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

Tell us about your track record of investing over the last 2 decades.  What has your rate of return been?

The last 26 years has been the worst time to invest in stocks in the history of the United States. Never before has the CAPE value risen so high and then remained at insanely high levels for so extended a period of time. Certainly those years should be taken into consideration by all investors seeking to determine their stock allocation. But to look solely at the past 26 years of stock-market history while ignoring entirely the 126 years of stock market history that occurred before this time-period when Get Rich Quick/Buy-and-Hold got entirely out of control makes no sense. Both sorts of time-periods matter. We should be looking both at time periods when irrational exuberance is killing nus all and at times periods in which investors have demonstrated an ability to keep their Get Rich Quick/Buy-and-Hold urges under at least a reasonable amount of control.

I am happy to discuss the entire historical record. That’s why I co-authored (with Wade Pfau) peer-reviewed research doing just that. As you know, that research showed that “Yes, Virginia, Valuation-Informed Indexing works!” (in Wade’s words). I am not willing to select relatively short time-periods in the historical record and pretend that I believe that they tell us something important in isolation. Times in which Get Rich Quick/Buy-and-Hold “strategies” become insanely popular are inevitably followed by time-periods of great human suffering and economic destruction. To look at the Get Rich Quick/Buy-and-Hold years in isolation without giving consideration to the pain they bring on for the entire nation would be irresponsible and misleading and dangerous and foolhardy.

A drunk driver can obtain good results for a limited amount of time. To look only at what happens in the time before he crashes gives a biased view of the merits of drunk driving. To get the full picture, you need to be willing to look also at the death and heartache his dangerous driving practices inevitably bring on. So it is with Buy-and-Hold/Get Rich Quick. Get Rich Quick/Buy-and-Hold can APPEAR to give good results for a limited amount of time. But viewed from a long-term perspective, those appearance are an illusion. You need to be willing to look at the entire picture to develop an informed understanding of the realities. That’s what Wade and I did in our research, which you Goons very, very, very much did not want people to see or talk about.

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:

“Valuation-Informed Indexing is a long-term strategy. “

Which is why I asked “What <b>long term</b> real return are they offering at the minute?”

If I am making a decision as to what my asset allocation should be today I am going to compare the long term returns being offered at current prices by stocks, bonds and cash.

The CAPE value that applies for stocks at the moment affects that determination. That’s the question on the table — Should investors take the CAPE value into consideration or not? If you ignore the CAPE value and just stick with the same stock allocation at all times, you are a Buy-and-Holder. If you take the CAPE value into consideration, you are a Valuation-Informed Indexer.

If the CAPE value is high, that makes stocks less appealing because high CAPE values translate into low long-term returns, It also makes cash-like asset classes more appealing because high CAPE values increase the probabilities of a price crash for stocks. Cash-like asset classes offer an amazing value proposition when stock prices crash because they protect one’s portfolio from suffering big losses at such times and permit one to invest more heavily in stocks when stock prices are highly appealing than one could if one were following a pure Get Rich Quick/Buy-and-Hold strategy. Following research-based strategies is a win/win/win/win.

Do you see?

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:

“TIPS, IBonds and Certificates of Deposit are all good choices. “

What long term real return are they offering at the minute?

A Valuation-Informed Indexer would not be buying them for the purpose of obtaining the return that they offer “at the minute.”Valuation-Informed Indexing is a long-term strategy. The Valuation-Informed Indexer would invest in those asset classes because it would permit him to buy more stocks when stocks are available at good prices. The peer-reviewed research that I co-authored with Wade Pfau shows that Valuation-Informed Indexing has performed far better than Buy-and-Hold for the entire history of the stock market.

It is impossible for the rational mind to imagine a circumstance in which exercising price discipline (by engaging in market timing!) could be a bad thing and the entire history of the stock market confirms this common-sense understanding of how things work. Buy-and-Hold/Get Rich Quick is what sells. It’s a fantastic marketing gimmick to persuade people that irrational exuberance gains are real and lasting.

Valuation-Informed Indexing is what works. It is the first true research-based strategy. It is Buy-and-Hold corrected for what we have learned from the last 41 years of peer-reviewed research in this field. Those 41 years of peer-reviewed research are the most important 41 years of peer-reviewed research in the history of investment analysis.

My best wishes to you.

Rob

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

Rob

What exactly is your investing strategy? Are you sitting on cash waiting for the next price crash? In TIPs?

Given your concern about valuations, what do you think in a reasonable way to invest now?

I am a Buy-and-Holder in every respect but one. I incorporate into the Buy-and-Hold strategy Shiller’s Nobel-prize-winning finding that valuations affect long-term returns.

I believe strongly that investors should Stay the Course. But in a meaningful way, not in a pointless, self-destructive way. In the days when Buy-and-Hold was being developed, there was a belief among academics that the market was efficient (that is, rational). If that were so, market timing would not be required. Shiller showed the it is investor emotion that is really the driving force behind stock price changes and that the only way to keep irrational exuberance from getting out of control is to always keep investors informed of how high prices diminish the long-term value proposition of stocks and that the only way for an investor to keep his risk profile stable when prices rise is to lower his stock allocation.

