A Rich Life

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

“The Normal Thing Would Be to Ignore Me and to Permit Others to Engage in Whatever Discussions With Me That They Want to Engage In. But the Entire Thought That Valuations Might Affect Long-Term Returns Is Just Too Fraught for You to Even Consider Such a Thing. The Idea That Valuations Might Affect Long-Term Returns Is the Scariest Thought in the World to You.”

by

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 use history to support YOUR opinion on the market crash.  For YOUR timing scheme to work, you need the big crash.  You say that history has always worked for your scheme (even though you say that the market is currently not following history).  So you want to pick and choose what fits history and when to ignore it so that it all fits your narrative.   Clear hypocrisy.

I spent some time last night transforming the most recent comments that merit it into future blog entries. I woke up this morning with a new chapter title for the section on “The Theory Behind Valuation-Informed Indexing” in my head. The chapter title is: “The Buy-and-Holders Find Shiller’s Research Findings So Compelling That They Cannot Ignore Them Unless Discussion of Them Is Banned.”

That’s a big part of the story here. You Goons used the word “annoying” in some recent comments. I am always talking about Shiller’s research findings and you find that annoying, so you must insist that I be banned. It would make sense that you would find research that cuts against your personal beliefs a little bit annoying. But the normal thing would be just to ignore the discussions you don’t enjoy. You do your thing and let others who want to participate in those sorts of discussions do theirs. You can’t do that. Never once have you tried. Those discussions drive you absolutely bonkers. They need to be banned for you to be able to face the new day.

Shiller’s reseatch findings are common sense. OF COURSE valuations affect long-term returns. How could it be any other way? Valuation-based market timing is price discipline. Price discipline is absolutely essential in every market that has ever existed. What possible reason could there be for thinking it might be different in the stock market?

It’s not different. And it drives you bonkers to be reminded of that. All of your energies are devoted to tuning out that simple and essential and obvious reality. So, if some fellow comes along and gives voice to it every day, he needs to be removed. That’s why these discussions have been so strange. I like research. I want to share with people what it says. And you can’t freakin’ stand it. Research is the enemy. Research undermines Get Rich Quick/Buy-and-Hold and the Get Rich Quick fantasies about the value of your stock portfolio that are encouraged by the numbers that appear on your portfolio statement and that make you feel happy and satisfied and safe in a deep way.

Reality is the enemy to a Get Rich Quicker/Buy-and-Holder and research helps us to see the realities. Shiller’s research is highly, highly, highly “annoying,” in your word. I am annoying because I talk about Shiller’s research. The normal thing would be to ignore me and to permit others to engage in whatever discussions with me that they want to engage in. But the entire thought that valuations might affect long-term returns is just too fraught for you to even consider such a thing. The idea that valuations might affect long-term returns is the scariest thought in the world to you. You want to ignore it and I want to bring it to everyone’s attention. We are working at cross purposes.

Rob

Valuation-Informed Indexing #702: We Know Little About How Irrational Exuberance Works

by

I have posted Entry #702 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called We Know Little About How Irrational Exuberance Works.

Juicy Excerpt: Irrational exuberance is a strange phenomenon. That word “irrational” is disturbing. Shiller was writing about stock investing in his book. The suggestion that you get just from reading the title of the book, let alone its words and pages and chapters, is that investors are committing self-harm by giving in to the power of this irrational exuberance phenomenon.

“We Know Some Things and We Do Not Know Some Other Things. We Should Say the Things We Know and Avoid Saying the Things We Do Not Know.”

by

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 use history to support YOUR opinion on the market crash.  For YOUR timing scheme to work, you need the big crash.  You say that history has always worked for your scheme (even though you say that the market is currently not following history).  So you want to pick and choose what fits history and when to ignore it so that it all fits your narrative.   Clear hypocrisy.

No. We do not have enough history to say precisely what will happen. We have enough to say that risk is much greater at times of high valuations. But we cannot say precisely when prices will crash.

