A Rich Life

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

Valuation-Informed Indexing #507: Buy-and-Hold Is Both Intuitive and Counter-Intuitive at the Same Time

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I’ve posted Entry #507  to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Is Both Intuitive and Counter-Intuitive At the Same Time.

Juicy Excerpt: That is an even more counter-intuitive idea than the idea that all forms of market timing work. Once people hear the concession that short-term timing doesn’t work, their minds push “eject” re the entire market timing concept. To engage in market timing, one would need to see into the future. If one could not see into the future well enough to predict where stock prices will be in six months, it seems implausible that one could see into the future well enough to predict where stock prices will be in 10 years. That paradox is probably the biggest hurdle that keeps people from grasping the Valuation-Informed Indexing concept.

“Most of the People Who Work in This Field Are Engaging in as Much Honest Work As They Think They Can Get Away With. They Would Love to Feel That They Could Get Away With More.”

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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:

“ He should address questions relating to the implications of his ideas.”

Why does he need to answer YOUR questions? If he, or anyone else, is asked a question, why is there an obligation to answer? You could have hundreds of thousands of people asking different questions. Why does he owe Rob Bennett an answer? Why does Shiller have to comment on your make believe assumption that he is threatened by buy and hold goons?

Shiller predicted the 2008 economic crisis in his book, which was published in 2000. Had the entire internet been open to honest posting at that time, we could have avoided that economic crisis. Investors obviously want to do what is in their best interest. Shiller’s research shows that it is in their best interest always to engage in long-term market timing (price discipline). When we all gain the freedom to talk about that, stock prices become self-regulating. From that point forward, we could never again see the insane price levels that caused that economic crisis.

So hundreds of thousands of businesses would not have gone under. And millions of workers would not have been thrown out of their jobs. And we would not have seen the political frictions that remain a problem to this day. It is Shiller’s Nobel-prize-winning research that showed us the path to avoiding all that. And you are asking why he would want to help out? Are you joking? The reason why he did the research was to help out. Of course he wants to see millions of people benefit from it. The question is absurd.

Why did Martin Luther King do what he did? Why did millions of people do what they could to follow in his footsteps? Why do people revere the man to this day? Caring for others is part of human nature, Anonymous. We are not all Goons.

The full truth is that even you Goons have a tiny part of that within you. Had Shiller gone public with his sincere views on safe withdrawal rates back when he published his book, you Goons would not have been able to spend the last 18 years of your lives engaging in criminal acts aimed at destroying millions of lives. Can you honestly say that you wouldn’t feel a lot better about yourselves today had Shiller played it that way? I sure think you would.

The desire to help other humans is part of what makes us human ourselves. That will never change. I don’t care how much money the promotion of Buy-and-Hold strategies puts in the pockets of our Wall Street Con Men friends. Our Wall Street Con Men would deep down inside like to gain the freedom to do honest work in their chosen profession. I am sure. That is why you see people like William Bernstein sneaking honest statements about safe withdrawal rates in their books. Most of the people who work in this field are engaging in as much honest work as they think they can get away with. They would love to feel that they could get away with more. And having Shiller speaking out clearly on all sorts of issues would help them do that.

Shiller is one of the humans. He has a natural desire to help the other humans. That’s why he did the research that led to him being awarded a Nobel prize. And that is why he would like to feel free to talk clearly about the far-reaching implications of that research at every place at which he speaks on investment-related topics.

That was an easy one. I mean — Holy moly!

Please take good care, my dear Goon friend.

People Person (Even When The People in Question Are Goons!) Rob

“It’s Not Possible to Imagine That There Could Ever Be a Market That Would Not Collapse If Most Participants In It Were Not Practicing Price Discipline When Making Purchase Decisions.”

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

“ You’re a Goon, Anonymous. You are not exactly trustworthy re this matter.”

You have to resort to name calling because you can’t win a factual debate. You talk about opening up other websites, yet you continually block posts on your website. How is this not hypocritical ?