Each investor’s life goals and risk tolerance are different. So there is no one answer to your question. But I believe that it makes sense to take the conventional Buy-and-Hold stock allocation recommendation and adjust it 30 percentage points down at times of insanely high stock prices and 30 percentage points up at times of insanely low stock prices. That would put the typical investor at 30 percent stocks today. I would put the remainder in something fluid because you want to be able to move it into stocks if prices drop to insanely low levels, as they have in previous Buy-and-Hold crises. If the CAPE drops to 8, the most likely 10-year annualized return rises to 15 percent real.

TIPS, IBonds and Certificates of Deposit are all good choices. Cash is not just a holding place. It is an asset choice of great strategic value in a world in which the Buy-and-Hold “strategy” is being pushed relentlessly and causing an insanely dangerous bull market.

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 risk forward looking assumptions.  You don’t risk adjust actual outcomes.  As you said, you are not a math person.

I’m certainly not a math person. No argument there.

You don’t need to be a math person to read Robert Shiller’s book on “Irrational Exuberance.” If Shiller’s Nobel-prize-winning research is legitimate, then stocks are a lot more risky when irrational exuberance is sky high (when the CAPE value is off the charts) than they are when irrational exuberance is under control (when the CAPE value is at moderate or low levels).

Shiller published a paper in 1996 telling investors that, given the insane CAPE value that applied at the time, stock investors who failed to lower their stock allocation would live to regret that decision in 10 years. As things turned out, today’s CAPE level is even more insane that the one that applied in 1996. When you say that you don’t risk-adjust actual outcomes, it seems to me that you are saying that, now that we know how things turned out, we should not be saying that the many stock investors who ignored Shiller’s advice (Buy-and-Holders) did not take on a crazy amount of risk by doing so. Is that what you are saying?

If it is, I certainly do not agree. I think those investors were nutso. I acknowledge that things have not yet turned out too bad for them. But, if they continue to take on insane levels of risk, sooner or later they are going to get burned. That’s certainly how it has been playing out for 150 years now, which is as far back as we have good records of stock prices. No one can say precisely when a price crash is going to come. So investors can get away with following Buy-and-Hold strategies for a time. But not indefinitely. Prices always sooner or later return to fair-value levels. The market could not continue to function if they didn’t. The core purpose of a market is to set prices properly. The relentless promotion of Get Rich Quick/Buy-and-Hold strategies slows down that process but it does not do away with it.

My advice is that investors always engage in the amount of market timing needed to keep their risk profile constant over time. I would never tell an investor that because he got away with a high-risk strategy for a time that it made sense to continue following it. The aim should be to never take on more risk than one can handle. Those following price-indifferent (Buy-and-Hold) strategies thereby ensure that sooner or later their risk profile will be a wildly inappropriate one for someone with their risk tolerance. For what purpose, you know?

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:

Market Declines are Normal
by Larry Swedroe, 2/14/22

https://www.advisorperspectives.com/articles/2022/02/14/market-declines-are-normal

“Investors who abandoned their plans due to panicked selling not only missed out on those great returns, but they were then faced with the extremely difficult decision of determining when it was safe to get back in. That’s one of the problems with market timing – you have to be right twice, not once”

I know of one investor who has been waiting for about 25 years to get back in.

It’s not hard to know when to lower your stock allocation and when to increase your stock allocation. You lower it when the CAPE value has risen so much that you are now taking on more risk than you determined was the proper amount of risk for you. And you increase it when the CAPE value has dropped enough so that you are taking on less risk than you determined was the proper amount of risk for you. In short, you engage in market timing for the purpose of keeping your risk profile constant over time.

You don’t want to be right one time or two times or three times. You want to be right for every day in which you have money invested in stocks. The good news is that, so long as you are always certain to practice market timing as needed, you always have confidence that you indeed are right. There’s 40 years of peer-reviewed research supporting Valuation-Informed Indexing, based on 150 years of return data. That’s a lot more than the zero years of peer-reviewed research supporting the pure Get Rich Quick/Buy-and-Hold “strategy.” And it’s not a terribly close call.

My sincere take.

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:

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

 

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

Another article shows once again that buy and hold has always worked and lowers risk versus timing schemes:

https://www.fool.com/investing/2021/11/17/how-to-turn-30000-into-over-500000-with-almost-no/?source=eptyholnk0000202&amp;utm_source=yahoo-host&amp;utm_medium=feed&amp;utm_campaign=article

Juicy excerpt: “ In fact, if you had put your money into the S&amp;P fund at any point and left it alone for at least 20 years, you would have turned a profit no matter how poor your timing was for your initial investment.”

I like the article. It’s the points made in this article that persuaded me to become a Buy-and-Holder a good number of years back.

But it’s not realistic. Look at that statement that you advanced as your juicy excerpt. The numbers show that the investor does well if he leaves his money in for 20 years. `Today’s CAPE value is 40. At the end of a bull/bear cycle, we usually see the CAPE value fall to 8. That’s a loss of 80 percent. Say that a guy is near retirement age and he has a portfolio value of $1,000,000. But he loses $800,000 in the next price crash. What do you think that the chances are that that fellow is going to stick with his high stock allocation after losing $800,000? It’s not going to happen.

