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 am looking to purchase a Rolex Datejust 41mm watch with certain style of bracelet and bezel. The MSRP is under $11k if you buy it from an Authorized Dealer. There is limited supply so you can’t just walk in a pick one up right now. Instead, you would have go out to the open market. Certain dials will cost you close to $16k if you want to buy one now. Prices for many Rolex watches have appreciated over the years, but you can’t also see scenarios with some declines that can happen when financial markets are soft.
So, if anyone is trying to determine the value of the watch (much like the value of a stock) how do we determine that value? We just look at what the market price is at that time. Anyone can make up claims telling you that it will be higher or lower in the future. Long term data shows that the value will continue to increase in future years, but Rob Bennett’s of the watch world will tell you that you will go broke with your Rolex watch.
We agree that the way to determine value is to see how the market values the thing. The problem in the stock market is that honest posting re the last 44 years of peer-reviewed research is banned at every internet site. Without access to discussions of what the peer-reviewed research says, the market is not able to function properly. In ordinary circumstances, participants in a market act in their best interests. It’s obviously not possible for stock investors to do this for so long as honest posting is prohibited at all sites,
This is one of the reasons why I am always says that we need to open every site to honest posting re the research. Once we do that, we obviously will no longer need to suffer with a CAPE value of 35
Rob
“ The problem in the stock market is that honest posting re the last 44 years of peer-reviewed research is banned at every internet site.”
Every internet site? What is YOUR definition of the last 44 years of peer-reviewed research (what studies have you included in that definition). Please elaborate more on your claim.
Robert Shiller publiushed peer-reviewed research in 1981 showing that valuations affect long-term returns. That research revolutionized (that word appears in the subtitle of his book) our understanding of how stock investing works.
Learning that revealed to us what makes stocks risky (irrational exuberance) and how to combat it (valuation-based market timing). It’s the biggest advance in the history of personal finance. We should be talking about the how-to implications of Shiller’s research at every site. We will all be able to retire years earlier once we give ourselves permission to talk about what the peer-reviewed research shows.
It’s a logical impossibility that the safe withdrawal rate is always the same number in a world in which valuations affect long-term returns.. If we were all thinking clearly. there would not be even one person who favored a ban on honest posting at even a single site. We should all want to see the authors of retirement studies get the numbers right. People use retirement studies to plan retirements. I know this from personal experience. I saw people doing it at the old Motley Fool board.
Rob
So your definition is only your opinion of what one guy said in a publication from 44 years ago and nothing else. Got it.
Do you have a different opinion of how Shiller changed our understanding of stock investing? He was awarded a Nobel prize. He must have showed something of significance.
Rob
Shiller merely reinforced what we already knew. He told us that we should not try to time the market with CAPE. Too bad you didn’t listen.
Shiller published a paper in 1996 saying that investors who stuck with their high stock allocations despite the sky-high valuations of the day would live to regret it within 10 years. That sounds like an endorsement of market timing to me.
Rob