Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
The investment community kicked you out. Wade Pfau stopped talking to you. The Bogleheads never let you in. Your wife divorced you.
You still think the problem is everyone else and not you.
The problem is human nature. We all have a Get Rich Quick/Buy-and-Hold urge. The job of investment experts is to help us overcome that urge, to engage in valuation-based market timing to the extent needed to keep irrational exuberance under control. There was a time when we didn’t know how stock investing worked and some people thought that Buy-and-Hold might be okay. Now we have 44 years of peer-reviewed research showing us otherwise. But of course we can’t get to the place where we all deep in our hearts want to be without the Buy-and-Holders learning how to pronounce the words “I” and “Was” and “Wrong.”
We are close. I think we are going to get there. If there had never been any abusive posting or any criminal behavior, we would have gotten to where we need to go many years ago. People who work in this field are like people who work in any other field — they want their work to help people. I say that we should let them. We will all be living better and richer and fuller and freer lives once we do.
I sincerely believe that the Greaney retirement study lacks a valuation adjustment. I believe that more strongly today than I did on the morning of May 13, 2002.
My best wishes to you.
Rob
No, the problem is laziness.
I think the problem is the Get Rich Quick/Buy-and-Hold impulse that resides within all of us. It’s been there since the first stock market opened for business.
The good news is that we now have 44 years of peer-reviewed research showing us to overcome that Get Rich Quick/Buy-and-Hold impulse, the impulse that has made stocks an unnessesarily risky asset class for as long as stocks have been an asset class. All that we need to do to make that dream a reality is to give ourselves permission to discuss the peer-reviewed research at every site on the internet. I would like to see us go for it.
By the close of business today, you know? I am not able to imagine any possible downside.
Rob
I your world, someone that works, saves and invests consistently for 30+ years is following a get rich quick scheme, but relying on a mythical $500 million windfall is not.
The research does not say what you say. You just don’t want to put in the necessary work.
That person is following a Get Rich Quick approach if he treats irrational exuberance gains the same as gains rooted in economic growth.
Rob
You already agreed that the value is what my account balance says because I can spend it today.
You could spend the full stated value of your portfolio if you elected to cash it in. It doesn’t follow that that is the correct value. To identify the correct value, you need to adjust the stated value for the effect of irrational exuberance.
We learned something important in 1981. That’s why Shiller was awarded a Nobel prize. You cannot just identify the value of your portfolio in the same manner as you would have in 1980 — by looking at the value listed on your portfolio statement.
I would like to see adjusted numbers appear on portfolio statements as well as the stated numbers. That would be a hugely positive reform. Ask yourself — how do we get there? We don’t get there by not talking about the subject, by pretending that Shiller did not do anything of consequence. He did something of great consequence. He showed that shifts in investor emotion — a factor not considered in the calculation of the number that appears on the portfolio statement — affects the real, lasting value of the portfolio. I believe that there will be a time when the accurate number is printed on the portfolio statement below the inaccurate one. To get there, we need to begin talking about what it is so important that that be done. We need to open every site to honest posting re the new peer-reviewed research.
There was a time when we did not know that smoking causes lung cancer. Now there are. Do you think it would have been a good response to claims that smoking causes cancer to say “there are no warnings about cancer on cigarette packages, surely there would be warnings if that really were so.” There’s a step between knowing something and taking the appropriate action in response to that knowledge. We know today that valuations affect long-term returns. But we have not yet taken the appropriate step of doing everything in our power to persuade people always to practice valuation-based market timing in an effort to keep irrational exuberance from getting out of control. To get to the point where we take that step, we need to let the knowledge in, we need to talk about it everywhere we talk about stock investing.
Not talking about the new knowledge doesn’t make it go away to. Not talking about it –pretending that we live in the world that existed in 1980 — is fraud. We don’t live in the world of 1980. The last 44 years of peer-reviewed research exists. No, that research is not reflected in the numbers that appear on our portfolio statements. That’s unfortunate. That’s bad. That’s something that we all should want to change.
Once adjusted numbers appear on portfolio statements below the official numbers, the gap between the adjusted numbers and the official numbers will diminish. At some point, we may defeat the cancer of irrational exuberance altogether. We get there step by step. The first critical was having research published showing that valuations affect long-term returns. The second critical step is opening every site in the internet to honest posting re the peer-reviewed research. Shiller’s research was of huge importance. But we have not obtained the benefits of that research as of today because as a nation of people we have not get given ourselves permission to talk about the far-reaching how-to implications of that research.
The stated value of your portfolio is not its real value. Irrational Exuberance is included in the stated value but is not real. That’s the entire point of Shiller’s research. That’s what it means to say that valuations affect long-term returns.,
Rob
If I can spend it for that amount, then that is the value. How about your expected $500 million windfall? How much is that worth?
If it’s not going to last, then no, that’s not the value. If you use amounts that are not going to last in your retirement planning, you run a serious risk that your retirement is going to fail.
There’s no good reason why I shouldn’t be willing to settle my legal claims for $500 million. All that litigation does is cause friction among people. I want to be working with my Buy-and-Hold friends to help us all live better lives, not fighting with them.
If your points is that opening every site to honest posting re the peer-reviewed research is not worth a very large multiple of $500 million, I disagree. Say that there is only a 1 percent change that what I have been saying for 23 years now is so — that the Greaney retirement study truly does lack a valuation adjustment. I would put the odds at 99.999 percent. But say for purposes of discussion that it is only 1 percent. If there’s s a 1 percent chance, we should be talking about that error at every site on the internet. Greaney is not the only one who made that mistake. it affects everyone. Everyone needs to know about it and to talk about how it happened.
If we are not able to get the numbers in retirement studies right, we have a serious problem. In the event that stocks continue to perform in the future anything at all as they always have in the past, it’s a problem that will be costing us a lot more than $500 million. If we were all thinking clearly, there wouldn’t be a single person in favor of us continuing to suffer the financial setbacks that we were required to face in the days before Shiller published his Nobel prize-winning research but that we are required to face no longer.
The next Buy-and-Hold Crisis will be the second optional one (the first was the Buy-and-Hold Crisis), the second one that could have been avoided just by applying the same laws that apply in every field other than the investment advice field in the investment advice field as well. The great thing about banging your head against a wall over and over and over again is that it feels amazing when you stop doing it.
My best wishes.
Rob
I can dpend my $7.5 million right now and that is its value. How much can you spend right now of your $500 million windfall?
Do you believe that irrational exuberance exists? Do you believe that Shiller’s research is legitimate? Do you believe that Shiller got it wrong?
Rob
I do believe you are irrational. I do believe Shiller when he told you not to time the market with CAPE.
Okay, Anonymous.
Rob