Please think about this. The CAPE value could never even get to 8 if the vast majority of investors did not lower their stock allocations. It’s the selling that brings the price down. A CAPE of 8 is insane, just as insane on the low side as a CAPE of 40 is on the high side. It is the Buy-and-Hold “strategy” the encourages such insanity, that makes such crazy CAPE values inevitable both on the high side and on the low side.

Now please consider how Valuation-Informed Indexing solves this problem. The Buy-and-Holders have an injunction that I like a lot — “Stat the Course!” If only they really believed in it! In a world in which valuations affect long-term returns — the world in which we happen to live — stock investing risk is not constant but variable. So the investor who wants to Stay the Course in a meaningful way MUST practice valuation-based market timing to do so. Investors who fail to engage in market timing are letting their risk profile jump all over the place for no good reason.

So the Valuation-Informed Indexer has a very different reaction when the bull market ends and the bear market begins. He is not shocked to see his imaginary gains — the irrational exuberance that Buy-and-Holders treated as real — disappear into thin air. He was expecting that to happen and he adjusted his stock allocation as necessary to keep his risk profile constant over time. And he is not bummed up that stock prices are now lower. He knows from his reading of the last 40 years of peer-reviewed research in this field that lower stock prices translate into higher stock returns on a going-forward basis. So he is not freaked out. He doesn’t suffer devastating losses. He doesn’t lower his stock allocation at the worst possible time for doing so. He obtains much higher lifetime returns, as shown in the peer-reviewed research co-authored by Wade Pfau and Rob Bennett.

There’s a lot that is good in Buy-and-Hold. That’s why I incorporated everything in Buy-and-Hold except for the one horribly mistaken idea that market timing is not always required into the Valuation-Informed Indexing concept. I think that it would be fair to say that the stuff described in that article is 35 percent of what is needed to be a successful long-term stock investor. There’s one element missing — market timing. Valuation-Informed Indexing adds that critical element, which is 65 percent of the story. It does you no good to get a lot of stuff right if you make a critical mistake that causes the entire strategy to collapse. Valuation-Informed Indexing fixes the thing that the Buy-and-Holders got wrong. We don’t discourage market timing, we encourage it! Valuation-Informed Indexing is the approach to Buy-and-Hold that actually works in the real world!

That’s Rob Bennett’s sincere take re this terribly important matter, in any event.

My best and warmest wishes to you and yours, dear Goon friend.

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:

Predicting a crash is predicting the future.  You seem look for ways to spin the same old stories without thinking about how you make opposite claims.

Even the Buy-and-Holders say that there will be another price crash someday. That is a trivial observation. It is just common sense.

What I say that the Buy-and-Holders do not say is that the risk of a price crash is far higher when the CAPE is 38 than it is when the CAPE is 17 and that investors should take that reality into consideration when setting their stock allocation (that is, they should engage in market timing with the aim of keeping their risk profile constant over time and thereby staying the course in a meaningful way.

There is no need to engage in predictions to invest effectively. There is a need to pay attention to the increased risk IN THE PRESENT in stock investing at times when the CAPE value has risen to insanely dangerous levels.

The CAPE value is known and the CAPE value tells you how much risk you are taking on. There is no need to make predictions.

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:

“ The reality is that Shiller’s research does not permit us to predict the future, it permits us to see the present more clearly. ”

But you said Shiller’s research tells us that there will be a stock market crash. Isn’t that predicting the future?

Say that someone learns how to drive a car and determines for himself that going at a speed of 60 miles per hour suits him. Then one day there is ice on the road. He wonders if perhaps he should lower his speed. He consults one friend who is a believer in the Buy-and-Hold approach to car driving. This friend says: “Oh, you must continue driving 60 miles per hour on the ice. We have no way of knowing precisely when you will crash. We of course know that sooner or later you WILL crash. But that’s irrelevant. The important thing is that we cannot say precisely when you will crash. So you just must continue driving at what is now an insanely risky speed until you actually do crash and possibly kill yourself.” If he has a more sensible friend who advises him to drive at a lower speed when there is ice on the road, the Buy-and-Hold friend threatens to kill the sensible friend because he knows that, if sensible advice can be heard, he will no longer be perceived as an “expert” on car driving.

The market is always going to get prices right sooner or later. That is what markets do. A CAPE of 17 is a long ways down from a CAPE of 38. So it is insanely dangerous for an investor to be going with the same stock allocation today that made sense when the CAPE was 17. But, no, no one can predict effectively when the price crash will come. The Buy-and-Holders conclude that no one should tell investors about the insane level of risk that they are taking on by continuing with their old stock allocation. I say that we should permit honest posting and let each investor decide for himself or herself what to do with his or her retirement money. The Buy-and-Holders should not be permitted to employ criminal tactics to silence voices who believe that Shiller’s Nobel-prize-winning research is legitimate research. To permit that would be to invite catastrophe when the inevitable price crash arrives.

That’s my sincere take, Anonymous. My best and warmest wishes to you and yours regardless of what investment strategy you elect to pursue.

Rob