A Rich Life

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

” It Is the Lack of Confidence That Is Typical of People Following Buy-and-Hold Strategies That Causes Bear Markets.”

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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 just checked Empower. My net worth hit another all time high. Having over a million dollars in cash + assets and a house that’s mostly paid off (no rush, though, with a 2.5% rate) at the age of 40 is “good stuff on top of good stuff”.

It’s nice that you’re happy with your circumstances, Sensible. But I don’t believe for two seconds that you are truly confident about your strategy (Buy-and-Hold). If you were, you wouldn’t behave the way you do. People who are confidence in their strategy are okay with knowing that other people follow other strategies.

And that lack of confidence will have an effect on our entire nation somewhere down the road. It is the lack of confidence that is typical of people following Buy-and-Hold strategies that causes bear markets. Falling prices brings on feelings of panic among people who are trying to persuade themselves that irrational exuberance gains represent something real.

I think we would all be better off permitting honest posting re the peer-reviewed research. Our economic system would be more stable and so would our political system.

My best wishes.

Rob

“Some People Have Been Waiting Since the Mid 90s for Stocks to Be Cheap Enough (in Their Opinion) to Buy.”

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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:

“Trying to guess when prices will shift is a fool’s errand.”

Some people have been waiting since the mid 90s for stocks to be cheap enough (in their opinion) to buy.

If I was a lawyer who had been hired to make the case for Buy-and-Hold, that’s the point that I would be focusing on. Prices have remained high for a very long time. That’s a reason for not being extreme in one’s approach. I recommend that people never go below 30 percent stocks. That way you always participate at least to a small extent in crazy bull markets.

The other side of the story is that, if we had been permitting honest posting re the peer-reviewed research all along, we never could see prices remain so high for so long. That would be a far-better works than the one we have been living in during the Buy-and-Hold Era. We wouldn’t have the crazy roller coaster ride of bull markets followed by bear markets. But we would see a steady return of 6.5 percent real. Reasonable people should be able to agree that that’s plenty good enough. There’s no need for the irrational exuberance garbage except for the greed-based desire to turn a few extra bucks while destroying millions of lives.

There’s no justification for not permitting honest posting re safe withdrawal rates. People who believe in the loony tunes Buy-and-Hold retirement studies and hand in their resignations based on what they come to believe is “100 percent safe” can’t go back in time and reverse those decisions. We all should be speaking up in opposition to those “studies.”

Where I’m coming from.

Rob

“Buy-and-Hold Is a Marketing Gimmick.”

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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 love taking things out of context. There are undervalued stocks available today. You can seek those out, or just buy the index. Timing the market is a fool’s errand.

Trying to guess when prices will shift is a fool’s errand. We agree re that one. But adjusting your stock allocation to maintain the proper risk profile that you determined was right for you has been working since 1870, which is as far back as we have good records of stock prices. That’s price discipline. Its impossible for the rational human mind to imagine any circumstance in which that would stop working.

I’m skeptical of the idea of picking undervalued stocks. i think it’s possible. But I think it’s harder to pull off that most people realize. I think it’s better for the typical investor to go with a broad index fund. If you do that, higher valuations translate into greater risk and you need to lower your stock allocation as prices risk to keep your risk profile constant over time. If there were any research suggesting that valuation-based market timing is not always 100 percent required, you Goons would have put it forward years ago. I mean, give me a freakin’ break. Buy-and-Hold is a marketing gimmick.

Rob

“You Cannot Buy Groceries With Your Theories, But I Could Buy Groceries With My Market Gains.”

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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 just checked my accounts. My net worth hit another all time high. It’s only August but it’s gone up by significantly more than our annual household income. Most of these gains are contributions and gains to the stock market. After this crazy runup in real estate our house is still only worth $300K which in coastal Connecticut means it’s a modest house (we got a modest house for a reason…)

You cannot buy groceries with your theories, but I could buy groceries with my market gains.

Okay, Sensible.

I still believe that we should be Permitting honest posting re the peer-reviewed research at every site.

Research papers do not advance theories. Research papers TEST theories. They determine which theories reveal realities and which theories fail to do so. The theory behind Buy-and-Hold, that the market is efficient and that valuation-based market timing (price discipline!) is not needed, has been discredited. We need to move on to development of the theory that has passed the test, the theory behind Valuation-Informed Indexing, that the stock market is like every other market that has ever existed and that price discipline (valuation-based market timing) is always 100 percent required for every investor.

If the theory is valid, then Valuation-Informed Indexing will permit you to buy more groceries over the course of an investing lifetime. It’s important to know which theory is valid. If we are not going to permit ourselves to use research to test theories, why have peer-reviewed research? If we are going to contunue the ban on honest posting, we should just shut down all the peer-reviewed journals. I vote for permitting honest posting re the research.

Rob

“We All Know What the Stock Price Is and Make Our Choice to Buy It or Not Buy It. If You Don’t Like the Price, It Is Simple. Just Don’t Buy It.”

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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:

“ No. What I am saying is that, if Wendy’s says in a commercial that their Junior Bacon Cheeseburger costs $3 but then charges you $6 for it, all of the people who are hurt by this dishonest practice should be permitted to call them out on their dishonesty”

What? We all know the stock price when we are buying it. It is not like I put in an order to buy a stock at $3/share and find out that they took out $6/share from my account. We all know what the stock price is and make our choice to buy it or not buy it. If you don’t like the price, it is simple. Just don’t buy it.

