A Rich Life

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

Buy-and-Hold Goon to Rob: “You Are Very Good at Pointing Out That the Greaney Study Doesn’t Contain a Valuation Adjustment. You Are Much Less Good at Explaining Why It Needs One.”

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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 are very good at pointing out that the Greaney study doesn’t contain a valuation adjustment. You are much less good at explaining why it needs one.

It needs one because Shiller’s Nobel-prize-winning research shows that valuations affect long-term returns.

Price discipline is required in every market that ever existed. The only reason why anyone ever thought that it might be different in the stock market is that some economists believed in the Efficient Market Theory in the days before Shiller publushed his research. If the market were efficient, market timing would not be required and Buy-and-Hold would be the ideal strategy. But it’s not. If the market were efficient, there could never be overvaluation or undercaluation. The rational thing would be for investors to price stocks properly. The reason why they do not do that is that they are emotional humans. They like the idea of getting something for nothing. So they push prices up to unsustainable levels. That’s irrational exuberance. That’s the thing that makes stock investing risky.

The Bennett/Pfau research shows that we can reduce stock investing risk by nearly 70 percent by one simple step — encouraging all investors to practice market timing at all times. So long as all investors know to practice market timing, stock prices are self-regulating. When they get too high, informed investors sell a portion of their stocks and that pulls prices back to reasonable levels. When most investors are not practicing market timing/price discipline, prices get out of control and eventually we see a price crash and an economic crisis (because massive amounts of consumer buying power are lost in a price crash).

No market can function without price discipline. In the stock market, price discipline is achieved through market timing. So market timing is absolutely essential.

Stock market risk is not constant, it is variable. The CAPE value tells us how risky stocks are at a given point in time. The safe withdrawal rate is a risk assessment tool. It is not possible to calculate the safe withdrawal rate accurately without looking at the factors affecting risk and the valuation level is by far the most important factor affecting risk. In a world in which valuations affect long-term returns, it is a logical impossibility that anyone could calculate the safe withdrawal rate without taking into consideration the valuation level that applies on the day the retirement begins.

We have seen safe withdrawal rates as low as 1.6 percent and as high as 9.0 percent. People planning retirements need to know which it is for their particular retirement. Taking valuations into consideration makes it possible to calculate the safe withdrawal rate accurately and honestly and in a research-based way. A researcher who fails to take valuations into consideration is going to get the numbers wildly wrong. Retirement studies that get the numbers wildly wrong hurt people in very serious ways. Investment analysis should be aimed at helping people, not hurting them.

Rob

“We Cannot Have One Set of Laws for Every Field of Human Endeavor Except the Investment Advice Field and Another Set for the Investing Advice Field. That Is Just Not a Viable Long-Term Proposition.”

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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:

Like I said, you don’t have any proof.  You made it up.  On the other hand, we have proof of the harm you caused Wade.  Look at how people run away from YOU.  No you are all alone.

I won’t be alone or anything close to it on the day following the day on which we elect as a society to open every discussion board and blog to honest posting re the last 41 years of peer-reviewed research in this field.

We cannot have one set of laws for every field of human endeavor except the investment advice field and another set for the investing advice field. That is just not a viable long-term proposition. I believe that the ocean of human misery that people are going to witness as part of the next Buy-and-Hold Crisis is going to give more of us the courage to stand up to you Goons.

But we’ll see, you know? I’m not God. I don’t know everything. But I know for certain that I don’t feel one tiny bit comfortable saying that I believe that the Greaney retirement study contains an adjustment for the valuation level that applies on the day the retirement begins.

My best wishes to you and yours.

Rob

“The Greaney Retirement Study Has Not Been Corrected to This Day. It’s Been 20 Years. What More Proof Could There Possibly Be? It’s Not Normal for an Error in a Study That People Use to Plan Their Retirements To Be Pointed Out and for the Study to Remain Uncorrected for 20 Years.”

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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:

‘ Again, he only said that after he was threatened.“

Where is the threat? We can’t find it. Wade can’t find it? There is nothing to suggest that anything you say is true. To the opposite, we see in his private emails that he says that is it YOU that are causing him harm. That is direct evidence against you.

The Greaney retirement study has not been corrected to this day, Anonymous. It’s been 20 years. What more proof could there possibly be? It’s not normal for an error in a study that people use to plan their retirements to be pointed out and for the study to remain uncorrected for 20 years. I mean — Holy, moly!

Rob

“I Don’t Think Everyone Else Is at Fault. I Think We All Have a Get Rich Quick/Buy-and-Hold Impulse Residing Within Us Which Has Caused Us to Make Stock Investing More Risky Than It Needs To Be for As Long As There Has Been a Stock Market. And That We Were Blessed to Discover the Huge Missing Piece to the Stock Investing Puzzle When Robert Shiller Published His Nobel-Prize-Winning Research in 1981.”

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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:

Do you don’t have any current friends, you are broke and divorced, yet you think everyone else is at fault and not you.  Really?

