Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“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
“Then we could all enjoy the benefits on investing in an asset class that offers high returns at minimal risk.”
I don’t think there is a better sentence that illustrates your lack of understanding of how stock investing works.
If there was an asset class that offers high returns at minimal risk then we would all try to buy it, driving up the price and therefore lowering returns.
You’re describing what we would all do if we were all 100 percent rational. We are not. That’s the entire point of Shiller’s Nobel-prize-winning research. Shiller DISCREDITED the Efficient Market Theory. Investors are humans. which means that they have an inclination to engage in highly emotional behavior at times. 70 percent of what it takes to be a successful long-term stock investor is reining in those emotional inclinations. That is done through valuation-based market timing.
The companies that make up the U.S. stock market produce profits. The investors who own the shares of those companies get to participate in those gains. Stocks are not inherently risky. The thing that has made them risky in the past is irrational exuberance. Investors start to think that valuation-based market timing might not always be 100 percent required and they bid prices up to crazy levels. Then there is a horrible price to pay. We see bull markets and price crashes and economic collapses every time the Buy-and-Hold “strategy” (no market timing now, no price discipline now) becomes possible.
It doesn’t have to be that way. We now have 43 years of peer-reviewed research showing how stock investing works in the real world. And we have seen in our discussions that many. many investors are interested in learning the realities. All that we need to do is to open every site to honest posting re the peer-reviewed research and from that point forward we all get to live better and fuller and richer and freer lives.
I vote “yes” to that. I am not able to imagine any possible downside.
Rob
I am describing what would happen if your high returns at minimal risk fairy tale ever happened.
You want high returns at minimal risk assets available to you but for no one else to notice, because as soon as it was noticed other people would outbid you.
You think that opening up other websites to your “information” would induce people to sell you high return low risk assets at a bargain price. It simply won’t happen.
It is simply impossible for all of us to load up on high return low risk assets.
You believe in the returns fairy, Bill Bernstein explains why you shouldn’t http://www.efficientfrontier.com/ef/403/fairy.htm
A return of 6.5 percent real is not a “high return.” That’s the return justified by the economic realities.
It is the Buy-and-Holders who are seeking returns higher than that. I am saying that everyone should be happy with the 6.5 percent real return. When you push prices up beyond that (by failing to engage in valuation-based market timing), you increase risk dramatically. Then you act like risk is just a normal part of stock investing.
It’s not normal at all. It came to appear normal in the years before we had access to Shiller’s Nobel-prize-winning research findings showing us how things work in the real world. But there’s nothing normal about failing to exercise price discipline when buying something. I every other market that exists, people know to do that. It’s only in the investment advice field that people came up with this loony-tunes idea that everything might work the opposite of how comTghmon sense says it must work and market timing/price discipline might not be 100 percent required for all investors.
There’s nothing wrong with a return of 6.5 percent real. That’s a great return. Those house of horrors that follows from pushing the return up above that just isn’t worth it.
My sincere take.
Rob
“A return of 6.5 percent real is not a “high return.” That’s the return justified by the economic realities.”
No it isn’t, real GDP growth has been just over 3% for most of the history of the US
http://www.efficientfrontier.com/ef/702/2percent.htm
The average long-term U.S. stock return is 6.5 percent real. That’s the return you get without permitting irrational exuberance to enter the picture. That’s the return you get without discouraging investors from engaging in valuation-based market timing/price discipline.
We would all be better off obtaining that return while taking on very little risk rather than experiencing the crazy ups and downs that we always see at times when pure Buy-and-Hold/Get Rich Quick strategies are heavily marketed.
My sincere take.
Rob
“The average long-term U.S. stock return is 6.5 percent real. That’s the return you get without permitting irrational exuberance to enter the picture. ”
So you are saying there has been no irrational exuberance during the time that stocked returned 6.5%
Historical stock returns are high because of risk
“We would all be better off obtaining that return while taking on very little risk”
You know that is impossible.
You currently own no stock but claim that you would invest if the price was right. I do own stock. Imagine prices fell enough to meet your criteria and volatility dropped to reduce risk.
Why would I sell such a bargain valuable asset to you?
So you are saying there has been no irrational exuberance during the time that stocked returned 6.5%
Historical stock returns are high because of risk
There has been lots of irrational exuberance. There have been times when returns were MUCH higher than 6.5 percent real. That’s why there’s been so much risk in the stock market. Prior to 1981, there was nothing we could do about it. Now there is. I say that we should permit honest posting re the peer-reviewed research and live better lives.
If it were risk that causes high returns, we should have expected the highest returns in history starting from January 2000, when risk was higher than it has ever been. But a regression analysis of the historical record showed that the most likely 10-year annualized return starting from 2000 was a negative number. That’s some reward for taking on an extraordinary amount of risk!
