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 other points, these are just YOUR words.

I obviously don’t say that every word that ever came out of my mouth previously came out of Shiller’s mouth. But I do say that the words below appear in Shiller’s book, which was published in March 2000:

“If, over some interval in the first decade or so of the twenty-first Century, the U.S. stock market is going to follow an uneven course down, as well it might – back, let us say, to its levels in the mid-1990s or even lower – then individuals, foundations, college endowments and other beneficiaries of the market are going to find themselves poorer, in the aggregate by trillions of dollars. The real losses could be comparable to the total destruction of all the schools in the country, or all the farms in the country, or possibly even all the homes in the country.”

The idea that market timing might not always be required was a mistake. We should have corrected the mistake 39 years ago, when Shiller published his peer-reviewed research discrediting the Efficient Market Theory, which is the only reason why even one person ever believed that it might not be required for all investors to practice long-term market timing (price discipline!).

Correcting big mistakes promptly matters.

My best wishes.

Mistake-Correcting-Advocate Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

Where did Shiller say that he could help everyone avoid an economic crash?

Here are some words from his book:

“If, over some interval in the first decade or so of the twenty-first Century, the U.S. stock market is going to follow an uneven course down, as well it might – back, let us say, to its levels in the mid-1990s or even lower – then individuals, foundations, college endowments and other beneficiaries of the market are going to find themselves poorer, in the aggregate by trillions of dollars. The real losses could be comparable to the total destruction of all the schools in the country, or all the farms in the country, or possibly even all the homes in the country.”

That’s the 2008 economic crisis.

It happened because of price indifference. In all other markets, people consider price when making a purchase. If we all did that when buying stocks, we would never see another out-of-control bull market. As prices rose, people would reduce their stock allocations. That would being prices back to reasonable levels. Stock prices are self-regulating in a world in which investors understand the long-term dangers of going with a pure Get Rich Quick/Buy-and-Hold strategy.

The only reason why Buy-and-Hold even exists is that there was once a time when academics believed that the stock market was “efficient” (that is, rationally priced). Shiller showed that that is not so. He showed that valuations affect long-term returns. If valuations affect long-term returns, then the market is not efficient and risk is not stable but variable. Investors seeking to keep their risk profile constant over time MUST practice price discipline. There is no other way to pull it off.

Buy-and-Hold was a mistake. It urges price indifference. Price indifference causes bull markets. And bull markets cause bear markets (because prices have to sooner or later return to fair-value levels for the market to continue to function). And bear markets cause economic crises (because the trillions of dollars of spending power lost cause people to spend less and cause the economy to contract). It would be better for every last one of us for us just to permit honest posting re the last 39 years of peer-reviewed research at every discussion board and blog on the internet. The only reason why we haven;t already done it is that it makes the experts in this field who have built careers around promoting Buy-and-Hold look really bad for people to learn about the 39-year cover-up, including all the criminal behavior that was employed to keep it going so long.

I believe that the next price crash will be the turning point. The human misery caused by price indifference will be too obvious to too many people at that time for the cover-up to continue. But I would think that, wouldn’t I? We are just going to have to wait to see how it all plays out to find out for sure.

My best and warmest wishes to you and yours.

Fan-of-Bringing-Economic-Crises-to-an-End Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

Have you found a job yet? Aren’t you worried? If the collapse you speak of is coming, those open jobs all go away, right?

I haven’t started looking. I have made clear in my earlier comments re this matter that I do not intend to start looking until I finish the book, which I expect will be at the turn of the year.

I am more worried about the economic collapse than I am about not finding a job. It is certainly true that it will be harder to find a job if there is an economic collapse. So I suppose that I am worried about that a little bit. But I am far more worried about the many ways in which an economic collapse will affect the lives of all of us for many years to come.

I wish that there was more that I could do to help us all avoid the collapse. I have been working that one hard for 17 years now. Shiller’s biggest breakthrough is that he showed us how to avoid economic collapses. That’s a huge advance. And I have written about it and tried to get the word out about it. You Goons have obviously done a lot to keep the word from getting out. I would rather be doing what I am doing than what you are doing. By a factor of 500.

