Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Buy and Hold investors are satisfied getting the market return.
Market timing junkies think they have some magic way of exceeding the market return even though years of experience shows that holding such a belief is not supported by the evidence.
What if the market becomes emotional and produces irrational exuberance? Are the irrational exuberance “gains” part of the “market return” that you expect to get?
We all need to work to keep the market return honest and real. We do that by permitting honest posting re the peer-reviewed research at every site. If all that investors can hear is what our Wall Street Con Men friends want them to hear, they are not going to obtain the market return on stocks they purchase at times of insane levels of irrational exuberance. The Bennett/Pfau research shows that as clearly as anything could be shown. As Wade put it after 16 months of research into the question: “Yes, Virginia, Valuation-Informed Indexing works!”:
Irrational exuberance gains are not the same as genuine economic gains. I mean, come on. Investors can only get the market return for as long as the market remains rational. And that doesn’t happen by magic. We all need to work together to keep our Get Rich Quick/Buy-and-Hold impulses under control to keep the market rational.
My sincere take.
Rob
“Are the irrational exuberance “gains” part of the “market return” that you expect to get?”
Yes
And the irrational exuberance “losses” are also part of the market return I expect to get. William Bernstein (amongst others) does a great job explaining the history of markets. I invest in stocks knowing that highs and lows will be part of the process.
Larry Swedroe talks about the ability, willingness and need to take risk in order to achieve the higher returns associated with (but not guaranteed) stock investing.
Given your precarious financial situation you probably have the need to take risk but it seems you don’t have the willingness to do so.
When you had your 6 figure job you clearly had the ability to take risk, but I suspect that is no longer the case.
In other words you are not in a position to invest meaningfully in assets that entail high risk and hence will need to accept the lower returns associated with lower risk assets.
If you think that low risk, high return assets are going to magically come down the pike then we know two things
1) You are living in cloud cuckoo land
2) You can’t do math
Can you explain to me why you think that if high return low risk assets existed, investors wouldn’t pile into those assets driving up the price and lowering returns?
I’ve answered your question many times before,Evidence. Taking on huge amount of risk does not necessarily produces high returns. Risk was off the charts in January 2000 and the 10-year expected return was a negative number. U.S. stocks pay high returns because the U.S. economy is a highly productive one. There is no reason to believe that educating people about what the peer-reviewed research says and thereby minimizing the risk they take on will lower the return they receive. Minimizing risk is a good thing.
Rob
You have tried to “educate” us to your way of thinking. It hasn’t worked. You already have your answer. It failed. Period.
It worked in thousands of cases, Anonymous. Once we elect as a nation of people to open every site to honest posting re the peer-reviewed research, it will work in hundreds of thousands more.Perhaps millions.
Rob
“Taking on huge amount of risk does not necessarily produces high returns.”
I know.
That is why it is called risk.
“There is no reason to believe that educating people about what the peer-reviewed research says and thereby minimizing the risk they take on will lower the return they receive.”
But there is a reason to believe that paying more for an asset will reduce returns.
You still haven’t explained why you think I (or any other investor) will sit on the side lines letting you pick up high return low risk assets cheaply. There is no reason to think that we won’t outbid you. No matter how much you want it to happen.
Thousands of cases? Only in your mind.
You need 100% of people to only buy and sell at what YOU think the price should be.
“You need 100% of people to only buy and sell at what YOU think the price should be.”
I don’t get what you’re saying. The humans don’t all make the decisions necessary to keep their weight at the proper level. If one year obesity declines by 20 percent, that would be a positive event.
Rob
“That is why it is called risk.”
Do you think risk is good or bad? I think it is bad. I want to see risk diminished to the extent possible. That’s why I say that every investor should practice valuation-informed market timing (price discipline!). Valuation-based market timing combats irrational exuberance. So I encourage it. I would like to see as much of it as possible. Valuation-based market timing helps the market to function well. Failing to engage in valuation-based market timing makes the market dysfunctional and we all pay a price when the market becomes dysfunctional.
