A Rich Life

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

Podcast #176 — Volatility Is Optional

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I’ve posted Podcast #176 to the “RobCasts” section of the site. It’s called Volatility Is Optional.

A rational market prices in the effect of an eventual economic recovery. Thus, economic bad times need not cause a drop in stock price. Price drops are caused solely by our negative emotional reaction to bad economic news. As knowledge of Valuation-Informed Indexing spreads, more and more investors will be setting their stock allocations according to the long-term value proposition of stocks. The result is that price volatility — and with it, risk! — will diminish or disappear.

Podcast #174 — Deferred Market Efficiency: What It Is, What It Signifies

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I’ve posted Podcast #174 to the “RobCasts” section of the site. It’s called Deferred Market Efficiency — What It Is, What It Signifies.

The passives are wrong about the market being instantly efficient. But the economic realities do come to dominate over time. That’s why it is critical to take price into consideration when setting your stock allocation.

Buy-and-Hold Is Dead — These Studies Prove It!

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I’ve posted (in two parts) an article entitled Buy-and-Hold Is Dead — These Studies Prove It! to the Valuation-Informed Indexing section of the site.

Juicy Excerpt: Buy-and-hold is dead. The Stock-Selling Industry has made millions promoting it. But buy-and-hold investing cannot survive the wealth of academic research showing that long-term timing always works.

The Stock-Selling Industry has long promoted the dangerous idea that it is okay for investors to stick to a single stock allocation at all price levels by pointing to academic research showing that short-term timing (changing your stock allocation with the expectation of seeing a benefit for doing so within six months or a year) never works. However, the same historical data that shows that short-term timing never works also shows that long-term timing (changing your stock allocation in response to big price swings with the understanding that doing so may not yield benefits for five years or even as long as ten years) always works. Thus, it is every bit as accurate a statement to say that “timing always works” as it is to say that “timing never works.” Which statement holds depends on what form of timing it is that you are employing.

Set forth below are links to 20 stock valuation studies either showing directly that long-term timing works or showing that valuations affect long-term returns and thereby suggesting that long-term timing must work (if valuations affect long-term returns, it obviously does not make sense to go with the same stock allocation at dramatically different valuation levels).

The Valuation-Informed Indexer Experiences Less RIsk AND Enjoys Higher Returns

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I recently posted a Letter to the Editor to the Early Retirement Planning Insights site entitled The Valuation-Informed Indexer Experiences Less Risk AND Enjoys Higher Returns.

Juicy Excerpt: A stock allocation of 120 percent at a time of moderate prices is less risky than a stock allocation of 80 percent at a time of insanely high prices. If we were going to be theoretically consistent, we should either not count the benefits that a Passive Indexer gets from being at an 80 percent stock allocation at a time of insanely dangerous prices (because the risks here are so great that we simply refuse to look at the possibility, just as we refuse to look at the possibility of a VII investor being at a stock allocation of 120 percent at a time of moderate prices). OR we should look (at least sometimes) at the benefit that a VII investor gets from being able to go to stock allocations of higher than 100 percent at times of moderate or low prices.

The Housing Market Isn’t Efficient Either

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I recently posted a Letter to the Editor at the Early Retirement Planning Insights site entitled The Housing Market Isn’t Efficient Either.

Juicy Excerpt: For so long as market participants are being kept in the dark as to the true (valuation-adjusted) values of the things they are purchasing (whether stocks or houses), the markets are NOT self-regulating. For so long as we as a society continue to entertain the fiction that markets are AUTOMATICALLY efficient, they will remain wildly inefficient.

“Integrity Issues Are Always On-Topic”

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Tuesday’s blog entry set forth the text of an e-mail that I received from Mike Piper explaining his decision to delete a comment that I put to a blog entry at his Oblivious Investor blog reviewing the Bogleheads’ Guide to Retirement Planning. The comment pointed out the role of the authors in imposing a ban on honest posting on safe withdrawal rates and other important investment topics at the Vanguard Diehards board and at the Bogleheads.org forum. Set forth below is the text of my response to Mike:

Mike:

I believe that you are trying to take things in a positive direction. I applaud you

for that.  We need some people from “your side” taking more constructive and

reasonable positions.

If you do not object, I will run the text of your e-mail as a blog entry at my site

(if you do object, I will summarize it). Your e-mail is news. It tells people how

those among the Passive Investing advocates who are trying to take things

in a positive direction are handling these sorts of issues today.

I would be grateful if you would include a note in the comments section of

the blog entry saying that Rob Bennett posted a comment that you deleted on

grounds that it was not on topic and that I will be reporting on the matter at my

blog.

My view is that integrity issues are always on topic. Mel and Taylor would

not have a book contract but for the work done at those boards by thousands of

good and smart and honest people. The ban on honest posting is a betrayal

of those people and their intent in building the board. People thinking of

taking the retirement advice offered in the book into consideration need to

know whether the authors can be trusted. The fact that they favor a

ban on honest posting on safe withdrawal rates (SWRs) goes to this question.

I am happy to hear that there are few references to SWRs in the book.

That is obviously a good thing and I think it would be fair to say that it is

my efforts (supplemented by the efforts of the thousands of community

members who have expressed a desire that honest posting be permitted)

that are primarily responsible for that encouraging reality of today. The darker

reality is that Taylor and Mel have not learned what they could have learned

from their discovery that the Old School SWR studies got all the numbers

wrong. Everything that I have learned about investing over the past seven

years followed from my discovery of the errors in the Old School studies

and what I learned by thinking through the implication of the reality that

so many good and smart people could get their retirement planning advice

so terribly and dangerously wrong and fail to fix things for so many years

after the errors were brought to their attention.

Thanks for the tone evidenced in your e-mail. I of course do not agree

with your decision to delete the comment. I certainly understand why

the comment causes discomfort. I interpret your reasonable tone as

evidencing a desire to see these matters handled in a constructive and

positive way. If that happens, I am confident that every single member of

the Indexing community (including Taylor and Mel and John Bogle,

to be sure) will be feeling a whole lot better about themselves and about

their advocacy of the indexing concept in days to come.

Rob