The collapse is going to be horrible. I cannot bear to think about it. But I strongly believe that the positive here is 20 times more positive than the negative here is negative. I believe that the collapse will cause a greater number of people to question Buy-and-Hold and to stand up to you Goons. Once we open the entire internet up to honest posting re the past 38 years of peer-reviewed research, we won’t have to worry about these economic collapses anymore. So we will all be living better lives than we ever imagined possible in the Buy-and-Hold Era.

Do I like it that we will need to endure a great deal of pain to get to a better place? I do not. I hate it, hate it, hate it, hate it, hate it. But I am not running things. My job is to play the cards that I am dealt to the best of my ability. I happened to be born into a time when the peer-reviewed research showing us all how stock investing works in the real world would be published and when a group of internet Goons would work very, very, very hard to suppress discussion of it long enough to bring on an economic collapse. Whachagonna do?

I am happy that we have Shiller’s Nobel-prize-winning research available to us today. I am proud to have been leading the effort to get word of it out to every investor on the planet for 17 years now. I am sad that I have run into so much resistance. But I am just going to continue giving it my best shot.

There are always things to be worried about. And there are always things to be excited about. I think that we are a good people and I think that we will turn this into something very good in the final chapter of the saga.

We’ll see.

Worried and Excited Rob

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 show just one example where VII has worked for anyone?

It obviously couldn’t work for anyone before anyone knew about it. Shiller only published his “revolutionary” (his word) research showing that valuations affect long-term returns in 1981. And by 1981, Buy-and-Hold had become popular. A lot of people were overtaken by cognitive dissonance and stuck with Buy-and-Hold. And there was a huge bull market that made Buy-and-Hold look really good for a time. So there is only a small percentage of the population that has tried Valuation-Informed Indexing. I have never heard of anyone who tried it and was dissatisfied. The numbers show that it has worked for those who have tried it (presuming that you adjust for valuations, as Shiller’s research shows you must). It couldn’t possibly have done any better given the criminal behavior that we have seen from the Buy-and-Holders to keep people from learning what the last 38 years of peer-reviewed research have taught us about what works.

It’s not your place to deny people the information they need to make decisions for themselves. If you prefer Buy-and-Hold, that’s obviously fine. Follow it. And you should of course feel free to tell people that you don’t think that Valuation-Informed Indexing has been sufficiently tested and that they should avoid it. That’s also fine. Large numbers of people are going to listen to that advice, which if of course also fine. But, if you play it by the laws of the United States, there will also be large numbers of people who will choose to switch to Valuation-Informed Indexing once they hear the case for it advanced in civil and reasoned discussions. And that is of course also 100 percent fine. That’s how our system works. That’s how we come to enjoy learning experiences. We all say what we believe and some of us take one path and some of us take another path and over time we compare notes and as a society we advance to better places step by step.

If we followed a policy that no new idea could ever be considered until 100 percent of the population embraced it and had success with it, we would never benefit from any new ideas. We would not be the nation that we are if that were the policy that we followed. Did the committee that awarded Shiller his Nobel prize hold it back because less than 100 percent of the population today follows Valuation-Informed Indexing? They did not. They saw that he had discovered some amazing things about how stock investing works and went ahead and awarded him for helping us all out. Well, I believe that I should make use of the amazing things that I learned as the result of Shiller’s work and that’s 100 percent my choice, not yours. And there are millions of other investors who today would like to make use of Shiller’s work and that is their choice to make, not yours.

None of us has perfect knowledge. None of us is never wrong. None of us has the right to crush those who offer viewpoints other than our own so that no one else can hear them.

Valuation-Informed Indexing has worked in a general sense for as far back as we have records of stock prices. The peer-reviewed research that I co-authored with Wade Pfau shows that beyond any reasonable doubt whatsoever. The findings set forth in our research are stunning. Every investor alive should know about those findings and anyone who blocks people from learning about those findings through criminal behavior is responsible for any losses suffered as a result. In the event that stocks continue to perform in the future anything at all as they have always performed in the past, those losses will be in the trillions of dollars. So that’s bad stuff.

