Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“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 research 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
There is nothing wrong with the statement by Evidence. Without stocks, you are not able to participate in the upsides of growth that beat inflation. Your own track record of failure is proof of that alone.
Evidence is saying that, since stocks were risky in the past, they will always be risky in the future. i strongly disagree. We learned something very important about stocks in 1981. We learned that irrational exuberance is a thing and that they key to successful long-term stock investing is to always, always, always practice valuation-based market timing and to always tune out the market pitch advanced by our Wall Street Con Men friends that there might be some alternate universe 50 billion light years away in which everything works the opposite of how it has always worked here on good old Planet Earth and valuation-based market timing (price discipline!) is not 100 percent required. Huh? What the f?
I think it will continue to be required. And I think that over time more and more of us will become aware of the importance of valuation-based market timing. The Bennett/Pfau research shows that we can reduce stock investing risk by nearly 70 percent just by being willing to practice price discipline when buying stocks. Stock investing risk is not a given. It was a product of our ignorance of how stock investing works in the days before Shiller published his Nobel-prize-winning research. Shiller’s research is an advance that makes all of our lives better. Good for us for being able to live in the better world that that advance makes possible.
I was a Buy-and-Holder once. The thing that drew me to it were the statements that Buy-and-Holders made that investors should look to the peer-reviewed research guidance for guidance on how to invest in stocks. I think that the Buy-and-Holders were right re that one. I only wish that they listened to their own advice!
Research is a plus. It is a plus because it teaches us things we didn’t know before the research was available to us. Shiller’s research was the biggest plus in the history of personal finance. It taught us the most important lesson about stock investing — that investors must never, ever forget to engage in valuation-based market timing. Once we get past you Goons, we all get to enjoy the far-reaching benefits of that advance from that day forward.
Research is good! Research works! Research is the future!
Stock investing risk is optional.
My sincere take.
Rob
There is always risk in everything. Stock, CDs, Bonds, Real Estate, precious metals, etc. That is how it goes.
No, Rob, you have not found any special magic or insight. If YOUR research was successful, then you would not be broke. We haven’t seen one single successful outcome with VII. You can slap as many labels as you want to try and package things up like some miracle cure, but it doesn’t make it so.
There’s more risk in drunk driving than there is in sober driving.
There’s more risk in Buy-and-Hold than there is in Valuation-Informed Indexing.
The thing that causes risk for stock investors is irrational exuberance. Failing to engage in valuation-based market timing permits irrational exuberance to get out of control. Engaging in valuation-based market timing reins in irrational exuberance.
Stock investing risk is not something that comes out of the sky randomly. We have control over it. It’s up to stock investors how risky stocks become for them. The peer-reviewed research tells us what is needed.
Rob