impression that Bernstein believes in Buy-and-Hold very strongly. The stuff in the chapter on valuations cannot be reconciled with the stuff in the other chapters of the book.
Bernstein says that the safe withdrawal rate at the top of the bubble was 2 percent. That’s not even close to the 4 percent number that Greaney and other Buy-and-Holders cite. At a time when the safe withdrawal rate has fallen to 2 percent, the value proposition for stocks has fallen hard. It’s common sense that investors should be putting a smaller portion of their portfolio in stocks at such times. If they stay at the same stock allocation, they are permitting their risk profile to go wildly off course. Investors who do that are not Staying the Course in a meaningful way.
The Bennett/Pfau research shows that the fearsome losses sometimes served up by stocks are NOT unavoidable. They are highly avoidable (not entirely so). Big losses that remain in place for a long time always arrive at times of high valuations, when risk is highest. Lower your stock allocation at such times and you reduce your risk dramatically. But you do not reduce returns! Our research shows that investors can reduce risk without reducing return. That’s huge. It’s not supposed to be possible, according to the Buy-and-Hold Model. But it is and all investors need to know about it.
This is yet another reason why we need to open every site to honest posting re the peer-reviewed research by the close of business tomorrow. I have said many times that we should all want to hear Shiller describe his views on market timing in great detail. We should also want to hear Bernstein’s views. He said both the things you quoted him as saying and all the amazing pro-Valuation-Informed Indexing stuff that is in the chapter on valuations. We would all learn if we dropped all the abusive stuff and invited him to the Bogleheads Forum and explored these matters in great depth with him. Every person on the planet would benefit.
People make mistakes, Evidence. I believe that the people who developed Buy-and-Hold were trying to do good. They were developing their model at a time when Shiller’s Nobel-prize-winning research had not yet been published. So they made a mistake. Now we need to get it corrected. People cannot even think straight when they do not feel safe saying what they believe because of the hostility they will face from some members of the Buy-and-Hold community (you Goons seem to make up about 10 percent of that community). We should drop all the abusive and criminal stuff and move forward together into the better world that Shiller’s amazing research made possible.
That’s where I’m coming from re this matter, in any event.
Rob
You should go with a lower stock allocation when risk is super high. You should aim to keep your risk profile constant over time. You should seek to Stay the Course in a meaningful way.
Rob
“The stuff in the chapter on valuations cannot be reconciled with the stuff in the other chapters of the book. ”
What you mean is that you can’t reconcile the stuff of valuations with the rest of the book.
The rest of us have been able to do so.
I definitely am not able to reconcile it, Evidence. I don’t believe that you are able to reconcile it either. I believe that you elect to ignore the contradictions because your desire to believe that market timing/price discipline is not required is so strong.
Rob