Disqus - Latest Comments for RobBennett

Re: High CAPE Values Are the Primary Cause of the Coronavirus Crash

RobBennett — Tue, 17 Mar 2020 09:57:06 -0000

And in the 18 years since I advanced my famous post pointing out that the safe withdrawal rate study posted at John Greaney's web site lacks an adjustment for the valuation level that applies on the day the retirement begins, not one person has been able to identify a valuation adjustment in the study and yet it has not been corrected. I have a funny feeling that I am not the one who needs to wake up re these matters.

But, again, I suppose that you could say that it's a matter of differing perspectives. Greaney has not been banned at a single web site, I have been banned at many. But I can sleep at night. Maybe Greaney is able to sleep at night as well, I am not in a position to say. But I know that I did not feel good about myself in the days before I worked up the courage to advance that post. I would not be able to place a dollar value on my taking the step that turned that around. That's me. You are free to live your life in a different way. But that's me.

Please take good care.

Rob

Re: High CAPE Values Are the Primary Cause of the Coronavirus Crash

RobBennett — Tue, 17 Mar 2020 09:35:22 -0000

Okay, Sammy.

I feel sorry for all the people who someday are going to look back and see that they had this opportunity available to them and that they let it pass because taking advantage of it would make some Buy-and-Holders angry with them. A lot of people are scared today because of this crash. I find it very fulfilling to know that the work that I am doing will someday insure that no investor will ever again have to endure something like this. Once we all feel free to post about Shiller's research at every site on the internet, insane bull markets (and the insane bear markets and economic crises that follow from them) will be a thing of the past. Stock prices will be self-regulating in a world in which investors have easy access to discussions of the far-reaching implications of Shiller's Nobel-prize-winning research.

I feel sorry for all of us that we have not yet tapped into the amazing benefits that we will see when Valuation-Informed Indexing becomes the dominant model for understanding how stock investing works. But I feel excited for us to know that at least this is now an opportunity available to us. I suppose that it's a matter of perspective.

My best wishes to you.

Rob

Re: High CAPE Values Are the Primary Cause of the Coronavirus Crash

RobBennett — Tue, 17 Mar 2020 09:14:40 -0000

I like your opening statement that "you continue to take your old, tired theme and then spin it with the topic of the day," Sammy. I don't agree that my theme is tired. I find it exciting. I believe that Valuation-Informed Indexing is the future of investment analysis and that Buy-and-Hold is the past. However, outside of that adjective, the rest of your comment is a decent description of the work that I have been doing for 18 years now. Shiller showed something very simple, that the market is not efficient, as the Buy-and-Holders believed, that valuations affect long-term returns. That finding affects every aspect of the stock investing project in a profound way. But, amazingly, few have explored the far-reaching implications of Shiller's Nobel-prize-winning work. So I do that. As you say, I just apply that breakthrough finding -- that valuations affect long-term returns -- to every topic that comes up.

And, no, the Valuation-Informed Indexing concept has not caught on in a big way just yet. Buy-and-Hold remains dominant today. And that reality has hurt my ability to make money doing this work. But do you really think that that is going to remain the case for much longer? I sure do not. If Shiller's Nobel-prize-winning research is legitimate research, it changes our understanding of every aspect of the stock investing project. Getting everything wrong obviously is going to hurt us in serious ways. Making the shift that would permit us to get everything right would be a boon for millions. You do not think that that shift is going to take place? I do. I am highly confident that it will.

If Shiller's Nobel-prize-winning research is not legitimate, I have wasted 18 years of my life. I'll give you that one. But if Shiller's research is legitimate, then I am like that fellow in the movie "Yesterday" who was the only one on the planet who remembered all the Beatles songs. He could go to a party, pull out a guitar and say "This next one is a little something that I call 'Hey. Jude'"and blow everyone away. That's me in the personal finance realm. For 18 years I have been able to write about hundreds and hundreds and hundreds of different aspects of the stock investing project from an entirely fresh perspective and from one that is rooted in peer-reviewed research that won the fellow who did it a Nobel prize. That's a pretty darn amazing opportunity that I had fall into my lap.

