A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

“People Use Retirement Studies to Plan Retirements”

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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 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

“You Can See the Results of Regular Promotion of Buy-and-Hold by Running a Google Search for “Shiller CAPE.” That CAPE Value Will Become a Logical impossibility Once We Open Every Internet Site to Honest Posting re the Last 44 Years of Peer-Reviewed Research in This Field.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

We measure the truth through results. How much do you have that you can spend, Rob? I have been spending because of my saving and investing strategy. Despite buying a house, car, etc., my net worth keeps growing significantly.

Spare us your silly talking points. Show us results.

You can see the results of regular promotion of Buy-and-Hold by running a Google search for “Shiller CAPE.” That CAPE value will become a logical impossibility once we open every internet site to honest posting re the last 44 years of peer-reviewed research in this field.

The arc of history bends toward rationality in stock investing. We are close. Or so this Rob Bennett individual sincerely believes, you know?

My best wishes to you.

Rob

“I Don’t Think It Would Be Proper to Wait Until People Have Suffered Failed Retirements to Point Out the Error in the Study.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

All your crash predictions failed.  You have no idea what you are talking about.

I have never made any precise crash predictions. I have never said “prices will crash on Day X or in Month X or in Year X.” I call that the guessing game approach to market timing. I don’t believe that it can be done. I am in complete agreement with the Buy-and-Holders re that one.

I have put forward general time frames in which I said I believed the price crash would come. Those predictions did indeed fail. Those predictions were based on what has happened in the historical record. In recent history, prices have remained high longer than than they did at any earlier time in history. We are in uncharted waters. No one could have anticipated that.

I don’t think it follows that I don’t know what I’m talking about. My claim that the Greaney retirement study lacks a valuation adjustment has stood the test of time. I feel more confident re that one today than I did on the morning of May 13, 2002. Because we have not yet seen a crash (other than the 2008 crash, which only lasted for about 12 months), Greaney’s study has not yet caused failed retirements. But it will in the event that stocks continue to perform in tjhe future anything at all as they always have in the past.

I don’t think it would be proper to wait until people have suffered failed retirements to point out the error in the study. I think that the time to do that was the day when the error was identified. I actually waited a number of years because I was afraid of what Greaney would do to me and to the Motley Fool discussion board. I knew about the error on the first occasions on which I looked at the study (I knew from reading Bogle’s book that the safe withdrawal rate changes with changes in valuations levels). I was the first, though, to point out the error in a public way. I am proud of that. I didn’t get that one wrong.

And it’s important. Getting the numbers right in retirement studies is important.

Rob

“You Have Been Widely Banned. That Speaks Volumes. You Have Been Widely Ignored. That Speaks Volumes. You Are Broke. That Speaks Volumes. Your Wife Divorced You. That Speaks Volumes.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

You have been widely banned.  That speaks volumes.  You have been widely ignored.  That speaks volumes.  You are broke.  That speaks volumes.  Your wife divorced you.  That speaks volumes.

It says something.

It says that we really, really, really life irrational exuberance. Our Get Rich Quick urge goes deep.

But so does our desire for irrationality. We don’t just hand out Nobel prizes because we like somebody’s haircut. We really want to be able to fool ourselves into believing that we are richer than we really are. But we also really want to learn how to invest effectively for the long run, It’s the struggle between those two desires that makes stocks both an amazing asset class and at times a highly risky one.

I’m a bad guy. I pointed out the error in a study that a lot of people were using to fool themselves into believing that they had saved enough to be able to hand in resignations from high-paying jobs. The idea!

Rob

“Investing Matters. Saving Matters Too, Maybe More. But in the Final Analysis, Investing Matters as Well.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

Did you know that only 4.7% of American’s have saved at least $1 million and only 1.8% have $2 million?  The REAL crisis is that people do not have enough money in their savings/investment accounts (just like you).  Let’s talk about what the REAL error is.

From May 1999 through May 2002, I posted only about saving strategies. I was a highly popular poster. Greaney wrote an introduction to the Retire Early board urging newcomers to read all of my ‘seminal” stuff first. I had never had an abusive post directed to me at that time.

So there’s a sense in which I would love to re-focus on saving strategies. But you can’t do that forever. Once people save enough money to become financially independent, they need to do something with the money. Should they go pure Get Rich Quick/Buy-and-Hold? Or should you tell them about the last 44 years of peer-reviewed research? If you tell them about the research, there is a segment (about 10 percent) of the Buy-and-Hold community that is going to be very unhappy with you. And the other 90 percent may speak up once or twice but they are not going to be willing to tale on the Goons in any sort of sustained way.

So you end up where we are today. I would prefer to write about saving. But sooner or later you need to address investing issues if you are going to have a board that helps people to achieve financial freedom early in life. I didn’t wake up one morning and say ‘Gee, I think I would like to write about investing.” I got forced into it against my will because I had made friends with a number of people who were planning early retirements and i was concerned that they were making use of a retirement study that gets all of the numbers wildly wrong (the Greaney study lacks a valuation adjustment).

Investing matters. Saving matters too, maybe more. But in the final analysis, investing matters as well.

Rob

“Please Tell Me How Shiller’s Research Showing That Valuations Affect Long-Term Returns Has Changed How You Invest in Stocks”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

Everyone else has discussed Shiller’s work.  You have not.  Instead, you are giving out just your opinion, which is actually different than what Shiller said.  You then take it a step further by trying to shut down what everyone else says.  If you cannot control the message, you will either block it or refuse to even enter into a REAL discussion with everyone else.

Please tell me how Shiller’s research showing that valuations affect long-term returns has changed how you invest in stocks, Anonymous. He was awarded a Nobel prize for that research. So it must change our understanding of how stock investing works in important ways. What changes have you made as a result of what you learned from it?

Rob

“If You Don’t Think That Shiller’s Research Shows That Valuations Affect Long-Term Returns, What Do You Think It Shows?”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

You start off with a false premise.  Honest posting has not been banned and you haven’t been willing to discuss what the research really says.

If you don’t think that Shiller’s research shows that valuations affect long-term returns, what do you think it shows?

Ro

“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.”

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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

“Do You Believe That Irrational Exuberance Exists?”

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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 can spend 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

“Once Adjusted Numbers Appear on Portfolio Statements Below the Official Numbers, the Gap Between the Adjusted Numbers and the Official Numbers Will Diminish.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

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