Risk is a BAD thing. We should be doing everything in our power to rein it in, not to encourage its growth. Of course, doing what is needed to diminish risk (encouraging valuation-based market timing/price discipline) would require our Wall Street Con Men friend to say those magic words “I” and “Was” and “Wrong.” I wonder if that will happen next week.
My best wishes.
Rob
You know that is impossible.
You currently own no stock but claim that you would invest if the price was right. I do own stock. Imagine prices fell enough to meet your criteria and volatility dropped to reduce risk.
Why would I sell such a bargain valuable asset to you?
You would sell for the same reason why Buy-and-Holders/Get Rich Quickers have been selling at bottoms ever since the first stock market opened for business. The drop in CAPE value from 34 to 8 would transform your irrational exuberance into an irrational depression. Extremes in one direction beget extremes in the opposite direction.
Valuation-Informed Indexer avoid both the emotional highs and the emotional lows. We just go with the research and somehow that always works out best in the long run. We Stay the Course in a meaningful way by keeping our risk profile (rather than our stock allocation) constant.
Rob
“The drop in CAPE value from 34 to 8 would transform your irrational exuberance into an irrational depression.”
So in this imaginary future where your insights have been posted on every investing site on the internet and a low risk high reward stock market exists, I will somehow be immune to all this and irrationally sell you the greatest investment of all time to you at a bargain price.
That is the sort of wishful thinking that got you in to your current predicament.
You’re immune to 43 years of peer-reviewed research today, Evidence. When a human feels an intense desire to be irrational, there’s nothing that anyone can do or say to stop him.
Once we opened every site to honest posting re the peer-reviewed research, the process would be started that eventually would win you and millions of others over. Once we all were okay with returns of 6.5 percent real and saw little appeal in creating mountains of irrational exuberance, the CAPE would stabilize at somewhere near 17 and we would all enjoy all of the genuine economic returns and none of the dangerous irrational exuberance (and thus little risk).\
The possibility has been there for all of us for 43 years now. All that we need to do to begin living better and richer and fuller and freer lives is to open every site to honest discussion of the last 43 years of peer-reviewed research in this field.
I vote “yes.”
Rob
Bottom line, Rob. How has all this worked out for you? How much of stock have you been able to buy? Over the last 20 years, has your return rate equaled or exceeded 6.5% real? No need to answer, we already know the answers to those questions and that is why we keep with what works: buy and hold.
It’s worked out amazingly well going back to the first day and for 22 years running with the one exception of the stuff brought to the table by you Goons. And all of the abusive stuff just proves Shiller’s point that investors are at times not 100 percent rational but highly emotional.
I believe that research-based strategies are the future. One thing that I very much like about the Buy-and-Holders is that they popularized the idea of going with research-based strategies. I think they were right the first time!
Rob
“that eventually would win you and millions of others over”
So I will act rationally and refuse to sell these amazing assets to you for fire sale prices.
Do you understand how that would work out for you trying to buy them?
I don’t want you to sell anything to me at fire sale prices. I think that the CAPE value should be 17. That’s a fair price, not a fire sale price.
Rob
“That’s a fair price, not a fire sale price. ”
If it is going to earn 6.5% real with no volatility then it certainly is a fire sale price.
In fact it is such a bargain that it would entice Rob Bennett, who has been out of stocks since the mid 90s, to buy.
You can consider it a fair price if you want, but you also need the seller to consider it a fair price for the sale to happen.
If that is all you are willing to offer then the sale will never happen.
You’re not appreciating the value of research, Evidence. Research teaches us things that we did not know so that we can live better lives. Shiller’s research teaches us A LOT. That’s why he was awarded a Nobel prize
Rob
So I guess every company, investor, etc now sets the same PE level for every stock in the world regardless of the future potential of that business. This must be the way since Rob Bennett, the supreme leader, has dictated this order to all. All you rich people out there need to sell all your shares immediately at half off, per the orders of Rob Bennett.
You’re not appreciating the nature of free markets. A sale requires a willing buyer and a willing seller. You may be willing to pay $17 for a dollar of earnings but if I am not willing to sell to you at that price the sale will not happen.
There is not a single thing in Shiller’s research that would suggest that I should make that sale.
So I guess every company, investor, etc now sets the same PE level for every stock in the world regardless of the future potential of that business. This must be the way since Rob Bennett, the supreme leader, has dictated this order to all. All you rich people out there need to sell all your shares immediately at half off, per the orders of Rob Bennett.
Valuation-Informed Indexing does not work for individual companies. A company could be priced high or low because of the circumstances in which it is operating.
Predictability only comes into play when you are looking at the entire market. Bernstein talks about this in his book.