I think that everyone should be doing this work. Now, if the market is efficient, that would be foolish. I see that. But if valuations truly affect long-term returns, as Shiller showed is the case many years ago -- Holy moly! That changes everything! If part of the stock price is comprised of irrational exuberance, then we put ourselves at risk of suffering a devastating price crash when we permit the CAPE value to go too high. It's an amazing thing that we now know how to prevent the sorts of price crashes that we are living through today. I think it's great. It's like living in the time when horrible diseases were cured. At one time, you just had to live in fear. Then you discover how to cure those diseases and everyone on the planet gets to live a better life. That's where we are in the stock investing realm today, in my sincere assessment.

My best and warmest wishes to you regardless of what investment strategy you elect to follow.

Rob

Re: The Power of Puzzles to Point Us to Investment Truths

RobBennett — Tue, 10 Mar 2020 18:28:42 -0000

Okay, Sammy.

I do wish you all good things, in any event.

Rob

Re: The Power of Puzzles to Point Us to Investment Truths

RobBennett — Tue, 10 Mar 2020 17:55:28 -0000

Greaney's retirement study is still available at his web site, Sammy. Anyone who cares to can check it out and he or she will see that what I said on the morning of May 13, 2002 was 100 percent correct. The study lacks an adjustment for the valuation level that applies on the day the retirement begins. According to Greaney's study, the safe withdrawal rate is always 4 percent.

Not good.

And please don't think that it is only Greaney. None of the Buy-and-Hold retirement studies contain valuation adjustments. Again, you don't have to take my word for it, You can check it out for yourself. None of these studies contain valuation adjustments and none of them has been corrected in the 18 years since I advanced my famous (infamous?) post.

You could also check this out by Googling the phrase "4 percent rule." There are so many articles that claim that the safe withdrawal rate is always the same number that there is a popular phrase that encapsulates this bit of conventional wisdom -- "the 4 percent rule."

Really, really, really not good.

Please mark me down as saying that the safe withdrawal rate is a number that VARIES with changes in the valuation level. It can drop to as low as 1.6 percent when the CAPE value is where it was in 2000 and it can rise to as high as 9.0 percent when the CAPE value is where it was in 1982.

That's my sincere take. like it or not.

And Wade Pfau agrees with me. He said otherwise when you Goons threatened to get him fired from his job if he continued saying things that you do not want people to say. Bur for the 16 months in which he worked with me on the peer-reviewed research that we co-authored showing that long-term market timing always works, he agreed with me that the Greaney retirement study (and, indeed, all Buy-and-Hold retirement studies) is "dangerous."

Rob

Re: Irrational Depression Is Every Bit As Crazy As Irrational Exuberance

RobBennett — Tue, 03 Mar 2020 16:16:17 -0000

Okay, Sammy.

I naturally wish you the best of luck with whatever investment strategy you elect to follow, in any event.

Rob

Re: Irrational Depression Is Every Bit As Crazy As Irrational Exuberance

RobBennett — Tue, 03 Mar 2020 14:51:39 -0000

I only post about one subject. But it is a very important subject and there are hundreds of angles to it. So posting about that one subject keeps me busy.

The one subject is long-term market timing. There was research in the 1960s that showed that short-term timing doesn't work. People did not know at the time of the need to distinguish short-term timing from long-term timing. So it became common practice just to say that "timing doesn't work." We now know that long-term timing always works and is always 100 percent required for investors seeking to keep their risk profile constant over time. But all the people who have been saying for years that long-term timing is not required feel that it makes them look bad for people to learn the realities. So you still hear this kind of thing today, 39 years after the research was published showing that the market is not efficient and that therefore long-term timing (price discipline!) always works and is always required.

It's a big deal. If the market is efficient, the safe withdrawal rate would always be the same number (4 percent). If valuations affect long-term returns, as Shiller's research shows, the safe withdrawal rate is a number that varies from 1.6 percent to 9.0 percent, depending on the CAPE level that applies on the day the retirement begins. The biggest reason why people seek out investment advice is to plan their retirements effectively. If the old way of thinking about how stock investing works (Buy-and-Hold) is producing wildly wrong retirement planning numbers, we need to get that fixed. This is not optional. It is 100 percent imperative.

