A Rich Life

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

Beyond Buy-and-Hold #35 — Why Stock Market Timing Scares Us

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I’ve posted Column Entry #35 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called Why Stock Market Timing Scares Us.

Juicy Excerpt: Market timing is the answer. For those of us willing to engage in market timing, stock returns are highly predictable and thus stocks are a high-return/low-risk asset class.

But most of us are not today willing to do this. Most of us disdain market timing.

Huh? We have available to us a means of investing in stocks that offers much higher returns at greatly diminished risk and we are not interested? How could this be so?

Market timing scares us.

There are 10 reasons.

Valuation-Informed Indexing #40 — Overvaluation Is Theft

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I’ve posted Column Entry #40 at my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Overvaluation Is Theft.

Juicy Excerpt: What throws us is that the theft being practiced when stocks are selling at three times fair value (as they were in January 2000) is a strange kind of theft. In the ordinary kind of theft, Ralph takes what belongs to Dan. The wrong is clear; Ralph needs to give back what he took so that Dan can be made whole. In the theft being practiced when stocks are overpriced, the Year 2000 version of Ralph and the Year 2000 version of Dan take from the Year 2011 version of Ralph and the 2011 version of Dan.

Overvaluation is a form of mispricing, which means it is a form of theft. But there is no person available to file the police report because it is not a person from whom the money to cover the improper charge is taken. A mispricing of stocks is a form of theft in which stock returns that properly belong to one period of time are taken from it and enjoyed in an earlier period of time instead.

ITNR #50 — Game Changers: Part Two

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I’ve posted Column Entry #50 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called Game Changers: Part Two.

Juicy Excerpt: Stock returns are slightly predictable at five years out but the correlation between valuations and returns is not statistically significant at this point. At 10 years out, statistically significant return predictions are possible but the range of possible returns is large; that is, the precision of the predictions that can be made is not great. Greater precision is possible at 15 years out and the valuation level that applies on the day of an index fund purchase tells us 78 percent of what we need to know to know the return that applies at 20 years.

Beyond Buy-and-Hold #34 — 10 Important Things the Buy-and-Holders Got Right

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I’ve posted Column Entry #34 of my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called 10 Important Things the Buy-and-Holders Got Right.

Juicy Excerpt: I promote myself as the most severe critic of Buy-and-Hold Investing alive on Planet Earth today. Please don’t think that it follows that I am not grateful for the many important things that the Buy-and-Holders got right. Set forth below is a list of ten powerful insights brought to us by the smart and good and hardworking people who developed the Buy-and-Hold concept.

Valuation-Informed Indexing #38 — Stock Prices Are Not a Random Walk: Here’s More Proof!

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I’ve posted Column Entry #38 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Stock Prices Are Not a Random Walk: Here’s More Proof!

Juicy Excerpt: We need to get this right. If stock prices really do play out in the pattern of a random walk, Buy-and-Hold is the ideal investing strategy. If stock prices are random, they are unpredictable. If stock prices are unpredictable, then the only way to obtain the high returns offered by stocks is to remain highly invested in them at all times.

However, if stock prices play out pursuant to discernible, repeating patterns, stock prices are predictable. To the extent that stock prices are predictable, it is possible to limit one’s participation in the stock market to times when long-term outcomes are likely to be appealing. That is, to the extent stock prices are cyclical rather than random, stock risk is optional and can be avoided by investors wishing to obtain the high returns associated with stock investing without taking on the high levels of risk commonly thought to be part of the stock investing experience.

The Good Side of Stocks’ Lost Decade and Seven Other Guest Blog Entries

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Set forth below are links to eight Guest Blog Entries that I wrote on the Valuation-Informed Indexing strategy:

1) The Good Side of Stocks’ Lost Decade, at the Consumerism Commentary blog;

2) Six Dangerous Investing Myths, at the Barbara Friedberg Personal Finance blog;

3) How To Use Valuation-Informed Indexing: Part One, at the Balance Junkie blog;

4) How To Use Valuation-Informed Indexing:Part Two, at the Balance Junkie blog;

5) Retirement Planning As If Valuations Mattered, at the Retire Happy! blog;

6) The No-Stock Portfolio: Zero Stocks for 15 Years and Doing Fine!, at the The Digerati Life blog;

7) Long-Term Trend Investing, at the Stock Trend Investing blog ; and

8 ) What If Everything You Thought You Knew About Stock Investing Turned Out to be Wrong?, at the Free Money Wisdom blog.

ITNR #49 — Game Changers: Part One

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I’ve posted Column Entry #49 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called Game Changers: Part One.

Juicy Excerpt: I use this column to spread the word about the exciting investing insights that follow from Yale Economics Professor Robert Shiller’s research showing that long-term stock returns are to a large extent predictable and that stock risk can thus be greatly diminished. My aim in this column and in the next is to put forward brief descriptions of 20 of the most important insights and thereby provide an overview of what this new model for understanding how stock investing works has to offer.

Beyond Buy-and-Hold #33 — My Weight Problem and Your Investing Problem

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I’ve posted Column Entry #33 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called My Weight Problem and Your Investing Problem.

Juicy Excerpt: I don’t think that those of us who follow valuation-informed investing strategies are better in any ultimate sense than those who do not. I certainly believe that the strategies are more effective. But we have our fears that cause us to entertain our fantasies too (it is fantasy thinking for me to persuade myself even for a few moments that eating another chocolate chip cookie is going to solve any of my problems). We’re the same as all the other humans except that we’ve mastered some things that the other humans have not yet mastered (just as they have mastered some things that we have not yet mastered).

Valuation-Informed Indexing #37 — Stock Prices Are Not a Random Walk: Here’s Proof!

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I’ve posted Column Entry #37 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Stock Prices Are Not a Random Walk — Here’s Proof!

Juicy Excerpt: Some people believe that stock prices follow the pattern of a random walk. Some do not. Let’s not argue. We live in the age of the internet. Let’s check it out!

ITNR #48 — Earthquake + Tsunami + Meltdown = Opportunity!

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I’ve posted Column Entry #48 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s titled Earthquake + Tsunami + Meltdown = Opportunity!

Juicy Excerpt: All restaurants adopt a variable pricing policy. Instead of the menu listing a single price that applies no matter what, prices are now determined by how many customers enter the restaurant each day. On days when there are few customers, prices are rock-bottom low. On days when there are many customers, prices go to the moon. The food served and the service provided remain the same regardless of how high prices go. Do you still consider a line outside of a restaurant as a good sign regarding the value proposition associated with eating there?