Rob
You’re not appreciating the nature of free markets. A sale requires a willing buyer and a willing seller. You may be willing to pay $17 for a dollar of earnings but if I am not willing to sell to you at that price the sale will not happen.
There is not a single thing in Shiller’s research that would suggest that I should make that sale.
Today’s stock market is not a free market. Part of what makes a market free is that investors have easy access to the information they need to make intelligent choices. For so long as honest posting re the last 43 years of peer-reviewed research is banned at every site, investors do not have access to the information they need to invest pursuant to their self-interest. We have seen during the first 22 years of our discussions that many investors would like to see honest posting re the research permitted at every site.
You don’t need to have shares of stock sold to bring their price down. All that you need is for investors to place less value on them. Once investors understand that irrational exuberance gains are not real or lasting, they will place less value on all their shares. That will bring the price of all their shares down.
Prices are always going to return to fair-value levels if the information needed to set prices properly is available. We should all want our stocks to be priced properly. So we should all want to see honest posting re the research permitted at every site.
If the market were efficient. stocks would always be priced properly. Today’s CAPE value is 34. Please explain.
Rob
“You don’t need to have shares of stock sold to bring their price down.”
Another sign you don’t know how the stock market works. The price is determined by sales.
“If the market were efficient. stocks would always be priced properly. Today’s CAPE value is 34. Please explain.”
Prices are determined by the price that results in a willing buyer and seller.
The “proper” price for a stock is the price that will result in a sale. The fact that the price is more than you are willing to pay just means that you won’t be able to buy stock.
It’s demand that sets the price. When demand diminishes, the price that will be paid in the next sale diminishes.
It is true that in theory the proper price should be the price that results in a sale. But for so long as there is a ban on honest posting re the peer-reviewed research, investors cannot set the price properly. The price that would result in a sale would obviously be very different in a world in which investors could become informed re what the research says. You couldn’t have irrational Exuberance if investors could become informed of how to invest in their self-interest.
Shiller told a story in his book in which, prior to a television interview, the woman reporter warned him to be careful what he said because his comments could cause prices to fall. If investors were properly informed, nothing Shiller could say would shock them and cause a price crash. They don’t warn Buy-and-Holders to be careful what they say lest they cause the creation of more irrational exuberance. In a free market, investors would be able to hear both the case for creating more irrational Exuberance and the case for setting stock prices are fair-value levels.
Rob
“But for so long as there is a ban on honest posting re the peer-reviewed research, investors cannot set the price properly. ”
There is no ban on honest posting, a quick google search finds many articles and discussions about Shiller’s CAPE
https://www.google.com/search?q=shiller+cape
The following are a selection
Reddit https://www.reddit.com/search/?q=shiller%20cape
Forbes https://www.forbes.com/advisor/investing/shiller-pe-ratio/
FT https://www.ft.com/content/65c8076b-19a2-4f23-a88e-e89c2edcc859
LinkedIn https://www.linkedin.com/pulse/us-market-shillercape-ratio-update-its-flashing-what-owen-cfa-/
Bogleheads 🙂 https://www.bogleheads.org/forum/viewtopic.php?t=315911
and endless others of varying degrees of worth
In terms of a ban what we have is you being banned from some sites because of your behavior at multiple sites.
You could still participate at Reddit if you wanted to.
But you won’t. Your choice, not anyone elses.
Has the error in the Greaney retirement study been corrected? It lacks a valuation adjustment. I pointed out the error in a May 13, 2002, post to a Motley Fool discussion board.
If we can’t get an error in a retirement study corrected in 22 years, then what the heck good does it do us to have any of these investing sites? People invest in stocks to finance their retirements. If we can’t get the numbers in retirement studies right, we are in a pretty bad state.
People MENTION CAPE. Do they do anything with it? Do they put it to use?
Do you see efforts to pull people together to bring the CAPE value down? We pull together to reduce carbon emissions, do we not? I think it would be fair to say that high CAPE values have caused an awful lot of human misery over the years. How many effort have you seen lately to get the CAPE value down? I am not aware of any.
One of you Goons recently linked to an article in which there was a boast being made about a price increase in the headline. “It was a good day for investors” or something along those lines. Really? We are already at an insane level of overvaluation and we are celebrating even higher prices?
Not this boy, you know? I’ll be more impressed by your articles mentioning the CAPE concept when I see efforts being organized to bring the darn thing down to a reasonable level. I see the sort of thing that you are pointing to as being weak tea. We need a heck of a lot more than that at a time when the CAPE is 34. I get the impression that you Buy-and-Holders think of irrational exuberance as a good thing. I see no urgency re efforts to attack it whatsoever.
I OPPOSE irrational exuberance. I guess that’s why I am guilty of “bad behavior.” I like to think that I have not left any doubts in anyone’s mind re my position on irrational exuberance.