It’s not your place to tell others what to do. It’s your place to offer your thoughts. That’s helpful. But death threats are over the line. Demands for unjustified board bannings are over the line. Thousands of acts of defamation are over the line. Threats to get academic researchers fired from their jobs are over the line. If you reach a point where you believe that the only way in which you can defend your favorite investment strategy from research-based challenges to it is to engage in criminal behavior, it is time to go looking for a new favorite investment strategy. That ain’t the way, Anonymous.

I think that Shiller gave us all a great gift with his Nobel-prize-winning research. I have seen more than enough to become a devoted follower. You don’t feel the same. So be it. That doesn’t mean that you cannot be my friend (at least it doesn’t mean that from my end). But it means that I cannot today say the same things about stock investing that I would have said about it in 1980. Shiller changed the world’s understanding of how stock investing works in a fundamental way. I am part of the world and it is my job to tell people what I truly believe about this subject when I discuss it. So that is what I do.

If Shiller is right, it was the promotion of Buy-and-Hold strategies that was the primary cause of both the Great Depression and of the economic crisis of 2008. Was Buy-and-Hold “working” at those times? I say “no.” You will say that there were some individual investors in those times who declared that Buy-and-Hold was working for them. But the overall effect of promotion of the strategy was catastrophic when you consider that it caused millions of failed retirements and hundreds of thousands of business collapses and millions of people to be thrown out of their jobs. I don’t call that “working.” People need to know about that side of Buy-and-Hold too. Shiller’s work changes our understanding of how stock investing works in hundreds of ways and each and every one of us needs to hear about all of them (we of course all have the right to decide how much of what we hear is legitimate or not).

My best wishes to you, my skeptical friend.

VII Advocate Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:

Rob,

You can’t argue facts. Your own example proves that you can’t time the market. Anyone following your advice would have had a disaster on their hands.

My example shows that you CAN time the market. In fact, the entire history of the market shows this.

Stocks are priced today for a price drop of between 50 percent and 75 percent. Look at where you will stand after such a price drop and you will see that you would have been better off if we had just let stock prices increase each year for the amount of economic growth experienced that year and did not pump it up with any of the irrational exuberance stuff. Phony gains that do not remain in place HURT investors. You don’t have to worry about missing out on that stuff. You WANT to miss out on that stuff. Irrational exuberance is not a plus, it is a minus.

Irrational exuberance, which Buy-and-Hold encourages, is a poison. When the irrational exuberance disappears (it always does), trillions of dollars of consumer buying power leave the economy. Hundreds of thousands of businesses go belly up. Millions of workers lose their jobs. This is a good thing how?

We would be better of just reporting the numbers accurately. It is only our Get Rich Quick urge that objects to this. We should be encouraging investors to RESIST their Get Rich Quick urge, not telling them to give in to it.

That’s my sincere take, in any event.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:

You have been making your predictions of a crash for a very long time. You have been wrong time and again. All you have done is proven you can’t time the market. Despite your continued bashing of buy, hold and rebalance, you have actually provided us a case study in which people would be better off following such a strategy. Despite market corrections, stock have always gone up in the long run. Given your failed retirement strategy, you would think you would have learned by now.

It’s true that I have been expecting to see prices crash for a long time. And it’s true that it hasn’t happened yet. We don’t disagree on those basic facts.

We disagree on the idea that this shows that “you can’t time the market.”

What matters is whether today’s portfolio values are real and lasting or not. I say that they are comprised 50 percent of irrational exuberance. So we know that a crash is coming. No, we do not know precisely when it will hit. But we know with something close to certainty that it will. And that we should be taking that reality into consideration in all of our financial planning.

If someone smokes three packs of cigarettes per day, can you say precisely when he is going to die from cancer? You cannot. But we can say with certainty that smoking three packs of cigarettes per day is not a good idea. If someone is 150 pounds overweight, can you say precisely when he will have a heart attack? You cannot. But we can say with certainty that it is not a good idea to eat so much that you are 150 pounds overweight.