We know some things and we do not know some other things. We should say the things we know and avoid saying the things we do not know. We should tell people that stock investing risk is higher at times of high valuations and thus investors who want to keep their risk profile stable over time need to lower their stock allocations at such times. But we should not say “there will be a price crash on such and such a date.” Because we just don’t know that.

I believe that history is a great guide, the best guide that we have. One of the many things that I like about the Buy-and-Holders is that they were the one who urged using history as a guide. I do not believe that history tells us everything. That’s because there is not yet enough history. When we have 10,000 years of historical data, we may be able to make better predictions of when price crashes will arrive. It’s also possible that we will never be able to do that because it is shifts in investor emotion that cause price crashes and investor emotion is an irrational phenomenon so it may never be highly predictable. In any event, we cannot make such predictions effectively today. So we should not advance them.

But we can say that, once prices get high, their long-term direction is down. That’s been so for 150 years running. So that’s a safe prediction. High prices beget years of low returns and low prices beget years of high returns. I read that in Bogle’s book before I ever read Shiller’s book. It was Bogle that helped me to understand why Greaney’s study is in error, not Shiller. Shiller of course added to my understanding later on. But Bogle is the true cause of all this. I would guess that the reason why Bernstein stated that the Greaney number is in error is that he had read Bogle. Bogle is the real trouble-maker.

I believe that the market is today operating under the same principles that it has operated on throughout history. The results that we have seen in recent years have been outlier results. But that is going to happen from time to time. It doesn’t mean that the principles have changed. It just means that the details by which things play out are a little different. I think we are going to see the Same basic pattern this time as we have seen for the entire history of the market. a failure to pay sufficient attention to valuations will cause us all a great deal of misery.

I would like to see us learn from history instead of continuing to make the same horrible mistakes. The benefit of permitting discussion of the peer-reviewed research is that it permits us to learn from history. I view the ban on honest posting re the peer-reviewed research as irrational. I think that the irrationality that we have seen during the first 22 years of our discussions supports Shiller’s belief that stock investors are not always 100 percent rational but at times become highly emotional. I see the reining in of investor emotion as being 70 percent of what it takes to achieve successful long-term stock investing success. It’s the key to the entire project.

Rob

“You Are Too Impressed By the Small Number of Times That a High-Risk Withdrawal Rate Has Survived.”

by

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

No 30 year period has ever failed, Rob.  You can’t have it both ways.  You can’t say on one hand to look at the historical market and then say just the opposite when it doesn’t suit you.  If you doubt Greaney, you have to doubt Shiller……..and that means you are also wrong.

I agree that a 4 percent withdrawal has not failed in any 30-year time-period in the historical record.Yes, that’s history.

But, no, that doesn’t make a 4 percent withdrawal safe for a retirement beginning today. Throughout history, the most important factor affecting safety has always been the valuation level that applies on the day the retirement begins. Someone who believes that history is a good guide to what will happen in the future would say that any analytically valid calculation of the safe withdrawal rate must include consideration of the valuation level that applies on the day the retirement begins. Given that it always was a factor in the past, why wouldn’t it continue to be a factor in the future?

You are acting as if the concept of being safe and the concept of having survived are the same thing. They’re not.

Now — If the CAPE level had been 44 in every year of our stock market history from 1870 until today and 4 percent had always survived, then I would agree that it would be fair to say that 4 percent had shown itself to be safe. That’s a lot of data points. But that’s not the situation. We have only had one month when the CAPE hit that level.One data point is not enough to show that that withdrawal rate is safe at that valuation level. And that withdrawal rate barely survived on the earlier occasions when it was used starting from a valuation level that was super high. That shows that the valuation level matters when it comes to safety and should never be ignored.