Holy moly!
Rob
“I pointed out the error in a May 13, 2002, post to a Motley Fool discussion board.”
No you didn’t. The post no longer exists as motley fool but from memory you said you didn’t understand the concept of a negative balance and proposed dividing the historical periods into three groups based on valuation, which would not have resulted in a number less than four.
Intercst’s study accurately calculated the withdrawal rate that survived in the past.
As you have previously admitted.
Lots of my fellow community members understood the post. They were thanking me for starting the most important discussion ever held in the history of the forum.
Yes, he accurately calculated the Historical Surviving Withdrawal Rate. Lots of the people who congregated there wanted to discuss how to accurately calculate the Safe Withdrawal Rate. Why not let them?
Rob
They were allowed to. The only one that was banned was you
You were allowed to post at Morningstar for almost 2 years. Only then were you banned.
There is no ban on discussing a subject, just a ban on you.
Since you think you know everything and have it all figured out, we will let you just go ahead and solve all your problems on your own. Don’t expect us to give you cheap shares. Don’t expect us to let you come on other boards to sell your hocum. Don’t expect anyone to give you any windfall payments or settlement payments. You just go out there and figure out how to get money on your own. No one owes you one red cent, so stop asking everyone else to do something for you.
Good luck.
I wasn’t the only one who was banned. John Walter Russell was banned. Microlepsis was banned. John D. Craig was banned, There were a few others.
When was I banned at Morningstar? When I announced that I would be attending the annual convention at which Bogle appeared so that I could ask him questions about safe withdrawal rates. That caused a complete freak-out for you Goons.
I think it would have been a good thing for us all to learn what Bogle thought about the subject. You Goons didn’t think that. It’s not that the subject itself cannot be discussed. it’s that no one can ever learn anything of consequence. We all have to pretend that we don’t notice that the Greaney study and other Buy-and-Hold retirement studies lack valuation adjustments. I was not willing to pretend even after being warned that there would be consequences it I continued to point out the error in the study. That’s the “bad behavior” that had me banned.
People don’t discuss the dangers of Buy-and-Hold. Or, if the do, they do it once, quickly, and then they shut up. That’s not the way to do it if you want people to learn from the experience. People need to be able to ask questions. You need to stick with it long enough for people to be able to make sense of things. Trying to do that is the “bad behavior” that gets one banned.
I’m bad by nature, Evidence. Everybody knows that. I’m famous for it. Just fundamentally a bad person. Rotten.
Not even a Buy-and-Holder. Not really.
Rob
Since you think you know everything and have it all figured out, we will let you just go ahead and solve all your problems on your own. Don’t expect us to give you cheap shares. Don’t expect us to let you come on other boards to sell your hocum. Don’t expect anyone to give you any windfall payments or settlement payments. You just go out there and figure out how to get money on your own. No one owes you one red cent, so stop asking everyone else to do something for you.
Good luck.
I stopped expecting anything positive from you Goons on the afternoon of May 13, 2002, Anonymous.
But I do believe that you should follow the published rules of the sites at which you post. And that you should follow the laws of the United States. And that all community members, Buy-and-Holders and Valuation-Informed Indexers alike, should call you out on it when you fail to do so.
And that it reflects poorly on Buy-and-Hold that you engage in the behavior that you do in “defense” of it. If Buy-and-Hold were something real, other Buy-and-Holders would be horrified to see the manner in which you “defend” it. I would certainly never want to see anyone defend Valuation-Informed Indexing in that manner.
That’s where I’m coming from re this one, in any event.
Rob
If you really know more than the rest of us and think your VII is superior to buy and hold, why are you broke, while the rest of us have millions put away?
For one thing, you have never had any criminal behavior directed at you. Valuation-Informed Indexers just do not behave that way.
For another, you do not subtract for irrational exuberance. So your numbers are wildly off.
Correct for those two factors and you will see a very different story. The Bennett/Pfau research shows that calculating the numbers properly always pays off in the long run.
Emotion-based strategies are a thrill ride, that’s all. You don;t need thrill rides when it comes to your retirement money. You need something real Research-based strategies are real.
My sincere take.
Rob
You have yet to show any link to criminal behavior. If you think it happened, charges.
You have told everyone for 20+ years to cut their numbers in half, yet the portfolios kept growing substantially. Even with a temporary drop in stock, we all have more than enough and know that we can just pick up more cheap share from market timers that can’t afford to hold their shares.
Emotions make broke people like you create silly stories to cover up their failures.
Okay, Anonymous.
Please mark me down as saying that we need to open every site to honest posting re the last 43 years of peer-reviewed research. I think that’s the answer.
I know it is!
Rob