A Rich Life

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

“Humankind Did Not Come to This Planet With an Instruction Manual Explaining How Everything Works. Shiller Only Published His Nobel-Prize-Winning Research in 1981. How the Heck Are We Supposed to Have Case Studies Showing the Superiority of Research-Based Strategies in Days Before the Research on the Most Critical Question (Market Timing) Was Even Published? The Demand for This Is Absurd.”

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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:

Why don’t you ever post any case studies of people using VII?

I am the co-author of research published in a peer-reviewed journal showing that Valuation-Informed Indexing strategies have been providing far higher returns at greatly reduced risk than Buy-and-Hold strategies for as far back as we have good records of stock prices. Market timing ALWAYS works. Market timing is price discipline. It is impossible for the rational human mind to imagine any circumstances in which it would stop working.

If we had had Robert Shiller’s Nobel-prize-winning research available to us in 1870, we would today have millions of case studies showing how superior Valuation-Informed Indexing is to Buy-and-Hold. Unfortunately, humankind did not come to this planet with an instruction manual explaining how everything works. Shiller only published his Nobel-prize-winning research in 1981. How the heck are we supposed to have case studies showing the superiority of research-based strategies in days before the research on the most critical question (market timing) was even published? The demand for this is absurd.

People need to follow the strategy before there can be case studies on it. And people need to hear about the strategy before they can begin following it. The very first step in making the transition from Buy-and-Hold to Valuation-Informed Indexing is to open every discussion board and blog on the internet to honest posting re the past 40 years of peer-reviewed research in this field. That’s why I have been advocating that as a society we take that step going back to the morning of May 13, 2002.

My best wishes to you.

Rob

 

John Greaney on May 23, 2002: ““I’m Not Aware of Anyone Who Has Been Successful in Timing When Stock Prices Are High or Low Over the Long Term. If You Possess This Unique Ability That Others Lack, Perhaps the Easiest Thing To Do Is To Adjust the Safe Withdrawal Rate By the Amount That You Consider Stocks To Be Higher Than They Have Ever Been. If Stocks Are 25% Higher, Drop the 4% Withdrawal to 3%. If You Feel Stocks Are 50% Higher Than They Have Ever Been, Then Drop the 4% Down to a 2% Withdrawal.”

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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:

As Wade Pfau said, Greaney gave you your answer the same day:

“I’m not aware of anyone who has been successful in timing when stock prices are high or low over the long-term. If you possess this unique ability that others lack, perhaps the easiest thing to do is to adjust the safe withdrawal rate by the amount that you consider stocks to be higher than they have ever been. If stocks are 25% higher, drop the 4% withdrawal to 3%. If you feel stocks are 50% higher than they have ever been, then drop the 4% down to a 2% withdrawal.”
Think of all the time you wasted over the last 20 years.

That’s not an answer to the question that I put on the table.

My question is: Can we talk about this stuff in civil and reasoned discussions?

I say that we should be able to do that. It is by talking things over that we all learn. I wanted to hear what thousands of my fellow community members had to say about these matters, not just what Greaney had to say. I knew what Greaney had to say before I advanced the post.

Rob

“This Is Not a Situation Where Someone Is Going to Craft a Perfect Three-Sentence Statement and That Is Going To Be the End of It. The Effect of Valuations on Long-Term Returns Affects Every Strategic Issue. We Need to Have Thousands of People Making Contributions From Thousands of Different Angles and We All Need To Be Learning From Those Contributions and Adjusting Our Own Takes As We Go.”

