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 could sell my house and move to the country my wife was born in and actually see a rise in my standard of living. I can live in a first world district that’s cleaner and “nicer” than the best cities here. I consider this the first major milestone of my Financial Independence journey. My goal is to stay as healthy as I can and retire young enough, with millions more than I actually need, so that I can live a Millionaire Next Door lifestyle here and an obscenely wealthy lifestyle when it’s winter here. Sometimes I might go on a cruise, other times I’ll be living in my wife’s original country. If my kids choose to become MDs I’ll buy them a decent condo there and pay tuition, to schools that produce so many of our doctors that their courses are designed to prepare students for western board exams. Our kids have the advantage of dual nationality.
What would be the better way to achieve my financial goals? Valuation Informed Indexing or Buy and Hold? The answer is obvious.
Valuation-Informed Indexing would be better. Practicing price discipline when buying something always adds, it can never subtract. Anyone Who tells you different is working a con. The odds are good that he is working a con on himself as well. So it’s a funny sort of con. But it’s a con all the same. Price discipline is always a plus. It’s impossible to imagine any exceptions to that rule.
You describe a pretty darn appealing future for yourself. What if the next Buy-and-Hold Crisis puts us in the Second Great Depression and the Second Great Depression leads to World War III and your kids are drafted and killed in that war? Will you still say that it was a good thing that as a nation of people we adopted a ban on honest posting re Shiller’s Nobel-prize-winning research showing us all for the first time how stock investing works in the real world. I obviously pray that that doesn’t happen. But it is not an entirely far-fetched scenario. The Buy-and-Hold Crisis of 1929 played a role in bringing on World War II and lots of scary and tragic things happened in that war. Causing a collapse of our economic system because you want to experience the thrill ride of bull markets followed by bear markets followed by economic crises Is not such a hot idea, in my assessment.
There’s a level of your own consciousness in which you don’t think it’s such a hot idea either. If you feel deep down that it was a hot idea, you would be happy to permit honest posting about the research and you would enjoy making the best case possible for your favored “strategy.” I put the word between quote marks because Get Rich Quick thinkng is not a strategy, it is an emotional impulse. The battle here is a battle between reason and emotion. You want the investment advice field to be dominated by emotion because you like the thrill ride that Buy-and-Hold makes possible. I don’t like the thrill ride because of the great harm it does to human beings. I think that a return of 6.5 percent real is <I>just fine,</I> you can keep all the irrational exuberance garbage so far as I’,m concerned.
Where I’m coming from.
Rob
“Practicing price discipline when buying something always adds, it can never subtract.”
Yes it can subtract, you are a perfect example. You have practiced “price discipline” since the mid 90s.
If instead, you had kept working, and maxed out your 401(k) into a diverse portfolio of domestic and foreign stocks with an age appropriate amount of bonds and rebalanced annually your net worth would be much much higher.
No. Wade Pfau and I had research published in a peer-reviewed journal that showed that Valuation-Informed Indexing has been soundly beating Buy-and-Hold for as far back as we have records of stock prices. As Wade concluded after 16 months of research: “Yes, Virginia, Valuation-Informed Indexing works!”
The only thing that caused me any financial problems was the abusive and in some cases criminal behavior of the Buy-and-Hold Goon Squads that was directed at me as my punishment for pointing out the error in the Greaney retirement study (it lacks a valuation adjustment).
My best wishes, etc.
Rob
As you admitted, you are not a numbers guy. Wade also pointed out that VII failed, yet you ignore that.
I’m not a numbers guy. You don’t need to be a numbers guy to be able to tell whether or not a retirement study contains a valuation adjustment.
I say that there should be no abusive behavior and no criminal behavior. That solves the problems with Wade and with thousands of others.
People make mistakes. It is something that happens in this world. When mistakes are discovered they need to be acknowledged. It’s the only way that we can move forward as a people. The idea that valuation-based market timing is not always 100 percent required for every investor was a mistake. We should have put it behind us a long time ago.,
Rob
“ Rob covered the IRS and Capitol Hill beats for The Daily Tax Report, a newsletter published by The Bureau of National Affairs, Inc., in the 1980s. He then wrote the Tax Politics column and managed the Tax Notes Today database for Tax Analysts. After two years at Tax Analysts, he was employed at the National Tax Department of the Ernst & Young accounting and consulting firm for nine years. He rose to the level of Director. He resigned on August 1, 2000, with enough money saved for his family of four to live off of the earnings from his investments while he built his internet writing business.”
Here is from your bio. You said that you quit in 2000. You have never worked a job since that time (as you admit). You also never built a writing business as you have no material. Where are the reports? Where are the books? You don’t have anything to sell. It is 24 years later and you have produced nothing that you can monetize in that whole time…………….yet you just sit there and blame everyone else. Even you ex-wife got sick of the stories and divorced you when you refused to work.
The Greaney retirement study lacks a valuation adjustment to this day. Who do you think is going to take care of this matter if I bail out?
I think we all should be working together. I am not able to imagine any possible downside to opening every site to honest posting re the peer-reviewed research.
Rob