And it affects lots of other stuff too. Wade Pfau and I co-authored peer-reviewed research showing that investors can reduce stock investing risk by nearly 70 percent just by being willing to engage in long-term timing. That's amazing. Stocks are not nearly as risky an asset class as we have been led to believe. The risk that many people see in stocks is just the result of the investment strategy (Buy-and-Hold) that was developed in the days before Robert Shiller published his Nobel-prize-winning research showing that valuations affect long-term returns. That research changes everything that we once thought we knew about how stock investing works.

I've been writing about the transition that we need to make from Buy-and-Hold to Valuation-Informed Indexing for 18 years now. I could write about it for another 18 years and never come close to running out of material. It is exciting stuff. Shiller's research shows us all how to live far richer lives. Most people want to live richer lives. So I like telling them about it. But the Buy-and-Holders don't like the idea of people learning the realities as revealed by the peer-reviewed research one little bit. But I think that as a society we are going to need to get past that. Eventually, I don't think that we are going to have any other choice.

I hope that helps a tiny bit.

Rob

Re: Emotion and Economic Developments Combine to Set Stock Prices

RobBennett — Thu, 27 Feb 2020 16:39:38 -0000

Okay, Sammy.

I do wish you all good things, in any event.

Rob

Re: Emotion and Economic Developments Combine to Set Stock Prices

RobBennett — Thu, 27 Feb 2020 10:33:18 -0000

People can post anonymously. That certainly helps to address the fear problem. It does not entirely eliminate it.

Say that you are driving in the early morning hours and you come to a red light. Your eyes tell you that there is zero chance that you will get in an accident or get a ticket if you go through the red light. Do you go through it? Some people do. But many people do not. There is a Social Taboo against going through red lights. Social Taboos have a powerful effect on all of us, even when no one is looking.

There was a movie in the 1960s called "Guess Who's Coming to Dinner?" It was about a liberal-minded couple whose daughter was dating a black man and she was bringing him to dinner to meet her parents. The liberal parents were 100 percent in favor of the civil rights revolution. There was no logical reason that they could come up with for why their daughter should not marry a black man. But they were uneasy with the idea. Why? Because there long had been a Social Taboo against inter-racial dating and marriage. It was in the process of being broken down and it is not nearly as strong today as it was then. But at that time it influenced the thinking even of people who 100 percent thought that black people were equal to white people. Social Taboos are hard to overcome.

There are lots of examples of this. It was considered a scandal when Rhett Butler said in Gone with the Wind: "Frankly, Scarlett, I don't give a damn." No one had ever said the word "damn" in a movie before. There was a Social Taboo being broken in that movie. That word and words worse than it are used in television programs today all the time. The Social Taboo has been eroded. But it took a lot of time to get from what we found acceptable then to what we find acceptable today.

I violated a Social Taboo when I put up my famous post pointing out that the retirement study posted at John Greaney's web site does not contain an adjustment for the valuation level that applies on the day the retirement begins. If I was right about that (I was), then the study got the numbers wildly wrong and the lives of thousands of people at that site were damaged in very serious ways. So I did something very valuable for that community. But that's not how most of the Buy-and-Holders felt about it.

Shiller changed our intellectual understanding of how stock investing works when he published his Nobel-prize-winning research. The Buy-and-Holders have been ignoring that research for 39 years now. So the question of whether it should be considered has become a highly sensitive matter. Speaking frankly about these matters just isn't done. There is a Social Taboo against doing what I did.

You are saying that people could violate the Social Taboo anonymously and would not be required to pay a price for doing so. But humans are built so that we are careful not to violate Social Taboos even when there is no way that we could get caught. The censor lives inside us. I can give a personal example. On the day that I put forward that famous post, I still believed in Buy-and-Hold. I believed that the Buy-and-Hold retirement studies needed to be corrected. But I endorsed the strategy that produced those studies. That's crazy. If the Buy-and-Hold Model caused retirement studies that get the numbers wildly wrong to be produced, there is something very wrong with that Model. I see that now. I did not see it them.

It has taken me 18 years of pushing back against the Social Taboo for me to work up the courage to say some of the things that I say today. I say today: "Market timing is 100 percent required for all investors, it is the key to long-term success." I didn't say that in the early days. In the early days, I used to say in an apologetic tone that I only advocate long-term timing, not short-term timing. That's so. Short-term timing really doesn't work. But over time I came to see that it is defensive to always feel a need to make that distinction. It is the Buy-and-Holders who have hurt millions of people by failing to distinguish short-term timing (which doesn't work) from long-term timing (which is always required). So those of us advocating market timing have nothing to be defensive about.