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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:

What I proposed in my post of the morning of May 13, 2002, is that we look at the second calculation. “

Is this the proposal you are referring to?

https://boards.fool.com/price-adjusted-safe-withdrawal-rates-17209214.aspx?sort=whole

And here is the relevant quote

“What I am thinking would be useful is a calculator that allowed you to choose three options: (a) a purchase at a time period in which stocks were priced low, using the conventional valuation criteria; (b) a purchase at a time-period in which stocks were priced about average; and (c) a purchase at a time-period in which stocks were priced high. After entering your choice of (a), (b), or (c), <b>the calculator would tell you what sort of long-term safe withdrawal rates were provided to other investors investing at similar price levels obtained in earlier historical periods.</b>

My guess is that such a calculator would show an investor investing during a time when low stock prices prevail would be likely to obtain a safe withdrawal rate higher than the 4 percent return that the conventional calculators (those using all investment price levels in their data set) suggest. Presuming that we see such prices again in the future, that would allow people with money to invest at that time to retire with confidence of obtaining a long-term safe withdrawal rate greater than the safe withdrawal rates suggested by the conventional calculators (higher than the 4 percent figure we often hear cited on this board, that is).

On the other hand, it would show a lower safe withdrawal rate for investors putting money into stocks today. Personally, I would be willing to accept a safe withdrawal rate assumption of less than 4 percent, given the low rates paid by safe investments like ibonds today. However, if the modified calculator showed asafe wtthdrawal rate for stock investments made at today ‘s prices of less than 2 percent, my inclination would be to go with ibonds or some similar investment.”

Those words offer a very good overview of the issues that I believe we all need to be examining. I have learned a lot as a result of the last 20 years of discussions. So I don’t know that I would sign on to every word of the post today. But I believe that the part that you quoted does a great job of pointing to the sorts of trade-offs that should be considered.

This is not a situation where someone is going to craft a perfect three-sentence statement and that is going to be the end of it. The effect of valuations on long-term returns affects every strategic issue. We need to have thousands of people making contributions from thousands of different angles and we all need to be learning from those contributions and adjusting our own takes as we go. I have better formed views today than I did at the time I wrote those words. But I certainly don’t think that I today know it all. I want to continue learning. For that to happen, we need to make everyone feel 100 percent free to post their honest thoughts.

That’s where I am coming from.

Rob

“This Stuff Is HARD. Not Intellectually. It’s Hard EMOTIONALLY Saying Things That Millions of People Very, Very, Very Much Do Not want to Hear.”

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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:

Are you referring to the book that you said would be out 12 years ago?

That’s the one!

It will be a humdinger when it is ready for public consumption, I promise you that muvh. Whenever I feel a little discouraged, I read the first three Parts (the first 27 chapters) and that gives me a confidence rush. Those first three Parts are perfectly polished today. Part Four needs a lot of work. The other Parts need work but are in better shape than Part Four.

‘I won’t put it out until it is perfectly ready. I am not willing to compromise even an inch re that one. This is to be a statement that lasts forever. The statement is coming together more quickly now than ever before. I think I will bring it home in not too much mote time.

I am 100 percent confident that it will be worth the wait. Yes, I wish that I had finished it sooner. But is there anyone else who has published a clear and complete statement on the dangers of Buy-and-Hold? If there is, I haven’t heard about him or her. If I end up being first, I guess you could say that it’s understandable why it took some time to make it perfect. This stuff is HARD.

Not intellectually. It’s hard EMOTIONALLY saying things that millions of people very, very, very much do not want to hear. They need to hear them but they very much do not want to hear them. So to be the one writing down the words of the message is very, very hard. But someone has to do it. And I think that it would be fair to say that the universe elected me to perform the task. So I am giving it my best shot.

My best wishes to you, as always.

Rob

“The Purpose of Long-Term Timing Is to Keep One’s Risk Profile Constant Over Time. That Aim Is Achieved on the Day That the Stock Allocation Change Is Made.”

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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:

“ We have never before seen prices remain at out-of-control levels for so long.”

Which means your timing scheme failed.

Not so. The purpose of long-term timing is to keeps one’s risk profile constant over time. That aim is achieved on the day that the stock allocation change is made.

Irrational exuberance tricks people and hurts people. All that you are showing when you point out that we have seen more irrational exuberance in recent years is that more people have been tricked and more people have been hurt than ever before.

I believe that we would all be far better off if we had been permitting honest posting re the last 40 years of peer-reviewed research all along.