I don’t think everyone else is at fault. I think we all have a Get Rich Quick/Buy-and-Hold impulse residing within us which has caused us to make stock investing more risky than it needs to be for as long as there has been a stock market. And that we were blessed to discover the huge missing piece to the stock investing puzzle when Robert Shiller published his Nobel-prize-winning research in 1981. After seeing how many people were excited to hear about the how-to implications of the new research, I became excited about the life-affirming possibilities of spreading the word all across the internet. So that’s what I am to do.

The nasty stuff advanced by you Goons shows that you too see how big an advance this is. If you didn’t think it was a super big deal, you would just permit honest posting and let people make up their own minds. You’re hurting. And the only way to ease the hurt is for all of us who believe that Shiller’s Nobel-prize-winning research is legitimate research to not permit ourselves to be intimidated and to assure each other that we have each other’s backs. You’re going to feel better about yourselves when we are all living better and fuller and richer lives. I’m sure!

Rob

Buy-and-Hold Goon to Rob: “Not a Single Person (Except for You) Believes in YOUR Interpretation of What One Guy Said. Not a Single Person Has Said That Your Posts Are Honest (Truthful), Except for You.”

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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:

“ Not quite, Anonymous. 10 percent of the financial community believes that Robert Shiller’s Nobel-prize-winning research is legitimate research. If those people all felt comfortable posting honestly at every site on the internet, we could get that 10 percent up to 20 percent. And then to 40 percent. And then to 80 percent.”

Investing Discussion Boards Ban Honest Posting on Valuations!

Rob

“The Behavior of You Goons Showed That Shiller Is Right — Stock Investing Is in Reality a Highly Emotional Endeavor. Instead of Prohibiting Discussion of the Emotional Behavior of Investors, We Should Be Focusing on It, Encouraging Everybody to Help Us Develop Strategies for Overcoming It, Strategies for Keeping Irrational Exuberance Under Control.”

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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 your plan was to go broke and get divorced. Got it.

That wasn’t even a tiny bit my plan.

When I saw the reaction among some Buy-and-Holders to my post pointing out the error in the Greaney retirement study, I knew that I had stumbled only something very, very important. If following a pure Get Rich Quick/Buy-and-Hold strategy causes people to go so totally bonkers, we all should be doing everything in our power to protect our fellow humans from that dangerous Get Rich Quick/Buy-and-Hold urge, no? So I developed a new plan — to do what I could to show people how dangerous Get Rich Quick/Buy-and-Hold always turns out to be in the long run.

For Buy-and-Hold to work, investors would have to be 100 percent rational in their investment choices. The behavior of you Goons showed that Shiller is right — stock investing is in reality a highly emotional endeavor. Instead of prohibiting discussion of the emotional behavior of investors, we should be focusing on it, encouraging everybody to help us develop strategies for overcoming it, strategies for keeping irrational exuberance under control.

Going pure Get Rich Quick ain’t the answer, Anonymous. I am sure.
Rob

Valuation-Informed Indexing #637: If Market Timing Works, Then It is Absolutely Critical

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I’ve posted Entry #637 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called If Market Timing Works, Then It Is Absolutely Critical.

Juicy Excerpt: Robert Shiller has described the intellectual leap from the finding that short-term price changes are unpredictable (University of Chicago Economics Professor Eugene Fama showed this in research published in the 1960s) to the Buy-and-Hold belief that the market sets prices properly as “one of the most remarkable errors in the history of economics.” I think that’s right. I don’t think that even those who agree with Shiller and me on this point (most stock investors do not agree) fully appreciate how much harm was done by this mistake and how much good would be done by correction of it.

Valuation-Informed Indexing #636: The Explanations Given for Bull Markets Are Almost Always Made Up

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I’ve posted Entry #636 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Explanations Given for Bull Markets Are Almost Always Made Up.

Juicy Excerpt: Humans have a deep need to make sense of the world about them. So, when stock prices rise, we advance and then come to believe in explanations for the price increases. What we do not do is to submit those explanations to the scientific scrutiny that would be needed to verify them as accurate.

Valuation-Informed Indexing #635: Economic Growth Is Gradual and Even, Big Jumps Should Make You Suspicious

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I’ve posted Entry #635 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Economic Growth Is Gradual and Even, Big Jumps Should Make You Suspicious.

Juicy Excerpt: Much of the economic upturns and downturns that we experience are just the product of the creation and disappearance of irrational exuberance. If we all were careful to adjust our stock allocation in response to valuation shifts, going with a lower stock allocation when the CAPE rose to a level that put our risk profile out of whack, stock prices would stabilize. We would no longer see runaway bull markets or scary bear markets.

Which means that the stock market would no longer be pumping pretend money into the economy to push it forward or taking pretend money out of the economy to hold it down. A more stable stock market would translate into a more stable economic system.

Valuation-Informed Indexing #634: The Theory Behind Buy-and-Hold Makes Intuitive Sense

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I’ve posted Entry #634 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Theory Behind Buy-and-Hold Makes Intuitive Sense.

Juicy Excerpt: Until the price crash hits, most investors remain unconcerned. Most aren’t even aware of changes in the CAPE value. Most of those who are shrug them off. So long as the market doesn’t crash, the CAPE value is just a number. A high CAPE value is a flashing red light. But a red light is not itself a terrifying event, it is only a warning that one is coming. Most investors drive merrily though the red light without a care.