Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Perhaps this is a topic best discussed with your therapist.
I’m not the one who permitted the CAPE value to rise to 37, Anonymous. That was the Buy-and-Holders.
That number suggests that it is today’s stock market that needs a therapist. I believe that the best possible therapy for a stock market that has produced a CAPE value of 37 is open discussion of the last 44 years of peer-reviewed research in this field.
Rob
The top 10% own between 87 and 93% of all stocks. They have been able to take advantage of the silly market timers that think they can outsmart the wealthy. Keep in mind, these people have so much wealth, they do not have to sell stock during the ups and downs of the market. It is like playing the game of monopoly. They just keep buying up assets. That leaves 2 types of people out there and you have to decide: Are you going to be an owner or are you going to be a customer/consumer?
Somebody must be selling stocks during downturns or else the price would not go so low. We usually go to a CAPE value of 8 by the end of a Buy-and-Hold Crisis. To get to 8, people would have to be selling like crazy. A CAPR of 8 is as nutso on the downside as the CAPE value we have today is on the upside. That’s what Buy-and-Hold does to our brains. It takes away our ability to reqson.
I am in favor of people being owners. But I am also in favor of people Staying the Course in a meaningful way — keeping their risk profile stable over time. The stock market is more risky when prices are high. So to keep your risk profile where it was when prices were at reasonable levels, you need to go with a lower stock allocation. It is through valuation-based market timing that investors practice price discipline. It is through market timing that we combat irrational exuberance, the cancer of personal finance.
Rob
Yep. Market timers are selling there stock and just look at how everything has been consolidated at the top. Not surprising and it is not just stock. Take a look at real estate holdings and how that has changed over the years. You can decide if you want to follow those that have been successful or you can go with the 90% that struggle.
The sellers are market timers because they don’t have enough dry powder. Someone sitting there with only a few hundred thousands has no ability to hang on for the long term. They will always bail during any perceived time of risk.
I have already shared some of my details. You probably remember that my portfolio generates $300K plus a year in interest and dividends. I also have other sources of income. I don’t need to sell and I just keep doing just like the rest of the top 10% in that I keep accumulating assets.
It is fine if you don’t want to hold stock. People like me will continue to buy. Remember the old saying: “The are two types of people with McDonald’s. One type is the customer that buys the burgers. The other type is the guy that owns McDonald’s (stock). Pick which one you want to be.
Yep. Market timers are selling there stock and just look at how everything has been consolidated at the top. Not surprising and it is not just stock. Take a look at real estate holdings and how that has changed over the years. You can decide if you want to follow those that have been successful or you can go with the 90% that struggle.
The people who you are calling “market timers” are just Buy-and-Holders who have lost confidence in their strategy. Buy-and-Hold is a confidence game. Excessive confidence causes prices to go to crazy high levels and excessive pessimism causes prices to go to crazy low levels.
The idea behind Valuation-Informed Indexing is to take the emotion out of the stock investing project. Those times of low prices are horror stories. We should all want to bring an end to them. To do that, we need to focus on what causes them. It’s high prices that cause the insane price drops. All that we need to do to stop the horrible losses is to stop the insane highs. That’s done with valuation-based market timing. Valuation-based market timing is the key to long-term investing success.
Irrational exuberance is a snare and a delusion, Anonymous. It is not real. It hurt us. We should all work together to to keep it from getting out of control. We should all work to keep the CAPE level at a reasonable levels.
My sincere take.
Rob
The sellers are market timers because they don’t have enough dry powder. Someone sitting there with only a few hundred thousands has no ability to hang on for the long term. They will always bail during any perceived time of risk.
I have already shared some of my details. You probably remember that my portfolio generates $300K plus a year in interest and dividends. I also have other sources of income. I don’t need to sell and I just keep doing just like the rest of the top 10% in that I keep accumulating assets.
It is fine if you don’t want to hold stock. People like me will continue to buy. Remember the old saying: “The are two types of people with McDonald’s. One type is the customer that buys the burgers. The other type is the guy that owns McDonald’s (stock). Pick which one you want to be.
Valuation-Informed Indexers don’t count phony gains as real. So they don’t perceive risk in the disappearance of the phony gains. They are looking at the realities and the realities of stock investing are very reassuring — gains of 6.5 percent real annually.
It is the roller coaster ride created by the Buy-and-Hold mindset (no price discipline when buying stocks now!) that causes all the crazy ups and downs. All of that is optional today and has been for 44 years now, All we need to do at this point is to get the word out.
Irrational exuberance is the cancer of the personal finance world. Shiller’s Nobel-prize-winning research is the cure for cancer. We should permit people to partake in the cure.
Rob
Buy and Holders, by definition, continue to buy regardless of the daily swings of the stock market. The failures you describe are clearly market timers. These are the people that make emotional responses to the daily fluctuations and THEIR perception of the stock market valuation. This is why the top 10% continue to consolidate ownership of stock. You are a market timer, Rob. You are broke.
Do Buy-and-Holders adjust their stock allocation in response to changes in valuations? That’s the question on the table, Anonymous. Do Buy-and-Holders Stay the Course in a meaningful way? Valuation-Informed Indexers do that. We engage in valuation-based market timing. That’s the only difference between Buy-and-Hold and Valuation-Informed Indexing. VII is Buy-and-Hold updated to reflect the last 44 years of peer-reviewed research in this field.