Rob

“Market Timing Is the Brakes on the Car. It Is Market Timing That Keeps Irrational Exuberance (the Enemy of All Stock Investors) in Check.”

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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>I really don’t understand this statement. All you have done is repeated about a half dozen lines for the last 20 years. It probably took a total of 30 minutes to come up with that and then it was just hitting the repeat button. You really haven’t done a thing. Meanwhile, others have posted way more volumes of useful information, while holding down jobs and/or running businesses.</i>

The line that I have repeated thousands of times is: Valuations affect long-term returns. That’s what Shiller showed with his Nobel-prize-winning research, You are right that it is a very simple concept. But it is a single concept with far-reaching strategic implications. If valuations affect long-term returns, then stock investing risk is not stable but variable. That means that any investor seeking to stay the course in a meaningful way is REQUIRED to engage in market timing.

We didn’t always know that. There was a time when many smart and good people believed that market timing might not be absolutely necessary or even that there might be circumstances in which it would not be a good thing. There were about 15 years in which people believed that before Shiller published his Novel-prize-winning research “revolutionizing” (his word) the field. So we now have an ocean of material on stock investing that is outdated, discredited by the last 40 years of peer-reviewed research.

I am saying that we should open every internet site to honest posting That would permit us to get rid of all the outdated Buy-and-Hold stuff that is causing so much human misery and replaced it with true research-based stuff that HELPS people. Yes, the finding that market timing is required is only one thing, But it is a very, very big thing. It is like the finding that the earth revolves around the sun rather than the other way around, It changes everything.

You own behavior shows that you appreciate on some level of consciousness the importance of Shiller’s Nobel-prize-winning research. You have spent 20 years of your life blocking people’s ability to discuss and thereby learn about Shiller’s Nobel-prize-winning research, You wouldn’t do that if you didn’t think it was a big deal. It is a life-and-death matter to you that no one be permitted to discuss the new research, If they do, that will be the end of Buy-and-Hold. And you just can;t freakin’ stand it.

You say that people have put forward volumes of information, Lots of people have put forward lots of information, that’s for sure, And much of that information is good stuff considered in isolation. But none of that information is going to do us any good id our economic system collapses. And our relentless promotion of the Buy-and-Hold “strategy” has put is in danger of seeing our economic system collapse. We have to get the market timing thing right for any of the rest of it to amount to anything,

Market timing is the brakes on the car. It is market timing that keeps irrational exuberance (the enemy of all stock investors) in check, These other people are helping us to build a stronger engine and to have a better sound system and an amazing paint job and all the rest. But none of that good stuff counts for anything in a car without brakes. And there is 40 years of peer-reviewed research showing that market timing is the brakes on the car.

I am trying to give value to the good work that all of these other people are doing by opening every sire on the internet to honest posting re the last 40 years of peer-reviewed research, Without market timing, none of the rest works, We all need to be taking valuations into consideration at all times. When calculating safe withdrawal rates. And when doing any other calculation relating to stock investing. If it is true that valuations affect long-term returns (and that the market is not efficient, as was believed to be the case when Buy-and-Hold was being developed) then it is a logical impossibility that the Buy-and_Holders could ever get a single calculation right. Not good.

My sincere take.

Rob

Buy-and-Hold Goon to Rob: “Bengen and Trinity Use the Exact Same Methodology [as Greaney]”

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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 don’t consider my difference with Greaney to be a “quibble.’”

Bengen and Trinity use the exact same methodology

I have the same differences with Bengen and Trinity. This is why I say constantly that we need to open every discussion board and blog on the internet to honest posting re the last 40 years of peer-reviewed research in this field. If we did that, someone would object every time someone else brought up Bengen or Trinity. The discussion that followed would help people to think through these matters. In time I believe that Bengen and Trinity would be discarded, which would be a very good thing in the event that they really do not contain valuation adjustments (Hint: They do not).