You focus relentlessly on the question of whether price crashes can be predicted to the day. I don’t see why it is such a big deal in your mind. If we know that high stock prices cause price crashes and that price crashes cause horrible pain to millions of people, it seems to me that we know all that we need to know to know that we need to do all that we can to keep stock prices at reasonable levels. To me, picking the precise day that a crash is going to come is a parlor trick. It’s such a trivial thing to do that it doesn’t interest me. But being able to avoid crashes by explaining to investors how to practice price discipline when buying stocks (by engaging in market timing!) is a wonderful, wonderful advance, the biggest advance ever seen in this field.

If we still haven’t seen a crash in the next two years and prices are still as high as they are today I will still be predicting a crash and urging people to sell some stocks, enough to get price back to reasonable levels. And you will still be criticizing me for it. And I will still be not understanding the criticism,

We see things from different perspectives.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

Dear Mr. Bennett,

Based on the stock crash today, it seems you must be correct. We are ready to put your story on the front page of our paper. Please stop by our offices so that we can get started. We will also arrange for Brinks to have a truck on standby as you begin to collect your $500 million in settlement payments.

When this comment was posted last Monday, I deleted it because it is so obviously lacking in good intent. I have reconsidered and approved the post and am writing this response because I believe that there is a point being made implicitly in the comment that should be addressed.

The comment was advanced on a day when there was a drop in stock prices. The idea here is to make a sarcastic observation on the price drop suggesting that all that Valuation-Informed Indexing is about is a belief that stock prices sometimes drop dramatically and that, if Buy-and-Holders accept that as a reality (they do), then there is really no big problem with the 17-year (or 38-year, if you date it back to 1981) cover-up. There is a big problem.

I of course accept that Buy-and-Holders acknowledge that stock prices at times fall hard. All Buy-and-Holders get that. The dispute is over whether those big price drops can be effectively predicted and over whether those big price drops, which do great harm to millions of investors and indeed to our entire economic system, can be avoided. Whether they can be predicted and avoided depends on whether stock price changes are caused by economic developments or by shifts in investor emotion. If price changes are caused by economic developments, prices should fall in the pattern of a random walk and they can be neither predicted nor avoided. If price changes are caused by shifts in investor emotion, long-term CAPE values should fall in a repeating hill-and-valley pattern (they have done so since 1870, which is as far back as we have good records of stock prices) and they can be both predicted and avoided (if we tell investors when high prices make stocks a poor value proposition, people will lower their stock allocation when prices reach crazy high levels and the sales will pull prices back to reasonable levels).

The sort of price change that we saw last week is no big deal and Buy-and-Holders are fighting a straw man when they show that that particular price drop was a matter of little significance. What the Valuation-Informed Indexers and the last 38 years of peer-reviewed research say is that stocks were a dangerous asset class both before last week’s price drop and after it (because the CAPE value was insanely high at both times). Investors should always practice price discipline. Stocks can come back from a price drop of the type that we saw last Monday. But the fact that stocks are far more dangerous an asset class when they are at today’s prices than they would be if prices were at normal levels remains an important reality. It doesn’t matter too much when the price drop will come. The thing that matters is that it WILL come if stocks continue to perform in the future anything at all as they always have in the past. Investors need to know that and to adjust their stock allocation in response to that critically important investment reality.

I hope that helps a tiny bit, New York Times.

Brinks-Truck-Awaiting Rob

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 can’t just make up accusations. You need proof and the only death threats that so have seen have come from you. I am always willing to speak out about someone making threats or being abusive, but you have never offered any direct proof. To the opposite, so have seen direct proof in which you misrepresented comments people have made, leading to false and slanderous statements.

Now if you want to show me or anyone actual comments backing up your claims, so will be first in line to condemn those comments. Lack of support then means we can only conclude you have been lying.

The ball is in your court.

The proof is in the comments, Anonymous. You look at a comment and you ask yourself “Is that the comment of a person who is trying to learn or is that the comment of a person who is trying to suppress learning?”