Buy-and-Holders often talk as if they see risk as a positive. They suggest that it is risk that produces high returns, They have never demonstrated this to be so. They just insist on it as a dogma that we all should bow down to. I certainly agree that investors need to be willing to take on a measure of risk to obtain good results. That’s the truth that Buy-and-Holders are tapping into when they make their crazy claims about risk. Those listening in hear the truth and relate to it and are often persuaded that the crazy claim is plausible. But there is nothing plausible about the claim that risk is a good thing and that investors should never do anything to diminish risk because doing so will reduce their return. That idea is just crazy, plain and simple.
All investors should want to go with the stock allocation that is right for them. Doing so both increases return and reduces risk. In a world in which valuations affect long-term returns (the world we live in, according to the last 43 years of peer-reviewed research in this field), it is a logical impossibility that the same stock allocation could be right for even a single investor during a time in which valuations swing wildly from low to medium to high. So adopting a Buy-and-Hold strategy always reduces return and increase risk. It’s a choice and I wish the best of luck to all who elect that choice. But I sincerely believe that it is a very bad choice. I cannot endorse a decision to make that choice. Suggesting that there must be some good to it because after all it does increase risk does not persuade me even a tiny bit.
Rob
“You still haven’t explained why you think I (or any other investor) will sit on the side lines letting you pick up high return low risk assets cheaply. There is no reason to think that we won’t outbid you. No matter how much you want it to happen.”
You haven’t explained why there would be any negative consequences for anyone if we both went with the stock allocation that makes the most sense for us.
If 60 percent stocks is the right allocation for me when the CAPE is 17, then I should go with that regardless of what you do. And when the CAPE increases a bit, I should lower that allocation a bit to keep my risk profile constant over time. Again, that’s so regardless of what you do. My job is to get my allocation right, not to worry about what you do.
The ideal world is one in which we all get our allocation right. For that to happen, we all need to be educated as to what the peer-reviewed research says. For that to happen, we need to permit honest posting at every site.
Rob
“But there is nothing plausible about the claim that risk is a good thing”
The claim is not that risk is a good thing but rather that risk is a real thing and that anyone who hopes to wish it away is deluded.
You are so afraid of risk that you have gone with a 0% stock allocation since the mid 90s and if that helps you reach your financial goals then there is clearly no need for you to take on any more risk.
I don’t believe that risk can be wishes away. But I believe that investors who take the last 43 years of peer-reviewed research into consideration when making allocation decisions can thereby reduce their risk.
I am not afraid of risk. I made a decision on August 1, 2002, to build a business on the internet. That’s taking on a lot of risk. Taking on that amount of risk in my non-investment life justified lowering my stock allocation by 30 percent from what it would otherwise be. Price have been high that entire time (with the sole exception for a few months in the immediate aftermath of the 2008 crash). So the typical investor should have been going with a stock allocation of 30 percent. Subtracting 30 percent for my personal circumstances put me at zero percent.
Rob
“I certainly agree that investors need to be willing to take on a measure of risk to obtain good results.”
It is good that occasionally you show signs of understanding how investing and markets work.
But then you will go and demonstrate that you don’t really get it by claiming that we can somehow create a world were we eliminate stock volatility but yet keep the same high returns.
Okay, Evidence.
I believe that, if we encouraged valuation-based market timing (price discipline!) at every site, we could greatly diminish stock volatility (I doubt that we could eliminate it entirely). We would no longer see the loony-tunes irrational exuberance gains that we see today. But, yes, I believe that we would continue to see the 6.5 percent average annual return that is backed by economic factors rather than investor emotionalism. It would be a win/win/win/win/win. Learning is a good thing.
Rob
“I made a decision on August 1, 2002, to build a business on the internet. That’s taking on a lot of risk.”
And you made that decision on the basis of selling a single report at Motley Fool.
A wiser choice would have been to keep your job with it’s 6 figure income, max out your 401(k), invest in a mix of stocks and bonds, rebalance, and have today a much larger portfolio.
You could still have done your internet writing in the evenings or weekend.
Had I done it your way, I might not have spent the past 22 years discovering and developing the Valuation-Informed Indexing concept. I think it’s fair to say that VII will revolutionize this field, helping millions of people to live richer and fuller and happier and better lives. I’m not going to apologize for that. I wish that there I had never experienced static in my efforts to enhance millions of live with my journalism work. But there’s a saying in journalism that it’s only when you are receiving lots of flak that you can be sure that you are directly over the target. It’s been a rough road. But the potential here is truly off the charts.
Wish me well with it!