It is a national scandal that Trinity passed peer review. Shiller’s research was publicly available at that time, The entire point of the peer-review process is to see that earlier research findings are taken into account in newly developed research. If valuations affect long-term returns, as Shiller showed, there is precisely zero chance that the safe withdrawal rate can be determined without taking the valuation level that applies on the day the retirement begins into consideration. I mean, come on.

Rob

Valuation-Informed Indexing #586: Can Buy-and-Hold and Valuation-Informed Indexing Co-Exist?

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I’ve posted Entry #586 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Can Buy-and-Hold and Valuation-Informed Indexing Co-Exist?

Juicy Excerpt: The reality is that the case that market timing is not needed is very weak. It’s a strange reality that that idea ever caught on. There obviously is research showing that short-term timing doesn’t work. So I don’t expect to see any change in the conventional view re that one. But the claim that market timing isn’t needed is not rooted in a research finding. It is rooted in an assumption, nothing more. 

“There Was a Huge Response to My Post. It Was Like a Nuclear Explosion. Outside of You Goons, the Most Common Thought Expressed Was: ‘Thanks, Rob, for Starting the Most Exciting Discussion in the History of This Board.'”

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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:

“Did “everyone” speak up about it on those occasions when Greaney would say that a 4 percent withdrawal is “100 percent safe” even at the sort of valuation levels that applied in the last 1990s. I don’t recall “everyone” doing that.”

Why would they speak up about it? No one said it, no one thought it, only one person obsesses about it. Repeatedly stating that the study did not contain valuation adjustments would be like repeated stating that the moon is not made of cheese.

There was a huge response to my post. It was like a nuclear explosion. Outside of you Goons, the most common thought expressed was: “Thanks, Rob, for starting the most exciting discussion in the history of this board.”

Investing Discussion Boards Ban Honest Posting on Valuations!

Rob

“It’s One Thing for Everyone to Know Something, It’s Something Else for Everyone to Be Able to Talk About that Something so that They Can Process the Knowledge and Put it to Good Use in the Real World.”

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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:

“Does the Greaney study contain a valuation adjustment or does it not. “

It does not. Everyone knows that. No one ever claimed otherwise. However you keep bringing it up to distract from the fact that you can’t answer questions that are posed to you.

I like it that you now say that “everyone” knows that the Greaney retirement study lacks a valuation adjustment (and thus is in error since there is 40 years of peer-reviewed research showing that valuations affect long-term returns). Did “everyone” speak up about it on those occasions when Greaney would say that a 4 percent withdrawal is “100 percent safe” even at the sort of valuation levels that applied in the last 1990s. I don’t recall “everyone” doing that. I recall there being a big commotion when I first worked up the courage to do it on the morning of May 13, 2002.

Did “everyone” know that slavery was wrong in the days when it was legal?

Did “everyone” know that smoking was bad in the days before we put cancer warnings on cigarette packages?

Did “everyone” know that pollution was hurting out planet in the days before “Silent Spring” was published and kicked off the environmental movement?

Did “everyone” know that it was wrong that women couldn’t vote in the days when that was so.

Sometimes everyone knows something one one level of consciousness but also suppresses what they know because there is a social taboo against speaking up about truths that are inconvenient to people with power and wealth and connections.

Yes, everyone who cares to know whether or not the Greaney study is in error knows that it is, Nothing could be more obvious. Everyone who cares to know the truth about stock investing also knows on one level of consciousness that one asset class can not always be the best choice and that putting ourselves at risk of a huge price crash also puts us at risk of an economic crisis and that valuation-based market timing is always a good thing (how could it ever be a bad thing for stock investors to practice price discipline when making purchases?).

It’s one thing for everyone to know something, It’s something else for everyone to be able to talk about that something so that they can process the knowledge and put it to good use in the real world. Today’s CAPE value would not be 40 if we had opened every discussion board and blog on the internet to honest posting re the last 40 years of peer-reviewed research in this field, as I proposed on the afternoon of May 13, 2002.

My sincere take.

And my best and warmest wishes to you, Evidence.

Rob