You are too impressed by the small number of times that a high-risk withdrawal rate has survived. Saying that something is high-risk is not saying that it is certain to fail. It is saying that there is a chance that it might succeed and a chance that it might fail. There was a good chance that a 4 percent withdrawal for a retirement that began in 1929 would fail. It happened to succeed. That fact doesn’t retroactively make that withdrawal rate safe. It was high-risk in 1929 and it was still high-risk in 1959, when it had survived 30 years. Sometimes a high-risk withdrawal rate will survive. But a high-risk withdrawal rate will never retroactively become safe. Safety has to be determined at the time the retirement begins. In 1929, that withdrawal rate was high-risk because it was not known at that time whether the returns sequence that would come up would be a lucky one or an unlucky one.

All that Greaney showed is that it is POSSIBLE that a 4 percent withdrawal rate will work out starting from a super high valuation level. It is possible. The historical data shows that. It does not show that it is safe. It shows that it is high-risk.

Rob

“Once We Got the Greaney Study Corrected, It Was My Intention to Take the Discussion to Every Site on the Internet and Determine What It Is Within Us That Makes Us Want to Deceive Ourselves as to How Stock Investing Works.”

by

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 you have been told 10’s of thousands of times that there no error as the study did not require that. It is a retrospective study.

It is surprising that any board owner would let you post the same thing hundreds of times. Thousands of times is abusive. 10’s of thousands is a whole new level of horrible behavior and there was obviously no choice but to finally ban you since you refuse to have a normal discussion.

Greaney said that the study revealed the safe withdrawal rate. To determine what is safe, you need to look at the factors determining safety. Greaney ignoed the most important factor — the valuation level that applies on the day the retirement begins.

All that can be determined from a retrospective study that ignores the key factor affecting safety is the SURVIVING withdrawal rate. That’s what Greaney’s study reveals.

He should have corrected his study within 24 hours of becoming aware of the error he made in it. Had he done that, we would as a nation of people today be 22 years further along in our development of the Valuation-Informed Indexing concept and we would all be living fuller and freer and richer and better lives today as a result.

I recommended that we open every site on the internet to honest posting from the first day. Once we got the Greaney study corrected, it was my intention to take the discussion to every site on the internet and determine what it is within us that makes us want to deceive ourselves as to how stock investing works. Why has we for so long permitted our Get Rich Quick/Buy-and-Hold impulse to cause us so much financial harm.

Reading in the Get Rich Quick/Buy-and-Hold impulse that resides within each and every one of us is the future of investment analysis.

Or so Rob Bennett sincerely believes, you know?

My best wishes.

Rob

“When It Gets Into the Thousands, It Is Beyond Irritating. It Means People Have Seen It and Answered It So Many Times.”

by

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 number is in the tens of thousands.”

Thanks for finally admitting that your message is out there. Not only that, any normal person would tell you that have a couple hundred times, it has gotten excessive. When it gets into the thousands, it is beyond irritating. It means people have seen it and answered it so many times, they are sick of it. Further, if you haven’t got any material traction after 10’s of thousands of posts, additional posts are not going to have any impact, regardless of how you spin the story.

Your problem is that you can’t drop the story because you have used it as a cover for not working. Same goes with the silly Greaney schtick you keep perpetuating. You will keep repeating it and no one will agree with you. You will just remain broke and alone. Good luck with that plan.

It should have taken all of one post pointing out the error in the Greaney retirement study (it lacks a valuation adjustment) to get it corrected. It hasn’t been corrected to this day. That’s the problem. It’s not my pointing out the error that is a problem. It’s Greaney’s failure to correct the study that is a problem.

There were people at the Motley Fool board who used that study for helping in planning their retirement. I know this. I was there.

My best wishes.

Rob

“Shiller Was Awarded a Nobel Prize for His Research. So His Research Must Have Showed Us Something About Stock Investing That We Did Not Know Before Shiller Published It. What Is That Something? I Have Been Asking That Question of Buy-and-Holders for 22 Years and Never Once Have I Received a Response.”

by

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 is talked about all over the internet. Just Google it.  What you don’t like is that people got tired of you lying about Shiller (and other people/things) as well as your poor behavior issues.   YOU are banned.  Shiller is not.

