Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
I went to the grocery store today. When I went to check out, the cashier asked me for my peer-reviewed research papers to pay for the groceries. I tried to use some money from my almost $8 million in savings, but she said that due to the current CAPE ratio, she would only accept a market timing opinion of Robert Shiller’s work. Woe is me. How will I ever survive this financial nightmare.
Should we shut down all the peer-reviewed journals, Anonymous?
Rob
I just checked my accounts. My net worth hit another all time high. It’s only August but it’s gone up by significantly more than our annual household income. Most of these gains are contributions and gains to the stock market. After this crazy runup in real estate our house is still only worth $300K which in coastal Connecticut means it’s a modest house (we got a modest house for a reason…)
You cannot buy groceries with your theories, but I could buy groceries with my market gains.
Okay, Sensible.
I still believe that we should be Permitting honest posting re the peer-reviewed research at every site.
Research papers do not advance theories. Research papers TEST theories. They determine which theories reveal realities and which theories fail to do so. The theory behind Buy-and-Hold, that the market is efficient and that valuation-based market timing (price discipline!) is not needed, has been discredited. We need to move on to development of the theory that has passed the test, the theory behind Valuation-Informed Indexing, that the stock market is like every other market that has ever existed and that price discipline (valuation-based market timing) is always 100 percent required for every investor.
If the theory is valid, then Valuation-Informed Indexing will permit you to buy more groceries over the course of an investing lifetime. It’s important to know which theory is valid. If we are not going to permit ourselves to use research to test theories, why have peer-reviewed research? If we are going to contunue the ban on honest posting, we should just shut down all the peer-reviewed journals. I vote for permitting honest posting re the research.
Rob
I haven’t seen any honest (truthful) posting banned. You are complaining about something that doesn’t exist.
Does the 4 Percent Rule exist? Did I just imagine that?
Rob
Has a 4% withdrawal rate ever failed over any 30 year period? Answer: No
Have we ever seen a buy and hold portfolio fail? Answer: No
Have we ever seen one VII portfolio with a successful outcome? Answer: No
I agree that a 4 percent withdrawal rates has never failed over a 30-year time-period. I strongly disagree that such a withdrawal rate is safe when the valuation level is where it is today. An exteme high risk withdrawal rate is not the same thing as a safe withdrawal rates.
The Bennett/Pfau research shows that an investor who refuses to practice valuation-informed market timing thereby greatly increases the risk attached to his portfolio while also greatly diminishing his long-term returns. Not good.
In contrast, practicing valuation-informed market timing (price discipline!) always greatly reduces risk while also greatly enhancing one’s long-term returns. Investor heaven!
My sincere take.
Rob