It’s a big difference. As long as most investors are Staying the Course in a meaningful way, irrational exuberance, the cancer of the personal finance world, cannot get out of control. Stock prices are self-regulating so long as honest posting re the peer-reviewed research is permitted at every internet site. We all possess a sincere desire to invest effectively for the long run. But the Get Rich Quick/Buy-and-Hold impulse that resides within all of us, compromises our efforts. We need open discussion of the peer-reviewed research to strengthen our resolve.
My sincere take.
Rob
That market timing strategy of making you go broke is working out so great for you, Rob. Way to go. I guess I will have to just be miserable with having millions of dollars.
Today’s CAPE value signals an economic collapse that will cause an ocean of misery for millions of people. You certainly should be sad about that and about your role in making it a reality. And your millions won’t entirely protect you. When a nation of people suffers a Buy-and-Hold Crisis, no one is entirely spared.
I’d like to see us move beyond all that. I believe that we will get on a better path in days to come. We’ll see.
My best wishes to you.
Rob
You have had 25 years to show us how it would “all work out” with your silly timing scheme. Take a look at the LONG TERM RESUTLS. You are broke. Wade Pfau even confirmed last year as to the failure of market timing. Meanwhile, those of us practicing buy and hold over that long term period, have all done extremely well. No matter how much you would sit there and tell us that we were all going broke, each one of your predictions failed. You have been 100% wrong. The game is over. We are all now in our retirement years. You cannot go back and change history. Game over,Rob.
And the Greaney retirement study really did contain a valuation adjustment all along. What was I thinking?
Rob
You are broke and divorced. Yes, what were you thinking?
Um….
Rob
How hard is it to understand. We have money. You don’t. That means we don’t have to do anything and you do. Fix your own problems because we are not lifting a finger for you.
How much of the money you have is real and how much of it is pretend?
Do you even care to know?
That’s not my problem. That’s your problem. Fixing that problem would not be lifting a finger for me, it would be lifting a finger for you.
That’s what I believe, Anonymous. There are no two sides here. We are all on the same side.
Rob
My money is a lot more real vs your money. I actually have it in my accounts. Your money is part of some fantasy that you are someday going to get a wild windfall.
No, Rob. We are not on your side. Fix your own problems.
I have millions of dollars and they are real. They are in my account and I can spend it at any time. Your dollars are not real. They are not in your account and only exist in your head. You won’t see one cent of your fantasy $500 million windfall. How do you know? Because you have nothing to spend.
These are important facts as it determines WHO has the problem. If I had a major issue come up (medical, repair to home, etc) I have the money to pay for it right now? Can you say the same? Of course not. You don’t have any money as you have admitted many times.
My money is a lot more real vs your money. I actually have it in my accounts. Your money is part of some fantasy that you are someday going to get a wild windfall.
No, Rob. We are not on your side. Fix your own problems.
My “fantasy” is that someday the same laws that apply in every field other than the investment advice field will apply in the investment advice field as well. I view that as an entirely realistic belief. I believe that the arc of history in the personal finance realm bends toward rationality.
Rob
I have millions of dollars and they are real. They are in my account and I can spend it at any time. Your dollars are not real. They are not in your account and only exist in your head. You won’t see one cent of your fantasy $500 million windfall. How do you know? Because you have nothing to spend.
These are important facts as it determines WHO has the problem. If I had a major issue come up (medical, repair to home, etc) I have the money to pay for it right now? Can you say the same? Of course not. You don’t have any money as you have admitted many times.
I agree that you can today spend the portion of your retirement account that is just irrational exuberance. I do not agree that that portion should be viewed as being the same as the portion that is not irrational exuberance.. The research shows that the irrational exuberance amounts will disappear in time and cannot be relied on.
Rob
You’re saying that it is the numbers in an account that are the ultimate reality. I’m saying that the peer-reviewed research is a higher reality. The peer-reviewed research tells us whether we can trust the numbers in the account.
Shiller did something. I say that he showed us when we can trust the numbers in the account and when we cannot. You have never said what you believe Shiller showed that was so important that it merited a Nobel prize.
If it is so that we cannot trust the numbers in our account, that’s a big deal. I believe that it is so. So I believe that we need to come to terms with that. That’s why I advocate that we open every site on the internet to honest posting re the peer-reviewed research. I don’t see this as being optional. I see it as being imperative. It’s not possible to have intelligent discussions about stock investing for so long as we don’t even know whether the amounts in our accounts are real or not.
We’ve got a tiger by the tale re this one!
Rob
I can spend the money in my accounts. Can you go to the store and pay for your items with your opinions on peer reviewed research?
I trust what I can spend. Not what you say.
I trust the peer-reviewed research, Anonymous.
My best wishes.
Rob
But we don’t trust or believe YOUR interpretations of research and that is a good thing. Otherwise, we would all be broke and our spouses would be asking for a divorce.
Okay, Anonymous.
I naturally wish you all the best that this life has to offer a person, in any event.
Rob