A Rich Life

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

“You Count the Accumulation of More Irrational Exuberance in One’s Portfolio As a ‘Reward.’ I Do Not. The More Irrational Exuberance There Is in a Person’s Portfolio, the Less Able He Is to Engage in Effective Financial Planning. You Need to Know How Much You Really Have Before You Can Determine How Much You Should Spend or How Much You Need to Save.”

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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:

And here you are making a case for buy and hold yet again.  Why do I say that?  Because buy and hold people held their stock and kept buying.  Take a look where the buy and holders are today.  They have been richly rewarded, while market timers have suffered significant financial harm.

You count the accumulation of more irrational exuberance in one’s portfolio as a “reward,” Anonymous. I do not. The more irrational exuberance there is in a person;s portfolio, the less able he is to engage in effective financial planning. You need to know how much you really have before you can determine how much you should spend or how much you need to save.

I believe that we should be permitting honest posting re the last 40 years of peer-reviewed research at every discussion board and blog on the internet, without a single exception.

My best and warmest wishes to you and yours.

Rob

Valuation-Informed Indexing #544: I Like Cash Because I Like Stocks

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I’ve posted Entry #544 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called I Like Case Because I Like Stocks.

Juicy Excerpt: Investing in cash when stocks are insanely overpriced permits me to own more stocks over the course of an investing lifetime. And stocks purchased at reasonable or super-reasonable prices are the best investment class out there. I don’t invest in cash because I like the direct return provided. I invest in cash because doing so permits me to buy more stocks when they are priced to offer a solid return. I love cash because I love stocks.

“Get Rich Quick/Buy-and-Hold Strategies Always Have the Emotional Edge. Permitting Honest Posting re the Peer-Reviewed Research Gives Reason-Based Strategies a Fighting Chance.”

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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:

Since your house is the largest asset in your portfolio, aren’t you taking a big risk?  Shouldn’t you be timing the housing market?

I think that what I should be doing is speaking out in favor of opening every site on the internet to honest posting re the last 40 years of peer-reviewed research in this field. That would stabilize our economy and permit us all to retire earlier while taking on less risk. What’s the downside?

Get Rich Quick/Buy-and-Hold strategies always have the emotional edge. Permitting honest posting re the peer-reviewed research gives reason-based strategies a fighting chance. I see this as a win/win/win/win/win, with no possible downside.

I naturally wish you all the best that this life has to offer a person, regardless of what investment strategies you elect to follow, Anonymous.

Rob

“Learning Should Be Permitted in the Investment Advice Field to the Same Extent That It Is Permitted in Every Other Field.”

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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:

Since we are in a housing bubble, why don’t you sell your house?  The price might crash on your house.

Selling an entire house is a more extreme step than reducing one’s stock allocation a bit. I have always advised AGAINST extreme actions. What I have said is that investors should seek to maintain the same risk profile at all times, which REQUIRES market timing.

The Buy-and-Holders take the most extreme position imaginable — that discussions of the last 40 years of peer-reviewed research must be prohibited. If you permitted honest posting, you would eventually be won over, Anonymous. We probably would not agree on every single point. It wouldn’t be reasonable to expect that. But it is my belief that we would find ourselves much more in agreement than in disagreement.

Shiller did not hurt us when he discovered that a pure Get Rich Quick/Buy-and-Hold strategy can never work for even a single long-term investor. He helped us. There was a time when the Buy-and-Holders were in favor of the idea of using peer-reviewed research as a guide. I think they were right the first time. We learn new things over time. That’s a plus. I believe that learning should be permitted in the investment advice field to the same extent that it is permitted in every other field. I see it as a win/win/win/win/win.

My best wishes to you.

Rob

“A Market in Which Errors in Retirement Studies Are Not Corrected Is Not a Functioning Market.”

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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:

“In the housing market, sellers make the case for why the price should be high and buyers make the case for why the price should be low. For a transaction to be completed, there has to be a meeting of minds somewhere in the middle. So both the buyer and seller have an incentive to hear out the other guy. So the market is able to function.”