I follow track records. I have seen thousands of buy, hold and rebalance outcomes in people that have successfully retired, but I can’t even find anyone that has been successful wit VII. The only explanation that you have is that we all just have to wait until things play out. That doesn’t work. The largest group of people retire between the ages of 60-65. That means that they have to have their retirement plan in place and nearly finished in their 50’s. They have to go with something proven. The risk isn’t worth it.

The peer-reviewed research that I co-authored with Wade Pfau shows that investors who make the switch from Buy-and-Hold to Valuation-Informed Indexing thereby reduce their stock investing risk by 70 percent, Anonymous. The risk question is not even a close call. That’s why you engaged in criminal acts (extortion is a crime) to shut Wade up.

And our research went back to 1870. We didn’t pick 24 years out of context and say “oh, look, we have come up with something that every now and again will produce good results for a relatively short time-period. We looked at the entire history. Everyone who has ever followed VII has done well with it. That’s not true YET for those who invested only from 1996 through today. But it will likely be true following the next price crash, which could come at any time.

The question is — Are you willing to take a bet with your life savings that stocks will be performing in the future in ways in which they have never in the past performed? It’s possible. No one can say with absolute certainty. But I think it would be fair to say that the Buy-and-Hold bet is the longest of all possible longshot bets. That’s why you get so emotional re these matters. You really, really, really want to believe that long-term market timing isn’t required. But there is no support for that outlandish claim in the peer-reviewed research.

Please mark me down as saying that long-term market timing (price discipline) has always been required and always will be. It’s not possible to imagine that there could ever be a market that would not collapse if most participants in it were not practicing price discipline when making purchase decisions.

My best and warmest wishes to you and yours, in any event.

Rob

“There Is Certainly Some Point at Which, If an Expected Crash Has Not Taken Place for Many Years, It Would Have Been Better to Have Just Followed a Buy-and-Hold Strategy. Stocks Offer Much Higher Returns Than Super-Safe Asset Classes. So There Is a Point at Which It Would Pay Off. But It Is Clear That That Point Is Much Farther Out Than Most People Realize. MUCH Farther Out.”

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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:

But all the crash predictions haven’t materialized and the gap between buy and hold vs VII continues to grow. Aren’t we at the point that even a crash still doesn’t bring the buy and hold portfolio below VII?

I have done that analysis before. I have not done it super recently. The conclusion when I did it before was that it was a close call. It depended on whether you felt that you should be compensated for the extra risk that you take on when you invest in stocks. If you felt that you should be compensated for the extra risk, the Valuation-Informed Indexing portfolio ended up ahead. If you looked only at the numbers and didn’t insist on compensation for extra risk, the Buy-and-Hold portfolio ended up a little ahead in some circumstances. But not by a huge amount.

I believe that every investor should do the analysis. And not from just one angle. People should look at the question from multiple perspectives. The more you do that, the better you understand stock investing. And, the better you understand stock investing, the more likely you are to stick with your plan for the long term. Both Buy-and-Holders and Valuation-Informed Indexers say that that is critical. So I see the process of going through the analysis with an open mind as being absolutely critical for all investors.

This is always the sticking point between you Goons and me. I think that, the more you learn, the better off you are. And that we learn by talking things over. You want to silence all challenges to Buy-and-Hold. I think that’s nuts. If Buy-and-Hold is the real thing, it will be able to withstand any challenges. The fact that many Buy-and-Holders want to silence challenges is a very bad sign for Buy-and-Hold, in my assessment.

There is certainly some point at which, if an expected crash has not taken place for many years, it would have been better to have just followed a Buy-and-Hold strategy. Stocks offer much higher returns than super-safe asset classes. So there is a point at which it would pay off. But it is clear that that point is much farther out than most people realize. MUCH farther out. Crashes are devastating. Lose 70 percent of your portfolio in a crash and it can take a long, long time to recover from that loss. It is counter-intuitive how much you can hurt yourself by taking a hit like that.

