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 are not broke. So you are not divorced? So all the experts are wrong and you are right, despite your lack of education?
I guess so as we see all these millions of people supporting you in the comments section on this board (which you control).
Great job, Rob!
We got it wrong as a nation of people in the days before Shiller’s research was available to us. Because there is so much riding on us getting it right, we have had a very hard time acknowledging the error. We are in the process of coming to terms with it.
The job of a journalist is to help us get to a better place.
Rob
This video of Siegel and Shiller shows everyone once again that market timing if a failure:
https://www.youtube.com/watch?v=3gn9C9T76Jw
Just look at the predictions from 2014 as to expectations for the following 10 years.
I don’t have time to watch the video.
I agree with you that predictions of when price changes will come (the guessing game approach to market timing) do not work. I’ve never seen any evidence that that works. So I think it is pointless to discuss the question.
I believe that where we disagree is that I say that valuation-based market timing ALWAYS works. If valuations affect long-term returns (Shiller’s Nobel-prize-winning research shows that they do), it is a logical impossibility that valuation-based market timing could ever fail to work. It pays off on the day the allocation change is made because that is when the investor gets his risk profile back to where he wanted it (that’s when he Stays the Course in a meaningful way).
Please make me down as saying that market timing is always 100 percent required for every investor but that the guessing game approach to market timing is a waste of time and effort.
I hope that that helps, at least a tiny bit.
My best wishes to you.
Rob
You don’t have time to watch the video (funny comment from someone that doesn’t have a job) and then you say you disagree before looking at the indisputable facts laid out in the video. Market timing if based on having a forecast of poor future performance. Siegel laid out both his and Shiller’s forecast and then presented the data as to how they both fell far short of what actually happened. To be fair, Shiller has warned everyone, including you, that CAPE should not be used to time the stock market and this just further supports his recommendation. He has stated that he is making a guess as to what will happen, but that you should be making investing decisions based on that.
I don’t believe that anyone should place any confidence in any guesses that anyone makes as to what will happen. I believe that we agree on that.
But I believe that everyone should understand that valuation shifts indicate a change in risk. stocks are just not as valuable when they are priced high. To keep their risk profile constant, investors need to engage in market timing.
If you want to call it “risk management” rather than market timing, I’m fine with that. The important thing is that stock investing risk is not constant but variable. Given that risk is variable, the safe withdrawal rates (which is a risk management tool) cannot possibly be a constant number. The safe withdrawal rates VARIES. It changes with changes in the valuation level.
That’s where I’m coming from re this terribly important matter, in any event.
My best wishes to you.
Rob
“ I don’t believe that anyone should place any confidence in any guesses that anyone makes as to what will happen. I believe that we agree on that.”
Yet that is what you are doing when you are timing the market. Meanwhile, you won’t watch anything or read anything that has data which proves you are wrong. It is all part of your pattern of not listening to anyone else. That is why you are broke. That is why people have all cut you off and/or ignore you. It is why your wife divorced you.
I watched the video. I thought that that presentation was super, top-notch stuff. I am grateful toyou for offering the link, Anonymous.
Rob
“Yet that is what you are doing when you are timing the market.”
Not at all. The key goal in Valuation-Informed Indexing is to Stay the Course in a meaningful way. Since the research shows that stocks carry more risk when valuations are high, the investor lowers his stock allocation to keep his risk profile stable over time.
You can’t say that, because valuations are high, stock prices are going to fall over any specified period of time. The precise opposite could happen. It is irrationality that pushes stock prices up to crazy levels. Who is to say that that same irrationality would not push prices even higher?
High valuations certainly signify a price drop at some time in the future. That much is so. But I have never seen any evidence that the time at which this price drop will occur can be known in advance. I don’t think it can be, It’s possible that future research will provide some clues as to when the price change will take place. Personally, I am skeptical as to whether that will happen,.
My sense is that many people want to know this, These would be information bits that would be satisfying to man investors. I am not sure that we are ever going to see helpful research in this regard. We know some things and we do not know some things. We know that valuations matter. We know that risk is variable, not stable. We do not today know when price changes will come and it may be that we will never know that.
I believe that we should take advantage of what we know and not worry so much about what we don’t know. We know a great deal more than what we knew in the days before publication of Shiller’s Nobel-prize-winning research. Good for us, We don’t know everything that we would like to know. Such is life, you know. Maybe someday we will know more. maybe not.
Rob
No, you are not staying the course. You can’t just keep making stuff up as you go.
Do you consider it Staying the Course to stick with the same stock allocation when valuations change dramatically?
Rob
Did you really watch the video? Perhaps you are not understanding what Siegel was saying about the calculation of valuations. Further, did you see Shiller try to figure out why he was wrong on the forecasts? If you really watched and understood what was said, you wouldn’t even ask the last question.
I watched the video. I don’t even a tiny bit agree with your characterization of what was said.
Both Siegel and Shiller were entirely reasonable in their comments. We need to see more of those sorts of discussions. They didn’t agree on everything they said. But I would say that they agreed about more than they disagreed. They were polite and friendly and warm in their interactions.
I have made a suggestion on scores of occasions. I have said that we should invite Shiller to the Bogleheads Forms and have both Buy-and-Holders and Valuation-Informed Indexers ask him questions about his beliefs re the practical how-to implications of his amazing research. I think it would be good to invite Siegel as well. I believe that both would be happy to participate but that you Goons would have to agree to knock off the funny business. That’s been the key to everything going back to the morning of May 13, 2002.
We would all enjoy a fantastic learning experience. I am not able to imagine any possible downside.
Rob