That sounds just like the stock market. People make a case for when they want to sell and people make a case for when they want to buy. Why should someone with a failed retirement be telling a successful person what to do?

It’s not even a tiny bit like the stock market. If someone engages in fraud in the real estate market, they are exposed and people do not buy houses from that person. I pointed out the error in the retirement study posted at John Greaney’s web site 19 years ago (it lacks an adjustment for the valuation level that applies on the day the retirement begins) but it has not been corrected to this day, Huh? what the f?

A market in which errors in retirement studies are not corrected is not a functioning market. Such a market is not capable of getting prices right, which is the core job of any market.

My sincere take.

Rob

“Telling Someone That He “Missed Out on the Largest Bull Market We Have Ever Seen” Is Like Telling Him That He “Missed Out on the Largest Nuclear War That We Have Ever Seen”

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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:

The market does not stay in the valley, nor can you predict the timing of the valley.  It didn’t work for you and you missed out on the largest Bull market we have ever seen.  Your retirement failed.

Telling someone that he “missed out on the largest bull market we have ever seen” is like telling him that he “missed out on the largest nuclear war that we have ever seen” They don’t call it a bull market unless it contains a mountain of irrational exuberance. Irrational exuberance is not backed by anything of economic significance, just runaway investor emotions. So it doesn’t last. It is Pretend Money. Investors want to believe in the Pretend Money. They become addicted to it and defensive when they hear challenges to its reality advanced to them. Believing in irrational exuberance makes financial planning impossible. It is a huge wealth destroyer. Please spare me from excessive participation in out-of-control bull markets.

Stocks produce genuine economic gains of 6.5 percent real per year. I can live with that. I feel no great desire for the pretend, emotional, bull market, Buy-and-Hold stuff.

Stay the Course!

Rob

Valuation-Informed Indexing #543: Why I Am Obsessed with the Topic of Stock Valuations

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I’ve posted Entry #543 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Why I Am Obsessed with the Topic of Stock Valuations.

Juicy Excerpt: That changes everything. It puts us, the investors, in charge of our fate. Under the old understanding of how stock investing works, we had to hope for positive economic news. We of course still want to see the economy do well. But Shiller’s research shows that economic developments are not the primary factor driving stock price changes. The bigger factor is shifts in investor emotion. That should be our focus.

Valuation-Informed Indexing #542: What Is the Worst Price Crash That Is Within the Realm of the Reasonable?

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I’ve posted Entry #542 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called What Is the Worst Price Crash That Is Within the Realm of the Reasonable?

Juicy Excerpt: Intelligent stock investing is all about risk analysis. Stocks are a high-return asset class. If there were no risk, we would all invest all of our money in stocks all the time. It’s the desire to avoid unacceptable risks that keeps us from doing that. So it seems to me that we should all want to gain an accurate take on the sort of risk that we are taking on when we invest in stocks. The level of risk associated with stock investing is very high today. Shouldn’t we acknowledge that? Shouldn’t we quantify the problem by pointing out that a 75 percent price drop is not out of the question?

“I Pointed Out an Error in a Retirement Study and It Has Not Been Corrected for 19 Years. It Takes More Than Death Threats for Something Like That to Happen. A Lot of People Have to Want Very Much Not to Know the Realities of Stock Investing for Something Like That to Happen”

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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:

Here you are, decades later, talking about death threats. Why?  Because no one really believes you.  You have been asked countless times to provide links, but you have not.  Everyone is against death threats, but only if it really happened.  You can easily bring this to a conclusion if you had actual proof, yet here you are again with zero proof.

People believe me. I have talked to many people about this and no one outside of you Goons has ever questioned that death threats were advanced.

There are two things going on.

One, the story is so fantastic that people have a hard time figuring out what is going on. People have a need to relate something they hear to something that they have seen happen before. And this one is unprecedented. I pointed out an error in a retirement study and it has not been corrected for 19 years. It takes more than death threats for something like that to happen. A lot of people have to want very much not to know the realities of stock investing for something like that to happen. There is no other field of human endeavor in which something like this has happened. So it is hard to process.