In the final analysis, these questions are personal. Some people are willing to take the hit rather than ever put a significant amount of their money in a low-return asset class. That’s not me. But it is not my place to tell people what to do. If people want to go that way, I wish them the best of luck with it.

But others do not want to be placed in circumstances in which they could suffer a devastating hit. I think that we all should be doing everything in out power to let those people know what alternatives are available to them. I see Valuation-Informed Indexing as an amazing alternative for millions of people. So I want to get the word out. It is my sincere belief that everyone, including you Goons, ends up better off if the word gets out.

So I am 100 percent if favor of that, even though I acknowledge that there comes a time when, if the crash has been delayed long enough. Buy-and-Hold comes to be the better choice. I don’t think we are there yet. But I do think there could come a time when we would be there for some portion of the population. I think you Goons greatly, greatly exaggerate the benefits of Buy-and-Hold and that it is dishonest and foolish to do it to the extent you do. I think that Valuation-Informed Indexing is a far superior strategy on an overall basis but that there may be some exceptions to the general rule, and given how long the crash has been deferred, the past 24 years is a time-period that may end up being one of the exceptions to the general rule, at least for a portion of the population (but almost certainly not for all of it).

Rob

“The Current Situation — Where Shiller Fails to Engage on These Questions Because He Fears What the Buy-and-Holders Will Do to Him If He Does So — Is Not Healthy. It Leaves These Questions Up in the Air. And the Questions Are Too Important for Us As a Society Not to Be Exploring Them.”

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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:

“Shiller should be an advocate of his ideas.”

But that doesn’t mean he has to be an advocate of your interpretation of his work.

He should address questions relating to the implications of his ideas. He could say: “Given my finding that valuations affect long-term returns, there is precisely zero chance that the safe withdrawal rate is the same number at all times.” Or he could say: “Despite my finding that valuations affect long-term returns, I still think that it is possible that the safe withdrawal rate could be the same number at all times and here’s why.”

One of those statements is in accord my my views and one is not. Both of them enhance our understanding. The current situation — where Shiller fails to engage on these questions because he fears what the Buy-and-Holders will do to him if he does so — is not healthy. It leaves these questions up in the air. And the questions are too important for us as a society not to be exploring them.

That’s my sincere take, Anonymous.

My best wishes to you.

Implication-Exploring Rob

“The Depression Caused an Ocean of Human Misery, Even to a Lot of the Wall Street Con Men. I Think It Would Have Been Better Had Shiller’s Research Been Available and If People Had Felt Free to Discuss It and If We Could Have Avoided the 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:

Can you show me just one failed buy, hold and rebalance portfolio and then just one single person that has been successful with VII?

Every single Buy-and-Hold portfolio that was ever assembled has been a failure if you go by the last 39 years of peer-reviewed research. And every single Valuation-Informed Indexing portfolio has been a success if you go by the peer-reviewed research. If valuations affect long-term returns, it is a logical impossibility for an investment strategy that does not call for long-term market timing to ever produce good results.

Look at what happened in 1929, Millions of people were hurt in the Great Depression. That was caused by Buy-and-Hold. Had Shiller’s research been available at the time and if people had felt free to discuss it, the CAPE value would never have reached 33 and caused an economic collapse. Was it worth it? I am sure that the Wall Street Con Men of that time turned a few extra bucks because Shiller’s research was not available to the people of that time. But was it worth it? The Depression caused an ocean of human misery, even to a lot of the Wall Street Con Men. I think it would have been better had Shiller’s research been available and if people had felt free to discuss it and if we could have avoided the Great Depression.

The key to every market that has ever existed is price discipline. Take that away by telling people that it is not necessary to engage in market timing and sooner or later you are going to cause an ocean of human misery. It is not even possible for the rational human mind to imagine a scenario in which it would not turn out that way. Given that there is precisely zero indication in the peer-reviewed research that market timing is not required (Wade Pfau researched this question very carefully), I think we should tell people that it is always required and that it always works. What possible downside could there be other than our Buy-and-Hold friends needing to learn how to pronounce the words “I” and “Was” and “Wrong?”