There was a voice within me in the early days telling me not to be so blunt. It was my fear of violating the Social Taboo that generated that voice within me. To come to a better understanding of how stock investing works in the real world, I need to work up the courage to violate that Social Taboo on a daily basis. We all do. Our problems understanding how stock investing works are not intellectual problems. They are fears of violating the Social Taboo, concerns that we have that this one mistake that the Buy-and-Holders made has been covered up for so long that it is going to hurt a lot of people's feelings if as a society we elect to begin permitting and encouraging open discussion of the far-reaching implications of Shiller's Nobel-prize-winning research.

Rob

Re: Emotion and Economic Developments Combine to Set Stock Prices

RobBennett — Thu, 27 Feb 2020 08:50:02 -0000

I have supporters. It's not a majority of the population. But about 10 percent of the population thinks my stuff is amazing. I have had numerous people tell me that my writing on stock investing is the first stuff that they have ever read that makes complete sense of the subject. It's those sorts of comments that give me the encouragement that I need to hear to continue fighting the good fight.

In ordinary circumstances, I could go to all kinds of sites and that 10 percent would in time grow to 20 percent and then to 40 percent and then to 80 percent and Valuation-Informed Indexing would replace Buy-and-Hold as the dominant model for understanding the subject. But about 10 percent of that 90 percent who are not immediate fans reacts to the idea that market timing is required for long-term success with a level of defensiveness that is just completely off the charts. The level of vitriol that you see from this group is 20 times greater than anything you have ever seen in a polarized political discussion. It is unreal. If you think abortion is a hot button issue, you have never been in the middle of a discussion as to whether it is possible to calculate the safe withdrawal rate accurately without taking into consideration the valuation level that applies on the day that the retirement begins. Holy moly!

I take that as strong evidence that Shiller is right. The only thing that Shiller is saying that is different from what the Buy-and-Holder say is that the Buy-and-Holders believe that stock investors make rational choices and Shiller's research shows that investors are often highly emotional (the CAPE metric tells us how much investor emotions are affecting the stock price at any given point in time). So, if Shiller is right, we should be seeing insane levels of emotion in most investors at times when stocks are priced as they are today. I can testify that there is a lot of crazy stuff going on at investing discussion boards today, stuff that just ain't normal and healthy.

Will all that change when prices drop? Will investors become less emotional about Buy-and-Hold when prices have fallen to fair-value levels or lower? I believe they will. I don't believe that it is even possible to hold a civil and reasoned debate about these matters today. I have certainly run into Buy-and-Holders who are exceptions to that rule. But they are the in the minority and sooner or later they always get drowned out by the more emotional voices. So we cannot really even say whether Buy-and-Hold makes sense or not. Until prices drop, we are not as a people capable of engaging in the discussion it would take to develop a reasoned assessment.

Shiller changed the very language that we use to talk about stock investing. You could compare it to what Darwin did or to what Freud did or to what Galileo did. Galileo was put under house arrest by the Catholic church because he said that the earth was not the center of the universe and that conflicted with what people knew with 100 percent certainty was so from reading the Bible. I am a believer. So I am all for reading the Bible. But I think that Galileo did a good thing by taking a scientific approach to the questions he examined. I believe that God gave us our brains and that He wants us to use them to learn what we can about the world around us. I believe that Shiller advanced that cause by teaching us things about stock investing that we just did not know before and that the only reason why people become upset to read my stuff is that it is so different from what they have come to believe is so from reading stuff that doesn't take Shiller's Nobel-prize-winning research findings into consideration.

I have supporters, Sammy. Not as many as I would like, But I have some very intense supporters. And I believe that when the time arrives when more people feel safe talking about the far-reaching implications of Shiller's work, I will have a lot more of them. I believe that Buy-and-Hold is the past of investment analysis and that Valuation-Informed Indexing is the future. I mean no insult to my Buy-and-Hold friends by saying that. I think that the Buy-and-Holders made many important contributions to our understanding of the subject. But I also believe that Shiller merited his Nobel prize and that we all need to begin working together to integrate his powerful insights into the understanding of how stock investing works that the Buy-and-Holders advanced before he came along.

