Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
It appears that you want everyone else to keep it zipped, while also expecting the rest of the world to let you say whatever you want on THEIR website.
Not going to happen, Rob.
I have zero desire to have anyone keep it zipped. The only thing that I would suppress is abusive stuff. And I would suppress abusive stuff because it scares people and causes them to self-censor. I want to hear what those people think.
I think it will happen. The fact that the published rules of every site prohibit the tactics that you Goons have employed to suppress honest discussion of the peer-reviewed research shows that as a nation of people we do not like the abusive and criminal stuff. We have thus far tolerated it in the investment advice field because we are conflicted by our love of Get Rich Quick/Buy-and-Hold. But I think it will become difficult to maintain that love in the face of all the human misery we will see following the onset of the next Buy-and-Hold Crisis. I believe that at that point we may permit our better selves to have a little more say in these matters. And then we are off to the races.
We’ll see, you know? I believe that we are fundamentally a good people.
Rob
You should read Buffett’s essays on the irrationalities of Mr. Market. In most cases you should ignore him even when he’s trying to buy your business. It’s typically better to keep a wonderful business that’s selling for more than you think it’s worth at any given moment than it is to try and time things. There are some reasons to sell a great business, such as for diversification, but it’s best to just sit on your butt and not mess around with things that are working for you.
You’re stating the Buy-and-Hold position in a way that makes it sound sensible and appealing. I go along with what you are saying to a point. One has to keep humble. Timing is essential. But I definitely think it’s a mistake to push too far. I rule out the guessing game approach to timing altogether; I am in complete agreement with the Buy-and-Holders re that. And I am modest re my recommendations for valuation-based timing. I say that the typical investor should always maintain a 30 percent stock allocation. Push this stuff too hard and you increase the chances that it will not perform well.
That said, there are circumstances in which is absolutely essential. The most likely 10-year annualized return in 1982 was 15 percent real. In 2000, it was a negative 1 percent real. I don’t even know what to say to someone who argues than an investor should be going with the same stock allocation in both sets of circumstances. I’m sorry, but that’s just flat-out nuts. That’s what Buy-and-Hold calls for. The Buy-and-Holders are trapped in a corner because they believed in this Efficient Market Theory garbage and it has taken them to a dead end. At some point, you just need to give it up.
Yes, a case can be made for moderation in market timing. But there is simply no reasoned case that can be made for ruling out market timing altogether.
“Stay the Course” is the perfect prescription. The Buy-and-Holders nailed that one. But they are completely messed up in their understanding of what that entails. You’re not staying the course is you go with the same stock allocation when the most likely 10-year return is a negative 1 percent real as when it is 15 percent real. That’s permitting yourself to be blown wildly off course for no good reason whatsoever.
The Buy-and-Holders made a mistake. They need to acknowledge it. That’s the story here. All that you do when you refuse to acknowledge a mistake is to make it worse and worse and worse. There are responsibilities that apply when offering investment advice. There are at least minimal levels of integrity that are required. You can’t tell people that the safe withdrawal rate is 4 percent when the research shows that it is really 1.6 percent. You can say that you personally believe that 4 percent will work. That’s something very different. You can’t say that the research supports a claim that a 4 percent withdrawal is “100 percent safe” when there’s 43 years of peer-reviewed research telling a very different story.
The way that I often say it is that the same laws that apply in every field other than the investment advice field need to apply in the investment advice field as well. It’s crazy that I need to say that. It’s so obvious that it shouldn’t need to be said. The problem is the 43-year cover-up. It’s very, very, very hard to acknowledge a 43-year cover-up. It’s not going to be easier when it’s a 44-year cover-up. I think that everyone who works in the investment advice field needs to come clean and acknowledge that this loony tunes idea that valuation-based market timing is not always 100 percent required for every investor needs to be buried in the ashcan on history.
That’s where I’m coming from re this one, in any event. Please mark me down as 100 percent in favor of a moderate approach to valuation-based market timing. The crazy, extreme stuff just makes the Buy-and-Holders, who made a lot of important contributions, look bad. Think about how this thing is going to sound to people in the days and years following the onset of the next Buy-and-Hold Crisis.