My sincere take.

Great Depression Foe Rob

“If Shiller Put Forward a Statement That ‘The Buy-and-Hold Retirement Studies Are in Error and Should Be Corrected Within 24 Hours Because of the Harm That They Will Otherwise Do to Lots of People,’ He Would Get the Same Reaction That I Have Gotten. It Is Not That It Is Rob Bennett Saying the Things That I Say That Causes Buy-and-Holders to Lose Their Freakin’ Minds, It Is the Content of the Message.”

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

“It shows how threatening Shiller’s research findings are to Buy-and-Holders, Anonymous.”

Articles by Shiller have plenty of comments and following. It is specifically your posts that do not. Thus, your comment is not valid.

If Shiller put forward a statement that “The Buy-and-Hold retirement studies are in error and should be corrected within 24 hours because of the harm that they will otherwise do to lots of people,” he would get the same reaction that I have gotten. It is not that it is Rob Bennett saying the things that I say that causes Buy-and-Holders to lose their freakin’ minds, it is the content of the message.

If Shiller is right that valuations affect long-term returns, there is zero chance that the safe withdrawal rate is the same number at all valuation levels. By not saying that, he stays out of trouble. But is that a good thing for the millions of people who have used the discredited retirement studies to plan their retirements? It’s not. All of us who believe that Shiller’s Nobel-prize-winning research is legitimate research should be speaking up.

The Buy-and-Holders need to get over the fact that 39 years ago research was published showing that they had made a mistake in thinking that the market is efficient. That’s the bottom line here. We are not helping our Buy-and-Hold friends by keeping quiet. We are hurting them. We are making things worse by permitting more time to pass without seeing a correction.

That’s my sincere take, Anonymous.

I naturally wish you all good things.

Buy-and-Hold Critic (and True Friend!) Rob

“Learning That Valuations Affect Long-Term Returns Is Like Learning How to Harness Electricity. We Should Have Enhanced Our Lives in Hundreds of Ways Over the Course of the Past 39 Years As a Result of What We Learned From Shiller’s Nobel-Prize-Winning Research.”

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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:

“ But I don’t whine about it. ”

Yes you do. You keep talking about what goons, John Greaney, Wade Pfau, Mel, etc have done to you. You have posted about this thousands of times.

That comment reminds me of what Rob Arnott said to me during our e-mail conversation. He said that he thought that my work was “solid,” he had no concerns re the substance. But he said that I sounded like I thought of myself as a “victim.” I address this in a section of my book.

I 100 percent think of myself as a victim re these matters. The clarification that I make is that it is not only me. Arnott is a victim. Bill Bernstein is a victim. Wade Pfau is a victim. Heaven help us all but you Goons are victims. Everyone living in the United States is a victim.

Learning that valuations affect long-term returns is like learning how to harness electricity. We should have enhanced our lives in hundreds of ways over the course of the past 39 years as a result of what we learned from Shiller’s Nobel-prize-winning research. And instead we have been arguing for 18 years whether the Greaney study contains a valuation adjustment or not? What’s wrong with this picture?

You Goons have done a lot of damage to a lot of people. I am not whining about it but I am certainly pointing it out and trying to bring attention to it. That’s what journalists do — we uncovered abuses and try to get them corrected. I certainly do not apologize for doing my job. But the purpose is not to complain. The purpose is to open up the possibility for millions of people to live richer lives in the future than they have been able to live in the past. The story has some negative elements to it but the purpose of telling it is a very positive one.

Goon!

Rob

“The Most Significant Idea That Wade Pfau Puts Forward in the Article Is the Idea That Valuation-Informed Indexing Worked From 1870 Until 1996 and Then Stopped Working. I Don’t Buy It. You Have to Ask — Why?”

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

Not sure if you have seen this

Wade Pfau: The 4% Rule Is No Longer Safe

Episode Summary
The noted retirement researcher discusses how pre-retirees and retirees can adjust their plans in times of market stress.

https://the-long-view.simplecast.com/episodes/wade-pfau-9Z7_8m/transcript

Thanks much for providing that link, Evidence.