As a nation, we have been suppressing learning for 38 years now. If valuations affect long-term returns, as Shiller’s research shows, there is zero chance that a Buy-and-Hold strategy could ever work for even a single long-term investor. If valuations affect long-term returns, then an investor must adjust his stock allocation in response to big price swings to keep his risk profile roughly constant. If valuations affect long-term returns and short-term timing doesn’t work, then the only way that an investor can practice price discipline when buying stocks is to adjust his stock allocation in response to big price swings (that is, to practice long-term timing). Price discipline is what makes markets work. Throw away price discipline and you make a market dysfunctional. Throw away price discipline and you force a market to crash (the core purpose of a market is to get prices right and, if you throw away price discipline, the only possible way that the market can achieve that goal is to crash prices).

Any person who cares to can see thousands and thousands and thousands of comments at this site in which Buy-and-Holders reveal a desire to suppress learning rather than to learn. And that’s so at every other investing site as well to a lesser extent (it’s to a lesser extend because only a tiny number of the conversations are about Shiller’s research and so there is much less suppression in evidence — but the discussions that we all need to have are still not taking place). We need to have these discussions so that we can learn what the last 38 years of peer-reviewed research is trying to teach us and we are not having them. We are killing ourselves.

Now —

Will that change with a price crash of 50 percent or more?

I believe that it will change. But we are going to have to watch it play out to know for certain. If we were all thinking clearly, there never would have been any suppression of discussion of Shiller’s “revolutionary” (his word) research findings in the first place. As a society, we very, very, very, very much want Buy-and-Hold to remain the dominant model for understanding how stock investing works. If Buy-and-Hold fails, that means that we have been giving bad investment advice in thousands of books and podcasts and calculators for close to four decades now. We have caused very serious harm to millions of investors. We have caused hundreds of thousands of businesses to fail (trillions of dollars of spending power leave the economy when stock prices crash and that means that consumers must cut back on their purchases of goods and services). Millions of workers lose their jobs when hundreds of thousands of businesses go under. It’s always hard to work up the courage to say the words “I” and “Was” and “Wrong.” In this case it is positively devastating.

But, if Shiller’s Nobel-prize-winning research is legitimate research, we don’t have any choice. We have put the matter off and put the matter off again and put the matter off again for 38 years now. But a 50 percent price crash that remains in place for a significant amount of time will do as much damage as the 2008 economic crisis or more. The damage that we will be bringing on ourselves will be too great for us to continue putting off the need to launch a national debate on Shiller’s amazing research findings. The price of continuing to suppress discussion will have grown too high.

Or so Rob Bennett believes in any event, you know?

My job is to make the transition from Buy-and-Hold to Valuation-Informed Indexing as painless as possible. It cannot be 100 percent painless. Not after 38 years of suppression of discussion of these terribly important matters. But there are different paths available to us. We can elect to tear ourselves apart over the mistakes of the past. Or we can acknowledge our good fortune in now having 38 years of peer-reviewed research available to us that shows us for the first time in history how stock investing works in the real world and pull together and achieve great advances.

I favor the latter path. Which means that is is my job to do everything in my power to help people see the thousands of ways in which the Buy-and-Holders have helped us over the years while also insisting that we bring the suppression of honest posting to a full and complete stop. It is the suppression of honest posting that has been killing us for a long time now. We need to stop destroying ourselves. We need to appreciate our good fortune and bring this crazy abusive stuff to a full and complete stop.

The abusive stuff is not even a tiny bit hard to see. It is omni-present everywhere there are honest people who try to engage in discussions of the far-reaching implications of Shiller’s research finding that valuations affect long-term returns. The thing that has been lacking so far is an insistence on the part of all of us that our laws and our social norms saying that honest posting on the peer-reviewed research in this field be permitted everywhere be recognized. Will a larger number of us start insisting on that after we have experienced the pain that we will all feel when prices crash? I sure think so. I think that the pain that we will all experience will break us out of our complacency and we will all pull together to survive the economic crisis that we have brought on with our relentless promotion of the Buy-and-Hold concept.

