A Rich Life

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

“In the Stock Market, the Person Who Is Overcharged for the Stocks He is Buying LIKES 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:

Wendy’s won’t tell you the Junior Bacon Cheeseburger is $3 and then charge you $6 for it. The stock market won’t tell you that Wendy’s stock is $20 per share and then charge you $40 for it. Market forces determine stock price. If enough investors think that Wendy’s is going to be growing like crazy then that $20 per share stock could all of a sudden be worth $40. Likewise, if the $3 JBC is seen by everyone else as a bad value then Wendy’s will have to cut the price of the burger and may need to cut costs in other areas in order to stay in business. This is how markets work. Everyone has a say. No single person can dictate prices.

I don’t agree. I agree that this is how markets SHOULD work. But it’s not how they work in the real world. In the real world, there’s a thing called irrational exuberance that makes investors want to believe that their $50,000 portfolio is really worth $100,000. There’s a lot of money to be made encouraging those irrational beliefs. Thus, the Buy-and-Hold “strategy.” And, if anyone reports on what the last 43 years of peer-reviewed research says, the entire Buy-and-Hold house of cards comes crashing to the ground. Hence, the ban on honest posting.

There are times when the cashier at a Wendy’s overcharged the customer. The wonderful thing is that the customer who is overcharged usually complains. So this doesn’t become a standard practice. In the stock market, the person who is overcharged for the stocks he is buying LIKES it. When he pays double the real value for those shares, he believes that all of the shares he bought at early times are now worth two times their real value. So he is fine with being overcharged. If people reacted in the same manner to being overcharged in the stock market as they do to being overcharged in any other market, the CAPE value could never rise to where it resides today.

Market forces do NOT determine stock prices. For market forces to determine stock prices, we would need to open every site to honest posting re the peer-reviewed research. Relentless promotion of the pure Get Rich Quick/Buy-and-Hold strategy makes the stock market dysfunctional.

Rob

“If I Don’t Like It I Can Go to Their Competition, Make My Cheeseburger at Home, or Not Buy a Cheeseburger at All. What You’re Doing Is Like Not Buying the Cheeseburger and Getting Mad at Everyone Else for Not Agreeing With You About the Price of the Cheeseburger.”

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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 prices are what people will pay for them.if a Junior Bacon Cheeseburger at Wendy’s costs $3 then I consider it overpriced, but if other people think it’s a fair enough value at a fair enough price then Wendy’s will still sell their cheeseburgers. If I don’t like it I can go to their competition, make my cheeseburger at home, or not but a cheeseburger at all. What you’re doing is like not buying the cheeseburger and getting mad at everyone else for not agreeing with you about the price of the cheeseburger.

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. That’s how the dishonesty gets fixed. Greaney said that the safe withdrawal rate is 4 percent at a time when it was really 1.6 percent. That hurt people. All of us who knew about the error in the study should have felt free to call it out. None of us should have been made to feel afraid to call out the error.

When people in the community noticed that no one was calling out the error, they came to believe that the study was probably accurate. When I called out the error, people lost confidence in the study. That’s why Greaney freaked out. He wants people to continue to have confidence in the study and he has seen that that is not possible in a world where people feel free to call out the error in it. I want to see the study corrected. So I naturally support the idea of permitting honest posting re the research.

Rob

“Can You Buy Groceries With Your Opinion of the Peer-Reviewed Research? “

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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:

Can you buy groceries with your opinion of the peer reviewed research?  How about that for different strokes.

I cannot buy groceries with it.

But I can sleep at night knowing that I did right by my fellow community members, some of whom had become friends over the years. That matters more than groceries to me. Call me madcap!

Rob

“If Buy-and-Hold Were a Real Thing, the Buy-and-Holders Would Be Happy to Hear Challenges to Their Way of Thinking About How Stock Investing Works.”