Your comment highlights the “irrational” part of irrational exuberance, Anonymous. Yes, people “know” on some level of consciousness that the numbers on their portfolio statement are wrong at times of massive overvaluation of stocks..The tricky part is — they don’t want to know it! They want to believe in the Buy-and-Hold fantasy. Letting them look at what the peer-reviewed research says undermines their ability to place their confidence in the Buy-and-Hold fantasy. So the Buy-and-Holders want to suppress discussion of the last 43 years of peer-reviewed research. The question on the table is — Should people be permitted to hear the case against Buy-and-Hold even though we know from experience that that would cause fewer people to follow Buy-and-Hold strategies? Buy-and-Hold is a money-maker for the people who push it.

There was a day when discussion of the research showing that smoking causes cancer was suppressed. Do you think that people in this days thought that smoking was perfectly healthy? I don’t think that. I think that there were lots of people who suspected that smoking was not so hot an idea long before they started putting a skull and crossbones on the package. People knew. And they also didn’t know. Because they very, very much didn’t want to know. Today information about the dangers of smoking are everywhere. Everyone knows the truth in a good bit of detail. And fewer people smoke. I think it’s a better world. I think it would be fair to say that there are people who make their living selling cigarettes who don’t agree, who were just fine with the idea of people knowing and not knowing at the same time.

We all know that overpriced stocks are dangerous. We all get it. But at times when there are overpriced stocks in our portfolio that we are counting on to finance our retirement, we don’t want to get it. There are always going to be people who enjoy hearing the Buy-and-Hold lies. It’s human nature. It makes a difference if we give ourselves permission to talk about those lies, to examine up close how much horror they have brought on over the years, to let people see what the research shows. That’s the entire benefit of research, that it permits us to see lies like that for what they are. Please remember that in an official sense the Buy-and-Holders are in favor of looking at the peer-reviewed research. I got the idea from reading one of John Bogle’s books.

Humans are rational creatures. That’s a true statement. Humans are also self-destructive creatures who harm themselves when they ignore what their reasoning ability tells them. That’s also a true statement. I title my book “Investing for Humans” because Valuation-Informed Indexing takes into consideration both sides of the human personality. Yes, we want to invest more effectively. We all do. But we also very, very,very much do not want that. We want to believe that the numbers on our stock poprtfolio are real,n even at times when the CAPE value is in the 30s. There’s something inside us that makes us want to believe in Buy-and-Hold. That’s the thing that has been making stock investing risky for as long as there has been a stock market.

I vote for permitting honest discussion of the peer-reviewed research at every site.

Rob

Valuation-Informed Indexing #714: How Long Will Stocks Remain Undervalued Once Prices Drop Below Fair-Value Levels?

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I’ve posted Entry #714 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called How Long Will Stocks Remain Undervalued After Prices Drop Below Fair-Value Levels?

Juicy Excerpt: The most unnerving thought is that the length of the bull market may signal the length of the bear market that inevitably follows from it. This has been an astoundingly long bull market. As I noted above, prices were high in 1996. They have remained high ever since, with the exception of about 12 months in the immediate aftermath of the 2008 crash. So, if long bull markets produce long bear markets, the next bear market may be a doozy.

“So What You Are Saying Is That We Buy-and-Holders Might Have to Take a Few Less European Vacations, or Might Have to Do wWthout Our 3rd Vacation Property, or Might Not be Able to Trade in Our S Class Mercedes Every Year for the New Model (Resorting to Every Other Year), While We Wait for the Market to Recover Like It Always Does.”

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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:

So what you are saying is that we buy and holders might have to take a few less European vacations, or might have to do without our 3rd vacation property, or might not be able to trade in our S class Mercedes every year for the new model (resorting to every other year), while we wait for the market to recover like it always does. Oh, woe is me.

I’m saying that, because the Greaney retirement study lacks a valuation adjustment, it gets the numbers wildly wrong. I’m saying that, if we had begun permitting honest posting re the peer-reviewed research on the afternoon of May 13, 2002, as I proposed at the time, we would today be 22 years ahead of where we are in our development of the Valuation-Informed Indexing concept.

Rob

“Either Irrational Exuberance Is a Thing Or It Is Not. If It Is a Thing, It’s Something That We Should Be Taking Into Consideration in Every Discussion About Stock Investing in Which We Participate.”

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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:

How do you adjust for the homelessness that Valuation-Informed Indexers have been known to suffer from?

That comment is pure emotion, Sensible.

Either irrational exuberance is a thing or it is not. If it is a thing, it’s something that we should be taking into consideration in every discussion about stock investing in which we participate.

There’s 43 years of peer-reviewed research showing that it is very much a thing.

Rob

“You’re Not Adjusting for the Effect of Irrational Exuberance. You Have Made That Same Mistake in Every Comment You Have Advanced During the First 22 Years of the Discussions.”

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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 haven’t helped any community members.  In fact, anyone that followed your advice would have been in much worse financial shape as your advice has greatly lagged the market for the past 25+ years.

You’re not adjusting for the effect of irrational exuberance. You have made that same mistake in every comment you have advanced during the first 22 years of the discussions. That’s the mistake that Greaney made in his retirement study.

Rob