We disagree.

Shiller was awarded a Nobel prize for his research. So his research must have showed us something about stock investing that we did not know before Shiller published it. What is that something? I have been asking that question of Buy-and-Holders for 22 years and never once have I received a response. Buy-and-Holders don;t respond because they understand that it will be the beginning of the end for Buy-and-Hold if they do.

Shiller discredited Buy-and-Hold. Technically, he discredited the Efficient Market Theory. But it’s the same thing because the Efficient Market Theory is the only justification that the Buy-and-Holders ever offered for their loony-tunes “idea” that there might be an alternative universe 50 billions light years away in which everything works the opposite of how it had always worked on good old Planet Earth and valuation-based market timing (price discipline!) is not 100 percent required for every stock investor.

It’s no accident that the peer-reviewed research that I co-authored with Wade Pfau showed that Valuation-Informed Indexing has been soundly beating Buy-and-Hold for as far back as we have good records of stock prices. How else could it have possibly turned out? Could the exercise of price discipline ever produce poor results? I mean, come on.

Mention of Shiller’s name is not banned. But discussion of the far-reaching how-to implications of his amazing research is. The people who developed the Buy-and-Hold strategy didn’t’t have Shiller’s research available to them because it had not yet been published at the time. So they made a mistake. The best thing to do when you make a mistake is to correct it IMMEDIATELY. It’s been 43 years. We need to open every site to honest posting re the peer-reviewed research.

That’s where I’m coming from re this one, in any event.

My best wishes to you and yours, Anonymous.

Rob

“I Am Not Aware of a Single Expert Who Says That the Greaney Retirement Study Contains a Valuation Adjustment. Full Truth Be Told, I Cannot Recall Greaney Himself Ever Saying Precisely That.”

by

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:

Your impression?  We are to go off of that?  You don’t have any expert saying this and we are just to go with your impression?

I am not aware of a single expert who says that the Greaney retirement study contains a valuation adjustment. Full truth be told, I cannot recall Greaney himself ever saying precisely that. He has not corrected the study in the 22 years since I brought the error to his attention. He has responded abusively to all efforts by his fellow community members to warn people about the error. But I do not recall him ever saying directly that the study contains a valuation adjustment. Evidence-Based Investing, who is a general in Greaney’s army of Goons, has said that “nobody” truly believes that Greaney included a valuation adjustment in the study, “including Greaney himself.” That’s not precisely the same thing as Greaney saying it but it’s close.

I have not spoken to every expert in the field. But not one that I have spoken to has said that the Greaney study contains a valuation adjustment. So, yes, it is my impression that everyone agrees. We will know for certain once every internet site has been opened to honest posting re these matters and each and every expert in the field feels comfortable advancing an honest statement re his or her views. I have been saying that we need to open every site to honest posting since the afternoon of May 13, 2002.

I naturally wish you all the best that this life has to offer a person.

Rob

“Just About Everyone in the Field Agrees on the Basics, They Are Just Afraid to Say It.”

by

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

Who is the expert that agrees with you?

My impression is that just about everybody in the field agrees. Not entirely. But you wouldn’t expect that. The Rob Bennett who existed on May 13, 2002, wouldn’t agree with the Rob Bennett who exists today. I have learned a lot by asking questions and exploring this stuff and talking it over with interested parties for 22 years. So I don’t say that everyone agrees 100 percent. But just about everyone agrees that Shiller’s research taught us all something important and that honest posting re Shiller’s research should be permitted at every site.

Bill Bernstein obviously agrees on the basic question. He said that the safe withdrawal rate in January 2000 was 2 percent, not 4 percent. That’s what I say. John Bogle largely agreed. He put up that post at the Bogleheads forum saying that he could see how valuation-based market timing could work in some circumstances. That was not a full-throated endorsement. But it was a far cry from the Goon position. I think it would be fair to say that Bogle was hoping that he could get a productive discussion started by making that admission (which was a change from things he had said at earlier times). And of course there are lots and lots of others.