Rob
“I think it’s fair to say that VII will revolutionize this field,”
A more accurate version
“I think it’s delusional to say that VII will revolutionize this field,”
You have had multiple chances to explain the concept on many boards and you have never succeeded in persuading people you are right.
“But, yes, I believe that we would continue to see the 6.5 percent average annual return that is backed by economic factors rather than investor emotionalism.”
Only if people don’t notice the great investments available and bid up the price.
I have persuaded a large enough number to show that, were the law followed and every site opened to honest posting re the peer-reviewed research, I could in time persuade the vast majority. We are not there today because of the abusive stuff and the criminal stuff but we are on our way. You would never have engaged in such desperate behavior If you thought that you had more than a zero chance of prevailing in civil and reasoned debate.
Rob
“were the law followed and every site opened to honest posting re the peer-reviewed research, ”
The law does not oblige any site owner to give you posting privileges on their site.
Why do posts on this site not appear as soon as I click “Post Comment”?
You control who can post here.
Why do you think that other websites should be denied the same?
“Only if people don’t notice the great investments available and bid up the price.”
If they bid it up beyond its fair value, they are making a mistake. The purpose of the peer-reviewed research is to help us avoid making such mistakes.
Rob
“The law does not oblige any site owner to give you posting privileges on their site.”
The law doesn’t have anything to say about me personally. But it definitely prohibits fraud. It is obviously fraud to prohibit posting re 43 years of peer-reviewed research.
It is not an accident that the same 43 years of peer-reviewed research is banned at every site. It is because that 43 years of peer-reviewed research spells the end for Buy-and-Hold and there are a lot of wealthy and powerful and well-connected people who would like to see the Buy-and-Hold gravy train to continue running. The people of the United States will need to collectively make a decision as to how they feel about that in the days and years following the onset of the next Buy-and-Hold Crisis.
Rob
“”If they bid it up beyond its fair value, they are making a mistake. ”
So I see a low risk investment giving a 6.5% real return
I bid up the price so that I outbid you and get the asset
At the elevated price that I paid the return is now only 6.0%
That is not a mistake.
6.0% real is a great return for a low risk asset
You must be completely crazy if you think I am going to leave my money under the mattress and let you get a low risk high reward asset, whenever I can bid more (and lower the return slightly) and get the asset for myself
“It is obviously fraud to prohibit posting re 43 years of peer-reviewed research.”
As the thread that I linked to regarding the Shiller discussion at Bogleheads showed, there is no prohibition on discussing his findings
I agree that a 6 percent return is a great return for a low-risk asset class. That’s one reason why I think it would be son great to permit honest posting re the peer-reviewed research. We would transform stocks into a low-risk asset class. What could be better?
That doesn’t mean that it would make sense to go 100 percent stocks. There’s always going to be some volatility with stocks. If people have properly chosen their best stock allocation, they should stick with that.
I’ve said that I think that improving the value proposition of stocks might well cause lower-risk asset classes like CDs to offer higher returns to remain competitive. I see that as a good thing, We would all have stocks available at less risk and also have CDs offering better returns than they do today. What’s the downside?
The market can work it out. The mistake is banning honest posting re the peer-reviewed research so that the market cannot function properly. Let people become educated about what works and the market will take care of the rest. Education can never be a negative.
Rob
As the thread that I linked to regarding the Shiller discussion at Bogleheads showed, there is no prohibition on discussing his findings
And yet the error in the Gtreaney retirement study has not been corrected in the 22 years since it became public knowledge. In the event that stocks continue to perform in the future anything at all as they always have in the past, there will be millions of people suffering horribly financial setbacks as a result of that massive act of financial. Those millions of people will decide whether anything should be done about it.
I feel better knowing that I did my part to expose the fraud and that I have stuck to my guns on the point that honest posting re the peer-reviewed research should be permitted at every site ever since. That’s all that I can do given the unfortunate circumstances that apply at this moment in time.
Rob
–I agree that a 6 percent return is a great return for a low-risk asset class.
What about 5.5% or 5.0% or even lower, because that is what would happen, the price would get bid up. Your fantasy world would drive prices up and returns down because it people who are afraid of risky stocks would not be afraid of low risk stocks.
–We would transform stocks into a low-risk asset class.