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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:

Given your stellar track record of success, why are you not listed as a keynote speaker at the Bogleheads conference:

https://boglecenter.net/2024conference/

I should be. If Buy-and-Hold were a real thing, the Buy-and-Holders would be happy to hear challenges to their way of thinking about how stock investing works.

The ban on honest posting is what needs to change. If we permitted honest posting re the peer-reviewed research at every site, we wouldn’t all be living under the threat of a CAPE value of 35. You can have honest research-based posting or an insanely inflated stock price, you can’t have both.

Rob

“I Make an Adjustment for Irrational Exuberance and You Don’t. I Would Say That You Are the One who Doesn’t Understand How Stock Investing Works.”

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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 log into Empower and get most of my score from their scorecard, “Net Worth” section, any time of the day (some accounts do not sync up). My (incomplete) score is just under $1,086,000 as of right now. I’d have to log into a few other websites to get the full number. This number is much higher than $0 and I still plan to work for another 19 years.

I don’t think you understand how investing works.

I make an adjustment for irrational exuberance and you don’t. I would say that you are the one who doesn’t understand how stock investing works. You invest as if the last 43 years of peer-reviewed research in this field doesn’t exist.

Rob

Valuation-Informed Indexing #712: Your Stock Investing Strategy Should Be Simple — But Not Too Simple

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I’ve posted Entry 712 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s callled Your Stock Investing Strategy Should Be Simple — But Not Too Simple.

Juicy Excerpt: My objection to the idea of failing to engage in valuation-based timing is that, in a world in which valuations affect long-term returns (that’s the world we live in, according to Shiller’s Nobel-prize-winning research), that’s not staying the course. A world in which valuations affect long-term returns is a world in which stock investment risk is not stable but variable.

Valuation-Informed Indexing #711: Irrational Exuberance — Would Buy-and-Hold Exist Without It?

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I’ve posted Entry 711 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Irrational Exuberance — Would Buy-and-Hold Exist Without It?

Juicy Excerpt: Investors don’t want to hear what the research says. They say that they do. They think that they do. It sounds good to say that you are following an investment strategy that is rooted in the findings of the peer-reviewed research. But the last 43 years of research in this field threaten to spoil all the fun. Irrational exuberance is the thing that gives stock investing the appearance of a thrill ride. Take away irrational exuberance, and there will be no more bull markets, which means that there will be no more bear markets. This means that there would likely be no more economic crises. A stock market in which Shiller’s research findings were widely discussed would be a very different stock market than the one we have become accustomed to.

Valuation-Informed Indexing #710: Practicing Valuation-Based Market Timing Permits an Investor to Go with Higher Stock Allocations

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I’ve posted Entry #710 to my weekly Valuation-Informed Indexing column at the Value Walk site.  It’s called Practicing Valuation-Based Market Timing Permits an Investor to Go With Higher Stock Allocations.

Juicy Excerpt: What if the valuation-informed investor is happy to expose himself to as much risk as a Buy-and-Holder? In that case, he could buy more stocks than the Buy-and-Holder. The one big negative of the stock investment class is that stocks are a high-risk asset. The research that I produced with Wade Pfau shows that investors who are open to engaging in valuation-based market timing can thereby reduce their stock investing risk by nearly 70 percent. Reducing risk by that much permits the investor to go with an allocation strategy calling for more stocks than the 30 percent/60 percent/90 percent plan that permits the valuation-informed investor to match the lifetime stock allocation of the Buy-and-Hold investor.

Valuation-Informed Indexing #709: Getting the Stock Price Wrong Is Never a Positive, It’s Always a Big Negative

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I’ve posted Entry #709 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Getting the Stock Price Wrong Is Never a Positive, It’s Always a Big Negative.

Juicy Excerpt: I’ve had people argue with me that the many years of bad pricing that we have seen in the U.S. market in recent decades shows that Buy-and-Hold is a sound strategy. An investor who lowered his stock allocation because prices rose so high would have “missed out” on these years of high prices. Double gak! One cannot miss out on a mistake! Mispricing is bad. Always. No exceptions.