People don’t want to be threatened. If you want people to say clearly that they agree, you are going to need to rein in the abusive stuff. People just won’t speak clearly as long as they are subjected to the kind of abuse that you Goons dish out for doing so. But my sense is that just about everyone in the field agrees on the basics, they are just afraid to say it. I am not able to recall even a single time where anyone (this includes you Goons) made a case that Shiller’s Nobel-prize-winning research is in error. That’s a remarkable reality. The fact that that has never once happened in 22 years should tell us all something.

My best wishes.

Rob

“I am Not Able to Think of Another Case Where Things Are Sufficiently Open That We Have a Mountain of Evidence That an Existing Model Is False While Not Permitting the New Model to Be Openly Discussed and Thereby Developed to the Point That It Can Effectively Replace the Now-Discredited Model.”

by

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

From today’s New York Times

“This reminds Professor Shiller of the rallies of the 1920s and the dot-com boom, which both ended badly. When prices get too far ahead of earnings, there will eventually be a reckoning — and, he says, there’s a good chance that U.S. stock market returns will be lower over the next decade than the last one.”

Doesn’t look like there is any ban on discussing Professor Shiller’s ideas.

There’s certainly a ban. I pointed out the error in the Greaney retirement study (it lacks a valuation adjustment) on the morning of May , 13, 2002. It has not been corrected to this day. Please explain.

It’s not a TOTAL ban. That much is so. If it was a total ban. Shiller wouldn’t have gotten his research published in a peer-reviewed journal and his book wouldn’t have been a best-sellter and he wouldn’t have been awarded a Nobel prize. If it had been a total ban, we wouldn’t have seen thousands of our fellow community members put up posts expressing a desire that honest posting be permitted and I wouldn’t have a research work with me for 16 months to develop research showing that my ideas check out and all that sort of thing.

I am not able to think of another case where things are sufficiently open that we have a mountain of evidence that an existing model is false while not permitting the new model to be openly discussed and thereby developed to the point that it can effectively replace the now-discredited model. That is exceedingly strange stuff. But that’s where we stand in the investing advice field. There has never been an iota of evidence that valuation-based market timing might not work or might not be required. But woe to the individual who dares to say that openly on any discussion board or blog on the internet. Holy moly!

I said it. I love what the Buy-and-Holders were trying to do. That’s why I was a Buy-and-Holder myself for a time. And I view the mistake they made as trivial in the grand scheme of things. They didn’t have Shiller’s research available to them. So they took a wild shot in the dark and made a mistake. So what. you know? The only people who never make mistakes are people who never try to accomplish anything of consequence. So the mistake was nothing.

But the 43-year cover-up of the mistake has hurt millions of people in very serious way. The cover-up is responsible for today’s loony-tune CAPE value. The cover-up was responsible for the Great Recession of 2008. The cover-up has made effective financial planning impossible for 43 years now. Not good. Our discussions show that 10 percent of the population of stock investors believes that Shiller’s Nobel-prize-winning research is legitimate research. If we all had been speaking up in clear and firm terms for 43 years now, we could as a nation of people have buried the smelly Buy-and-Hold garbage 30 feet in the ground, where it could no longer hurt humans and other living things, a long, long time ago.

I have a funny feeling that continuing to keep it zipped, as I did from May 1999 through May 2002, is not going to get the job done. That’s why I play it the way that I do. I show respect and love for my Buy-and-Hold friends and for all of the great contributions that they really did make. But I am pretty darn insistent in saying that I sincerely believe that the Greaney retirement study (and ALL Buy-and-Hold retirement studies) lacks a valuation adjustment. Call me madcap, you know?

My best wishes,.

Rob