No we wouldn’t because uncertain future business prospects would always entail unknowns and hence risks
–What could be better?
Reality would be better. You can’t eliminate risk in stocks and expect people not to notice.
“And yet the error in the Gtreaney retirement study has not been corrected in the 22 years since it became public knowledge.”
The Greaney study (and Trinity and Bengen) showed that 4% survived all 30 years periods in the past. When you show a case where that did not happen I am sure it will be included in the studies.
The Greaney study (and Trinity and Bengen) showed that 4% survived all 30 years periods in the past. When you show a case where that did not happen I am sure it will be included in the studies.
That’s not the error. The error is the claim that a 4 percent withdrawal is safe. In a world in which valuations affect long-term returns, it is not possible to determine what is safe without taking valuations into consideration. The Greaney study does not do that.
Rob
The Greaney study was very clear about what it was calculating and the fact Bengen and Trinity came up with the same number shows that it was accurate.
What do you define as safe?
Is it spending your last penny at the end of the 30 years?
Is it still having 10% or 20% of your original portfolio left?
What definition of safe do you want to use?
If you can come up with a definition then carry out the study using that definition and publish your findings.
What about 5.5% or 5.0% or even lower, because that is what would happen, the price would get bid up. Your fantasy world would drive prices up and returns down because it people who are afraid of risky stocks would not be afraid of low risk stocks.
We should let the market work it out. It’s not your place to decide for everyone. The last 43 years of peer-reviewed research obviously makes stock investing far less risky. I see that as a good thing. If you don’t, you don’t. But it’s not your place to decide for everyone. You should permit honest posting re the research.
No we wouldn’t because uncertain future business prospects would always entail unknowns and hence risks
There are always going to be some unknowns. So there is always going to be some risk. But the relentless promotion of Buy-and-Hold has pushed stock investing risk to places it has never gone before. Looking at today’s CAPE value. Investor emotionalism is the primary cause of stock investing risk. Letting people know what the research shows would rein in the emotionalism that has gotten so out of control during the Buy-and-Hold years.
“Reality would be better. ”
The last 43 years of peer-reviewed research is part of reality. It should be freely discussed at every site.
“You can’t eliminate risk in stocks and expect people not to notice.”
I’m fine with people noticing. I would like to see people celebrating that we can finally all live richer and better and freer and fuller lives. I see it as a major drag that you have held us all back from realizing that dream for 22 years now. Progress is good. We have moved beyond Buy-and-Hold and we need to get the word out to every investor on the planet. By the close of business today if not a good bit sooner.
Rob
“I’m fine with people noticing.”
How do you think they will they react when they notice?
Will they continue to stay out of the stock market or will the notice that risk has been greatly reduced and buy up those suddenly low risk assets?
“What do you define as safe?”
The people of the United States will get to say how they feel about these matters in the days and years following the onset of the next Buy-and-Hold Crisis.
I am not even a tiny bit comfortable with the idea of saying that I believe that the Greaney retirement study contains a valuation adjustment. No can do.
My best wishes.
Rob
How do you think they will they react when they notice?
My hope is that they will select their best possible stock allocation and enjoy all the benefits that follow from doing that.
Rob
“”I see it as a major drag that you have held us all back from realizing that dream for 22 years now.”
I have not held anyone back. I have adopted a investment plan based on sound financial principles that has left me in a great place financially. The Bogleheads have helped tens of thousands of people with there wise advice
You have held yourself back by a number of very poor decisions.
Your only positive contribution was to encourage the establishment of the Bogleheads site separate from Morningstar, and for that I thank you.
Okay, Evidence.
I naturally wish you all the best that this life has to offer a person, in any event.
Rob
“I naturally wish you all the best that this life has to offer a person, in any event.”
Translation
I can’t answer the questions you asked so I will resort to non answers.
I’m so bad!
Rob
If you were right, you wouldn’t be broke and cut off from the investment community. People want to make money, so if your scheme worked, people would follow it. It doesn’t, so they don’t.
Rob,
Who owns the largest percentage of shares when looking at all the companies that make up the S&P500? Do you ever review the form 4 filings? Why would they want to sell at much lower prices? Asked another way: Let’s use Apple as an example. Why would someone like Blackstone or Berkshire sell off shares at a steep discount to the current price? You do realize that individual investors make up a minuscule percentage of ownership in stocks, right?