Wade makes about 20 points in that article that merit discussion. I will write a column for Value Walk looking at some of them.

I am certainly glad that Wade is saying that the 4 percent rule doesn’t work. I am proud to be able to say that he learned that from me. I don’t get the sense that our views today on these issues are precisely the same. But so what, you know? No two people have precisely the same views on all issues. I did something of great importance by launching The Great Safe Withdrawal Rate Debate and we are all continuing to learn stuff as a result 18 years later. We should be encouraging everyone to get involved. We need to examine these issues from all sides.

Part of the discussion should be — Why has it taken so long to get clear statements out before the public as to the errors in those studies? A lot of people planned retirements using those obviously flawed studies. It should’t take 18 years for stuff like this to happen. There should be ethical standards in this field. In a field with ethical standards, you would never see death threats or demands for unjustified board bannings or thousands of acts of defamation or threats to get academic reseachers fired from their jobs, none of the ugly Goon stuff. I mean, come on. We all need to know how stock investing works. So we all should be doing everything we can to help each other learn as much as possible.

The most significant idea that he puts forward in the article is the idea that Valuation-Informed Indexing worked from 1870 until 1996 and then stopped working. I don’t buy it. This is certainly the longest period of time that we have gone with prices remaining this high. That’s an important fact. People need to know that. So I don’t see that as a crazy position. But you have to look at more than what has worked for a certain number of years. You have to ask — WHY?

If the market were efficient, as the Buy-and-Holders say, market timing would never work. But it worked for nearly 130 years. Why? I think it is because gains that are the product of a CAPE level higher than 16 are rooted in irrational exuberance, not in economic realities. If that’s so, that’s huge. That’s something we need to figure out. Not next week or next month or next year. Now . Immediately. Last week. 18 years ago. 39 years ago. Like that.

So why hasn’t VII been working for the past 24 years? I think the crash has just been delayed. I have written in some depth on what may be going on on earlier occasions. It may be something as simple as the promotion of Buy-and-Hold. Investors feel safe not engaging in market timing today because they believe the claims that there is research backing up the Buy-and-Hold concept that timing is not required. Which is false, as Wade well knows. But millions of people believe it. So they don’t sell as soon as they would have in earlier days and the crash is delayed. But they will still sell eventually. And the loss of consumer buying power that will result when the CAPE drops dramatically could put us in a Second Great Depression. So this is something that we need to have many smart people examining in great depth.

I see the publication of the article as a nice step forward. I still believe in Valuation-Informed Indexing. But I have never said that I am God, I have never said that I have perfect knowledge. At least Wade’s criticism of the concept makes sense. And it wouldn’t surprise me even a tiny bit to see him flip back after the next price crash, which I still believe is coming (although I cannot say precisely when).

Anyway, I am certainly grateful for the link.

Wade Pfau Fan (As Always!) Rob

Valuation-Informed Indexing #506: Buy-and-Hold Is a Product of the Enlightenment

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I have posted Entry #506 to my weekly Valuation-Informed Indexing column at the Value Walk site. It is called Buy-and-Hold Is a Product of the Enlightenment.

Juicy Excerpt: Those two premises seem highly dubious to me. I know with certainty that investors do not have easy access to the information they need. I know this because my examinations of the implications of Shiller’s research are banned at numerous investing sites even though many investors have praised them effusively when they have been able to gain access to them. Buy-and-Holders do not want people to hear challenges to their strategy. And Buy-and-Hold is the dominant strategy today. So Buy-and-Holders have been able to silence challenges to the strategy just about everywhere and everytime that they appear. Most investors have heard the case for Buy-and-Hold but not the case against it. They do not have access to the information they need to make sound choices.

Are investors rational? Robert Shiller obviously does not think so. He titled his book “Irrational Exuberance.” It follows that he does not believe that the Modern Portfolio Theory is valid (although I have never heard him make this precise claim).