Rob
Rob
Who is the Warren Buffett of Valuation Informed Indexing? Who is the Jack Bogle of Valuation Informed Indexing? Are you the VII equivalent to people like this?
It was from Bogle that I got turned on to Valuation-Informed Indexing. I talk about Shiller all the time. But it was by reading Bogle’s book that I learned that the Greaney study was in error. Bogle said that the Reversion to the Mean of stock prices was an “iron law” of stock investing. If prices revert to the mean, it is a logical impossibility that the safe withdrawal rate is always the same number. That was the starting point.
The idea of making a stock investment strategy that is rooted in peer-reviewed research is a beautiful idea. I am 100 percent on board with that. I don’t even like calling the new model “Valuation-Informed Indexing.” In the early days I called it “Buy-and-Hold 2.0.” That’s what it is, it’s just a continuation of the Buy-and-Hold concept.
The people who developed Buy-and-Hold were at a disadvantage at the time they were developing it. Shiller’s Nobel-prize-winning research showing that valuations affect long-term returns hadn’t been published yet. So they just had to take a shot in the dark on the issue of valuation-informed timing. As often happens when people take a shot in there dark, they got it wrong. Had Shiller published his amazing research in 1961 instead of 1981, we would all be Valuation-Informed Indexers today. Or perhaps a better way of saying it is that we would all be Buy-and-Hold 2.0’ers.
It’s all the same thing. There is no conflict. The only thing that Buy-and-Holders don’t like about Valuation-Informed Indexers is that we acknowledge the last 43 years of peer-reviewed research. Take a look at the core Buy-and-Hold principles and what do you find. The Buy-and-Holders believe in following the research where it takes you! The Valuation-Informed Indexer are more true to the core Buy-and-Hold concept than are today’s Buy-and-Holders!
The only problem has been the unwillingness of the Buy-and-Holders to acknowledge their mistake. That makes it appear that there’s some sort of conflict but of course there is not one. Have you noticed that not once in 22 years have any of you Goons made a case that Shiller got something wrong? There is no conflict here.You just don’t want to see people talking about that amazing research because then you would feel pressured to acknowledge your mistake and correct it. And you see this as a terrible thing. It’s not terrible at all. Acknowledging the mistake would be liberating. It would free you to do that.
Say that you just cannot bear to acknowledge the mistake. Then you could stick to the old Buy-and-Hold Dogmas but permit others to explore what they want to explore, including Shiller’s research. In time I believe that that would cause you to come around. I think you suspect that that’s so as well. That’s why the idea of permitting honest posting re the research makes you so hot.
Valuation-Informed Indexing is just an extension of Buy-and-Hold. It’s what you get when you permit yourself to acknowledge errors that have been brought to light by new research. I included everything that the Buy-and-Holders came up with in Valuation-Informed Indexing except for that one terrible mistake that was uncovered by Shiller’s Nobel-prize-winning research. All the rest checks out. But not that one.
The idea that valuation-based market timing (price discipline!) is not 100 percent required is loony tunes. It’s not even possible for the rational human mind to imagine a market in which price discipline is not required. Price discipline is the thing that permits markets to work their magic.
The difference between Valuation-Informed Indexing and Buy-and-Holder is that the Valuation-Informed Indexers have acknowledged the error that was revealed in 1981 by the publication of Shiller’s research. Part of any scientific process is the acknowledgment of errors. It is very unBuy-and-Holdish of you to demand that discussion of the error be suppresed.
My role is a journalist’s role, bringing this stuff to light so that we can all move forward together achieving new advances in the Buy-and-Hold 2.0 concept.
My sincere take.
Rob
It seems you are dedicated to the role of spreading hocomania. Look at what it has gotten you: Depleted savings, a divorce and a loss of your primary residence.
In fairness, it hasn’t all been hot fun in the Summertime. There have been some down moments too.
Rob