Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
So you finally admit the truth in that the current balance is the current worth. As for your speculation on the future, you have been wrong with every prediction. Further, you have no idea as to what investments anyone has in their accounts, so no one, including you, can weigh in on the estimated future value of anyone’s portfolio.
The current balance is the current worth. But the stability of that value is determined by the valuation level. To act as if valuations do no matter is foolish and dangerous. Valuations affect long-term returns. There is 44 years of peer-reviewed research showing that.
There is no evidence that it is possible to make precise predictions of future returns. But there is a mountain of evidence that the riskiness (the potential for big price drops) is affected dramatically by changes in valuations. So it would be insane to put together a retirement plan without taking valuations into consideration. The valuation level that applies on the day a retirement begins is the most important factor that determines whether that retirement will survive or not.
The future value of a portfolio cannot be determined with precision by looking at valuations. But a range of possibilities can be determined and rough probabilities can be assigned to the points on the range of possibilities.
Rob
You somehow think you are getting greater stability outside of stocks when you look at CAPE? Really? Are you familiar with the impact of interest rate changes, inflation, etc?
Valuations affect the result. So valuations need to be considered.
The only possible reason for ignoring valuations is that you want to persuade yourself that irrational exuberance gains are real. Which is a self-deception. Not this boy, you know?
Rob
So you ignore what YOU think is irrational exuberance gains and settle for going broke. Got it.
Today’s CAPE value shows that 50 percent of today’s stock market value is irrational exuberance. It sounds like you disagree. What percentage of today’s stock market value do you YOU say is irrational exuberance?
Do you even acknowledge that irrational exuberance exists?
Rob
I say that my account is worth what it shows on the balance line. I can spend it right now and buy whatever I want for that amount.
Why did Shiller publish a book titled “Irrational Exuberance” if irrational exuberance doesn’t exist?
I believe that irrational exuberance exists. Should I mention that when safe withdrawal rates are being discussed or would it be better if I just kept it zipped?
Rob
I know this broke guy who thinks that he will be getting a $500 million windfall for doing absolutely nothing……so, yes, I do know that irrational exuberance exists.
My best wishes to you and yours, Anonymous.
Rob
How did that windfall plan work you for you? How many checks have come in so far?
There have not been any financial checks. But there is compensation in the form of good feeling every night when I go to sleep and can reflect that I worked up the courage to point out the error in the Greaney retirement study and that I have been arguing for 23 years that as a nation of people we need to open every site to honest posting re the peer-reviewed research, that we need to advance in our understanding of how stock investing works from where it stood in the pre-Shiller years.
I don’t like the nasty stuff. Not one bit. I have spoken out in opposition to it on thousands of occasions. But what’s the alternative to posting honestly re the research (which is what brings on the nasty stuff)? To say that I now believe that the Greaney study contains a valuation adjustment after all? Is that going to solve the problem?
That’s what caused the problem. The normal things is to discuss research once it is published. Pretending that Shiller’s research doesn’t exist is what causes the problem. Buy-and-Hold is what sells. Valuation-Informed Indexing is what works. If we want to avoid future Buy-and-Hold Crises, we need to make the shift from what sells to what works. Or so Rob Bennett sincerely believes, in any event. you know?
I have not received financial compensation for pointing out the error in the Graney retirement study. THAT’S THE PROBLEM. Discovering errors in retirement studies is a good thing. We should celebrate people working up the courage to point out such errors. The compensation that I received is knowing in my heart that I did not sell out my fellow community members. I would like to receive financial compensation as well. That would be ideal. But never for one second have I considered giving up the good feelings that comes from standing up for my fellow community members in exchange for obtaining the financial compensation available to those who pretend that Shiller’s research does not exist. Yucko, you know?
It’s not all about turning a quick buck. Not in my view. You need to give some consideration to what happens to the people who hear the dangerous advice and are taken in by it. That’s how it is done in every field other than the investment advice field. The way it is done in every other field is what works, in my sincere opinion.
I hope that helps a tiny bit.
Rob