If you were right, you wouldn’t be broke and cut off from the investment community. People want to make money, so if your scheme worked, people would follow it. It doesn’t, so they don’t.
In ordinary circumstances, what you are saying here would be so. These are strange circumstances.
Please remember that Buy-and-Hold was developed in the 1960s and Shiller did not published his Nobel-prize-winning research showing that valuations affect long-term returns until 1981. So the people who developed Buy-and-Hold were really just taking a shot in the dark re market timing at the time they did so. And there really was evidence that the guessing game approach to market timing doesn’t work (I don’t believe that it does). No one could have anticipated the sorts of CAPE levels that we have seen in recent years. The highest CAPE level we had ever seen at that time was the 33 that brought on the Great Depression. By the time Shiller came along, people had been getting it wrong for many years. It’s an important matter. So there was a reluctant to acknowledging the error.
Now it’s been a 43-year cover-up. So the reluctance to acknowledging the error is greater than ever. I am confident that, if Shiller published his research today, we would be able to get all the Buy-and-Hold stuff corrected promptly. But that 43-year cover-up looks really, really bad. So there is a lot of resistance. The good news is that a lot of Buy-and-Holders would like to see the error corrected. We saw that over and over again during our discussions. The question is whether the ocean of human misery we experience during the next Buy-and-Hold Crisis is enough to get us over the hump. I certainly hope so.
Rob
Who owns the largest percentage of shares when looking at all the companies that make up the S&P500? Do you ever review the form 4 filings? Why would they want to sell at much lower prices? Asked another way: Let’s use Apple as an example. Why would someone like Blackstone or Berkshire sell off shares at a steep discount to the current price? You do realize that individual investors make up a minuscule percentage of ownership in stocks, right?
It doesn’t matter who owns the shares so long as they are human. All humans possess a Get Rich Quick impulse. We have been seeing bull markets (and the bear markets that follow from them) since the first stock market opened for business.
We now have the means to bring the roller coaster element of the stock investing experience to an end. It’s a big change, yes. But it is a 100 percent positive change. So, the bigger, the better. It’s not possible for the rational human mind to imagine any downside.,
Rop
“ It doesn’t matter who owns the shares so long as they are human.”
The largest percentages are institutional holdings, not individual holdings. They don’t need the cash and their objectives are completely different vs people investing for retirement.
If their objectives have anything to do with doing well financially, it would be a plus for them to understand the basics of how stock investing works. That’s what Shiller’s Nobel prize-winning research examines.
Rob
So you think you know more about investing than Blackstone or Berkshire. Really? Comments like you just made are an example of why no one can take you seriously.
I know more about the 43-year cover-up than anyone else on the planet. It’s been my life for 22 years running. Those people know more than me about lots of questions. But not about the 43-year cover-up. I’ve seen that one from every angle there is.
How many people at Blackstone and Berkshire have put out public statements insisting that the Greaney retirement study be corrected within the next 24 hours? I have done that on numerous occasions.
Rob
You said you wanted them to understand the basics of how stock investing works. They clearly know how stock investing works. In fact, most people on the popular boards know way more than you do. The results speak for themselves. You are broke. They are not.
The Grenaney retirement study has not been corrected to this day. I pointed out the error in it (it lacks a valuation adjustment) 22 years ago. Somebody out there doesn’t know something.
Rob
It doesn’t need a correction. What needs a correction is your retirement plan. You are broke. That is a sign of a complete failure and that you are wrong. You clearly don’t know the basics.
Okay, Anonymous.
I wish you all the best that this life has to offer a person, in any event.
Rob
It doesn’t matter what anyone thinks of Greaney. It doesn’t matter what anyone thinks of Shiller. The bottom line is where your retirement sits once you hit 60 years old because the average retirement age in the US is 62. You either have the money in your account or you don’t. It is as simple as that. Sitting around here talking about what you or anyone else thinks the “research” says is just a bunch of silly word salad. It is the numbers that matter.
I think what matters most is whether I am able to sleep at night or not. There were people at the Motley Fool board who were using the Greaney study to plan their retirement. I was there.
Rob
So you tell these made up stories to make yourself feel better enough so that you can sleep. Got it.
I wish you well, Anonymous.
Rob