That's where I am coming from, in any event. I naturally wish you the best of luck with whatever investment strategy you personally find most appealing.

Rob

Re: Emotion and Economic Developments Combine to Set Stock Prices

RobBennett — Wed, 26 Feb 2020 08:59:28 -0000

um....

Rob

Re: The Hill-and-Valley Return Pattern Explains High Stock Valuations

RobBennett — Wed, 19 Feb 2020 17:41:28 -0000

Wade did indeed say that in an e-mail, Sammy. I do not deny that.

What I say is that he wouldn't have said it had there never never been any efforts made to intimidate him. Wade loved exploring Valuation-Informed Indexing and then telling people what he learned about it. That's why those 16 months were the happiest days of his life. He did not love hearing that his penalty for continuing to do honest work would be to see his career destroyed. He had family responsibilities. He wanted to be able to fulfill those responsibilities. No one should ever be placed in the circumstances in which he was placed.

I don't want anyone ever again to be placed in those sorts of circumstances. If Shiller had published his Nobel-prize-winning research last week, every last one of us would be excited to learn what it teaches us and we would be talking about Valuation-Informed Indexing on every web site on the internet. Because he published it 39 years ago, we are all afraid that talking about it makes our Buy-and-Hold friends look bad because of the long cover-up.

I do not want to make anyone look bad. But there is no way to talk about this stuff without making some people feel funny. Shiller changed our understanding of how stock investing works in a fundamental and far-reaching way. We are not going to ease the discomfort by having the cover-up stretch on for another year or two or three. We need to all pull together and bring it to an end by the close of business today. Doing that is in the best interest of every single person affected by these matters, and that is every last one of us.

That's my sincere take, in any event. I do wish you all good things, dear friend.

Rob

Re: The Hill-and-Valley Return Pattern Explains High Stock Valuations

RobBennett — Wed, 19 Feb 2020 16:49:42 -0000

I never caused Wade any harm. He told me that the 16 months that he spent working with me on the Valuation-Informed Indexing concept were the best 16 months of his life. It was your intimidation tactics that did harm to Wade. Here are some of his comments re the intimidation tactics:

1) “I was trying to pay tribute to your accomplishments in what I knew would be a hostile environment.”

2) “Valuations and long-term investors is a somewhat controversial topic.” Wade posted these words to his blog in October 2011 as his explanation of why he was abandoning his plan of doing further research on the superiority of Valuation-Informed Indexing strategies over Buy-and-Hold strategies. He had told me in earlier days that “You ain’t see nothing yet!” when I praised his breakthrough research in this area. After his flip to the dark side, Wade removed the page containing this blog entry from his site.

3) “We have both read and met to discuss your paper. Unfortunately, we did not find the paper’s incremental contribution to the academic finance literature, assuming the analysis proved to be correct, rose to the level that we are seeking for papers in the JFR. Thus sending the paper to a reviewer would be inefficient.” These words are from an academic journal’s “desk reject” of Wade’s breakthrough research.

4) ) ““ I was discouraged when I first received the “desk reject” by the editors of the same journal that published the Fisher and Statman paper. I realized that I didn’t have a chance with one of the top journals.”

5) “I think I should stay publicly quiet for a while, as I really don’t want anyone sending messages about any topics to officials at my university.”

6) I don’t want them [the Goons] working behind the scenes to derail me.”

7) “I did warn the editor of the Journal of Financial Planning that they may receive some ‘hate mail‘ after I mentioned your name in the safe savings rate paper.”

Rob

Re: The Hill-and-Valley Return Pattern Explains High Stock Valuations

RobBennett — Wed, 19 Feb 2020 16:25:17 -0000

Here are some more:

1) ” I know that there is an extensive literature about the predictability of long-term stock returns dating back to Campbell and Shiller’s work in the mid-1990s. I also know that there is an extensive literature about short-term market timing strategies…. But my question is about LONG-TERM market timing strategies. In other words, using market timing over periods of at least 10 years to obtain better returns than a Buy-and-Hold strategy. The literature seems slim.”