I am optimistic. I believe that our future looks good. I believe that we are going to experience a mountain of pain. But I believe that there are six mountains of good stuff on the other side of that one mountain of pain. We just have to work up the fortitude to do what it takes to get us there. I am scared. I am not saying that I do not have concerns. But I remain optimistic re the long term. I have seen too many brave and intelligent and kind people try to help us out over these past 17 years not to be optimistic re what we will see after the next crash.

The efforts to suppress learning rather than to engage in it are there for the eyes of any open-minded investor to see in thousands and thousands of posts put to this site. Will more of us open our minds to the possibility that valuations really do affect long-term returns in the days following the next price crash? I think it is a lock. But I am one of those darn flawed humans. I never thought that it would take 17 years. I thought that it would take two or three days. So it is certainly at least theoretically possible that I am wrong. Time will tell the tale.

I wish you all the best that this life has to offer a person. Flawed human or not, I know with 100 percent certainty that that one is so. Are you okay with showing a little patience waiting for the other one to play out? It is my sincere personal assessment that none of us has any other realistic choice.

My best wishes to you.

Rob

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 introduce me to this VII investor that has been following VII since 1870? I would like to meet him and ask him a few questions.

This is why I have been calling for the launching of a national debate re these matters. That national debate will be our opportunity as a people to ask ourselves some profound questions about our behavior as investors going back to the time when the first stock market opened for business.

There is only one difference between Buy-and-Hold and Valuation-Informed Indexing. Buy-and-Hold is rooted in a belief that investment choices are rational. If the decisions we make about stock investing are rational, it follows that the market price does a good job of reflecting the true value of our stock holdings. Buy-and-Hold makes intuitive sense. OF COURSE investors are rational when deciding what to do with their retirement money. Their financial futures are at stake. Why would they not make rational choices?

Valuation-Informed Indexing is rooted in a very different premise, one that most people find highly counter-intuitive. Shiller’s wife has a degree in psychology. She got him interested in doing the “revolutionary” (his word) research that he did by talking to him about the many ways that research in the psychology field shows that humans are generally NOT entirely rational creatures. We certainly engage in large amounts of rational behavior. We are the rational animal. But the full reality is that we are also the rationalIZING animal. We lie to ourselves. All the time. Our brains are capable of discerning truth. But when our brains tell us something to which we have a strong emotional repulsion, we turn off our brains and go with what we want to believe over what the evidence shows to be the reality.

There are many alcoholics who are highly functioning people. They hold good jobs. They make lots of money. They help people. They are respected in their communities. All the while, they are engaging in behavior that threatens to destroy their family and their reputation and their health. What happens if a friend tries to tell an alcoholic that he has a problem that he needs to address? The alcoholic gets angry and insists that he can quit drinking any time he pleases. He has no problem. He will give up the friend if it comes to that. He will not give up the drink that is in the process of destroying him. Rational? Not even a tiny bit. But the alcoholic is not dumb. He develops in his mind a logical case for why he has the drinking under control that is strong enough for him to persuade himself that it is so. He is not entirely persuaded. If he were, he wouldn’t get angry when the subject came up. He is sufficiently persuaded to be able to go on drinking, which is his deep emotional desire.

That’s the story, Anonymous. We invest irrationally. We delude ourselves. We are all in on it. The investment advisers are in on it. The academic researchers are in on it. The bloggers are in on it. The book authors are in on it. To get to a CAPE value of 30, we pretty much all need to be in on it. If we permitted the Buy-and-Hold dogmas to be challenged in public places, the illusion would shatter and we would gain the ability to invest more effectively. That sounds like a good thing just as it sounds like it would be a good thing for the alcoholic to stop drinking. But the idea of not drinking is hated by the alcoholic and so he uses all his energies to develop ever more complicated rationalizations for why his drinking behavior is just fine. And the idea of acknowledging that our stock portfolios are worth only one-half of what we have fooled ourselves into believing they are worth is hated by the Buy-and-Hold investor with a burning, undying hate. He will stop the discussion of the 38 years of peer-reviewed research showing us that this is so if it is the last thing he does.

