Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Shocker! Silly me thinking that you should have a book done since it has been over 10 years.
I believe that Greaney should have corrected the error in his retirement study (it lacks a valuation adjustment) within 24 hours of the moment it was brought to his attention (the morning of May 13, 2002). There’s obviously some strange forces at play here that are causing things to play out in ways in which they ordinarily do not play out.
Shiller discovered the secret of stock investing. Stocks are an amazing asset class that offers an average annual return of 6.5 percent real. What could be better? There’s one major flaw. The price of stocks is set by the people who own them. There is nothing to stop those people from setting the price of stocks at artificial levels, from creating irrational exuberance that will fool them for a time into thinking that their holdings are worth more than they really are worth. Shiller showed us how to overcome irrational exuberance, to engage in valuation-based market timing and thereby to avoid the crazy bull markets that you experience when you follow Buy-and-Hold strategies and the crazy bear markets that follow whenever you have crazy bull markets and the horrible economic collapses that follow whenever you lose the trillions of dollars of consumer buying power that you always lose in a crazy bear market.
On the surface, there doesn’t seem to be any downside to this amazing advance in understanding. But there is one. Since irrational exuberance is the cancer of the personal finance realm, adopting a strategy that makes it impossible for irrational exuberance to grow adds rationality to the investment advice field. If we were starting fresh, everyone would agree that that is super. But we are not starting fresh. Buy-and-Holders have been arguing against rationality, saying that there is no real need for market timing, for as long as there has been a Buy-and-Hold strategy. That “idea” is of course absurd. We have thousands of markets and price discipline is critical in every one. So it is a pretty out there idea to believe that the stock market is the sole exception. But the Buy-and-Holders did not have Shiller’s research available to them when they were developing their strategy and so they took a wild stab in the dark and their wild stab in the dark ended up being wrong. Now the only way forward is for the Buy-and-Holders to work up the courage to say the words “I” and “Was” and “Wrong.”
I think we are a fundamentally good people and I think that in the end we will do it. I believe that it’s going to take another Buy-and-Hold Crisis for people to come to terms with how horrible it is to follow a strategy that does not call for market timing when needed (a strategy that permits irrational exuberance to go insanely out of control and do great damage to millions of lives), but I think we’ll get there. I take confidence in the number of Buy-and-Hold who have expressed interest in coming clean and held back only because of the insane abusiveness of you Goons. When people want to do something that bad (Bernstein went so far as to say in his book that the Buy-and-Hold safe withdrawal rates calculations were off by a full two percentage points at the top of the bubble), they eventually work up the courage to do it. We’ll see, you know?
My best wishes to you and yours.
Rob
It seems like you have pretty much given up on most everything. No work going on with the book. No job. Blog activity dropping off. I guess you are not really worried about your perceived buy and hold crisis.
I remain worried. I haven’t given up.
There’s only so much that one person can do. I believe that I’ve done everything that one person could be expected to do. I’m at peace with that.
I work on the book every day. Progress has been exceedingly slow. But I am seeing slow progress. I remain highly confident that I will get there. That’s my primary project today.
When I talk to normal people about this matter, they have no difficulty accepting the basic realities. What’s lacking is a sense of urgency. People have never experienced the level of abusiveness that we have seen for 23 years from those posting in “defense” of Mel Lindauer and John Greaney. They often wish me luck. But they don’t feel confident of their abilities to say for sure how stock investing works. And they have zero desire to see that abusiveness turned on them. They don’t want to get involved. So they are okay with letting others solve the problem. They are complacent about it. I am not even a tiny bit complacent about it. But most people are (to the extent that they think about the matter at all). That’s where things stand.
I believe that a huge price drop followed by an economic crisis (which is inevitable sooner or later if Shiller’s Nobel-prize-winning research is legitimate research) may change that. But we’ll have to wait and see to find out for sure. If/when we see another Buy-and-Hold Crisis, I’ll do what I can to help us get out of it and to insure that we never see another one. I can do no more and I can do no less.
I am of course frustrated that we are not today seeing the benefits of such a wonderful advance in our understanding of how stock investing works. It’s painful to think about the lost opportunities. But the other way of looking at it is that we might have never achieved that advance in the first place and we did. So there’s much more good here than there is bad. We don’t need to adopt any new laws to get every discussion board and blog on the internet opened to honest posting re the last 44 years of peer-reviewed research. All we need to do is to give ourselves permission to talk about this amazing advance so that we can all reap the benefits of it. I remain confident that that change will take place.
I take comfort from the fact that so many on the Buy-and-Hold side of things have expressed a desire that honest posting be permitted at every site. We need them to do a little more. But their hearts are already in the right place. So I think there are grounds for optimism. We will experience the next Buy-and-Hold Crisis together as a nation of people. I think it may cause us to pull together and to take this to a positive place. We’ll see, you know.
I know what side I am on. I believe that each investor should be able to hear both sides of the story and to decide from himself what to do with his retirement money. I believe that the Greaney retirement study lacks a valuation adjustment and that people considering using it to plan a retirement need to know that. That’s pretty much it.
My best wishes to you.
Rob