2) “Let me just explain a bit more why I posted about this here. Valuation-Informed Indexing has had critics for years, but until Norbert did it in 2008, nobody seemed to have provided a serious investigation of it. I just couldn’t understand why. And that bothered me.”

3) “Two papers by Fisher and Statman are still all I can find that provide evidence against long-term market timing.”

4) “I’m so confused by why Fisher and Statman didn’t consider risk in their idiot switching tests. Valuation-Informed Indexing is much less risky by pretty much any standard I consider. I must wonder… did I make a mistake somewhere? Why haven’t academics already published research about this?”

Rob

Re: The Hill-and-Valley Return Pattern Explains High Stock Valuations

RobBennett — Wed, 19 Feb 2020 15:33:02 -0000

Here are some more comments by Wade:

1) “I do cite you and John Walter Russell in my paper as the earliest and strongest advocates of this approach [New School safe-withdrawal-rate research].

2) “Are you aware of Shiller offering asset allocation advice based on PE10? …. If you read Rob Bennett’s stuff carefully, I think he did provide an important contribution in terms of describing a way for PE10 to guide asset allocation for long-term conservative investors. I also think he was right on the issue of safe withdrawal rates.” — Posted at the Bogleheads Forum discussion board.

3) “I am also extremely grateful to Rob Bennett for motivating this topic and contributing his experience and encouragement.” — Written in Acknowledgments section of Wade’s breakthrough research paper.

4)”You deserve much of the credit as the whole idea of Valuation-Informed Indexing belongs to you.”

5) “I definitely need to cite some of your work as the founder of Valuation-Informed Indexing, as I have not found anyone else who can lay claim to that. Shiller pointed out the predictive power of PE10 but never discussed how to incorporate it into asset allocation, as far as I know.”

Rob

Re: The Hill-and-Valley Return Pattern Explains High Stock Valuations

RobBennett — Wed, 19 Feb 2020 15:15:27 -0000

Wade Pfau holds a Ph.D. in Economics from Princeton. He worked with me for 16 months on research that we had published in a peer-reviewed journal. Here are some of his comments:

1) “What you see in the top part of the graph for each year is the amount of wealth accumulated after 30 years for someone following Buy-and-Hold against someone following Valuation-Informed Indexing….Valuation-Informed Indexing provides more wealth for 102 of the 110 rolling 30-year periods, while Buy-and-Hold did better in 8 of the periods.”

2) “I will take steps in my final paper to test a wide variety of assumptions about asset allocation, valuation-based decision rules, whether the period is 10, 20, 30, or 40 years, lump-sum vs. dollar-cost averaging, and so on, and to show that the results are quite robust to changes in any of these assumptions.”

3) “Any data mining that I am doing is in favor of buy-and-hold, not in favor of market timing.”

4) “The findings for “market timing” are so robust anyway, that it hardly matters how we do it.”

5) “The maximum drawdown from market timing is much less. That is how far the portfolio drops from past highs to current lows. The Buy-and-Holder once experienced a 60.96% drop, whereas the worst drop for market timing was 24.16%.”

6) “Market timing provides significantly higher returns at a comparable level of risk.”

7) “The market timer enjoys a far less risky strategy.”

8) “On a risk-adjusted basis, market-timing strategies provide comparable returns as a 100 percent stocks Buy-and-Hold strategy but with substantially less risk. Meanwhile, market timing provides comparable risks and the same average asset allocation as a 50/50 fixed allocation strategy, but with much higher returns.”

9) “If everyone increased exposure after a market fall and vice versa, then this would dampen out the big swings in the market aggregates, and we might get shallower boom/bust cycles.”

10) ““‘I’m excited about this, as depending on what you have already done, I think I can design a study using the Shiller data to provide historical simulations of Valuation-Informed Indexing strategies against fixed Buy-and-Hold strategies and also lifecycle strategies (declining allocation to stocks as one ages). If Valuation-Informed Indexing consistently outperforms fixed and lifecycle strategies, then the proof is in the pudding so to speak. Given how well valuations help to explain withdrawal rates, I think there is a lot of potential for this topic.”

11) “Yes, Virginia, Valuation-Informed Indexing Works!”

12) “It makes complete sense to have an equity allocation that is in some way flexible. