I’ve posted Entry #688 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Is It Mean to Tell People That Their Portfolio Is Worth Only 50 Percent of What They Think It Is Worth?
Juicy Excerpt: Today’s CAPE value is 32. That’s not quite 34 but it’s close. The math would be easier if it was 34, so let’s say that it is 34. Your stock portfolio is worth only half of what you have been led to believe it is worth. If the stated value of your portfolio is $1 million, its real, lasting value is $500,000. If the stated value of your portfolio is $10,00, its real, its lasting value is $5,000. Like that.
Hence the death threats.
Hence the acts of extortion aimed at academic researchers who backed me up.
Hence the board bannings.
A portfolio is worth whatever you can sell it for in the market. No more, no less.
That’s the question under dispute, Sensible.
I agree that FOR THAT ONE DAY that is indeed what it is worth. But, if someone is planning a retirement, he needs to look beyond just what applies for that one particular day. If you are planning a retirement, you should be willing to take into consideration what the peer-reviewed research says re the true and lasting value of a portfolio. If the peer-reviewed research shows that you must take the CAPE value that applies on the day the retirement begins into consideration in calculating the safe withdrawal rate, then you should do that. You obviously get a very different number if you take the peer-reviewed research into consideration than what you get if you just ignore the peer-reviewed research.
I have a hard time seeing why we even have peer-reviewed journals if we are not going to permit people to talk about what the research shows. To my way of thinking, the research only has value to the extent it causes people to change their behavior. How can research change people’s behavior if they don’t feel comfortable talking about what the research shows and asking questions about it and so on?
We permit people to talk about the research in every other field of human behavior. Why do you think that the investment advice field needs to be so special?
Do you see that the price of stocks will change once we begin permitting discussion of the research? Then the price that the portfolio will sell for will be more in line with the real price. Given what you are saying here, that should make you happy. So you should logically be in favor of permitting honest posting re the research. Yes?
Rob