Two, people don’t want to get involved. Lots of people have objected to the death threats. But most people do it once or twice and then drop it, People find the criminal stuff off-putting. So they feel that they would prefer to have someone else take care of it. When everyone feels that way, the bad stuff continues because it achieves its purpose of blocking people from learning what the research says,.

There will either be a change after the next crash or there will not be. I believe that there will be. I believe that it will make all the difference in the world for people to see what the relentless promotion of the pure Get Rich Quick/Buy-and-Hold “strategy” always does to people in the long run. But we’ll see.

Rob

“None of us Should Want to See a Second Great Depression.”

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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:

“Because it is just a distraction to act like the death threats themselves are a big deal.”

You have made a big deal about them, so people ask you for proof and then you don’t provide it.

“The big deal is that I pointed out an error in a retirement study 19 years ago and it has not been corrected to this day.”

Wade Pfau, and many others, have pointed out how you don’t understand John Greaney’s work and what he has said. People keep telling you all of this over and over and over again, and all you want is more access to other people’s websites to repeat the same thing over and over again. This is known as bad behavior.

I think that the last 40 years of peer-reviewed research in this field needs to be part of the discussion anytime stock investing is being discussed. There are today two academic models for understanding how stock investing works, Buy-and-Hold and Valuation-Informed Indexing. Everybody knows about Buy-and-Hold because it is discussed everywhere and has been for a long time. Few understand Valuation-Informed Indexing in any depth because only 10 percent of the population believes in it and that 10 percent holds back from talking about it in any depth for fear of alienating the Buy-and-Holders, who are in the majority. So millions of people who would be open to making the transition from Buy-and-Hold to Valuation-Informed Indexing if they heard all about it and had all their questions answered, are not even aware that there is an alternative to Buy-and-Hold that is supported by 40 years of peer-reviewed research (which is so respected that the author of it has been awarded a Nobel prize).

I believe that Valuation-Informed Indexing is the future and that Buy-and-Hold is the past. So I want to see the word spread as quickly as possible. That won’t happen if I and the others in the 10 percent don’t insist on our right to post our honest beliefs. Since I want others to do that, I think that I am absolutely required to do it myself. During the three years when I posted at Motley Fool and did not speak up about the error in the Greaney retirement study, there were a lot of people who were friends of mine who got the impression that I believed that the study was accurate because I never said otherwise. I am ashamed of myself for having been such a coward. The other side of the story is that I have seen how excited people get when Valuation-Informed Indexing clicks for them for the first time. I have had many people tell me that it is by listening to me that they came to understand how stock investing really works for the first time. I found it very gratifying to have that effect on people and I would like to see that happen in millions of additional cases.

The Ban on Honest Posting is killing us. The best thing to do when you discover that you have made a mistake is to acknowledge it and move on with your life. To be covering up a mistake for the rest of your life is a horrible place to be. The Buy-and-Holders would of course benefit themselves from developing a better understanding of how stock investing works, Today, it’s not even the idea that people will learn about their mistake that most bothers them. Today, they don’t want people to learn about the 40-year cover-up. And that feeling of course just gets worse as the cover-up extends longer into time.

I love my country, That’s the bottom line. The mistake that the Buy-and-Holders made (that market timing — price discipline! — is not required) is in the process of hurting millions of people in a very serious way. None of us should want to see a Second Great Depression. None of us should want to see hundreds of thousands of businesses go under. None of us should want to see millions of people thrown out of work. None of us should want to see political frictions worsen. The laws that we have against threats of physical violence and against extortion are there for a good reason. We should be 100 percent united in wanting to see those laws enforced in the investment advice field just as they are enforced in all other fields of human endeavor.

That’s where I am coming from, Anonymous. I naturally wish you all the best that this life has to offer a person.

Rob