Shiller is trying to help us. He is trying to take us to a new place, a better place, a place where we can earn higher returns while taking on less risk. But, to get there, we need to work up the courage to acknowledge that we did not always know everything that there is to know about stock investing, that it was still possible in 1980 that we could achieve huge advances if we continued to perform research and to give those who came up with revolutionary research findings a fair hearing.

You say that you want to ask questions of the investor who has been around since 1870. The question that you should be asking is: “Why have you f’d up so terribly so many times? U.S. stocks provide a long-term average return of 6.5 percent real. How could anyone ever come up with a strategy that would cause that investment class to be less than a stellar choice? But look at what the price indifference that is at the core of the Buy-and-Hold project has done to us over and over again over the years. A Great Depression when the CAPE value hit 33? Huh? What the f? Stagflation when the CAPE value hit 25? Huh? What the f? A Great Recession that caused millions to lose their jobs and that has brought on a good bit of political unrest in recent years when the CAPE value hit 44? Huh? What the f?

The question that I would ask the 1870-2019 investor is: Why do you keep doing this to yourself? Why not just practice price discipline when buying stocks as you do when you buy sweaters and bananas and automobiles? Wouldn’t that make more sense?

Valuation-Informed Indexing makes all the sense in the world. The trouble is that it makes as much sense as telling an alcoholic to join a 12-step program. It could solve a huge problem. But it would solve the problem by causing humans to give up a cherished illusion and the emotional humans love their illusions so much that they will fight very, very, very hard to hold on to them.

Shiller is trying to help us. The peer-reviewed research in this field is trying to help us. The thousands of our fellow community members who have expressed a desire that honest posting be permitted at every discussion board and blog on the internet are trying to help us. Will we let them? That’s the question that we most need to be asking the 1870-2019 investor, who is us.

I think that we are going to permit ourselves to advance to a far superior approach to investing, the first true research-based strategy. I wish that we were not doomed and determined by our emotional nature to hurt ourselves so seriously before getting to the point where we work up the courage needed to take the leap. But that’s the reality of the day. We want to move forward. If we didn’t want to move forward, we would not have awarded Shiller a Nobel prize for his work. But we very, very, very much want to keep drinking too. We want to believe that the numbers on our portfolio statements are rooted in economic realities and that we can count on those fictional amounts to finance our retirements. We are for the time stuck standing at the threshold of something amazing and afraid to take the step forward that we need to take to live better lives from that time forward.

I wish us luck!

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry posted at this site:

See this:

http://www.city-data.com/forum/economics/3044226-hbo-documentary-2008-meltdown.html

I thought you said that buy and hold caused the Great Recession.

I did not watch that video because it is 90 minutes long.

Yes, I do believe that it was the relentless promotion of Buy-and-Hold strategies that served as the primary cause of the 2008 economic crisis. I do not say that there were no secondary causes. I say that there is always going to be something that is going to cause an economic crisis once valuation levels go to insanely high levels.

If honest posting were permitted, stock prices would be self-regulating. High stock prices make stocks less appealing because they bring long-term returns down. So high prices bring on sales, which lower prices. It all works out. However, when there is a Ban on Honest Posting, investors cannot gain access to the information they need to invest rationally. It is the market’s core job to get prices right. When the Buy-and-Holders persuade most investors to disdain the exercise of price discipline, it becomes impossible for prices to be set right through normal market operations. That’s when you see a crash. When a crash is the only means by which the market can get prices right, the market crashes prices. It is the closing off of other options for getting the price right (that is, it is Buy-and-Hold) that is the true cause of crashes. Markets in which price discipline is widely practiced do not crash.

There are always secondary causes for an economic crisis. But those factors would not cause nearly the same amount of human misery if they evidenced themselves at a time when prices were moderate or low. The true, real, deep cause of stock crashes is price indifference (Buy-and-Hold), in my assessment.

Rob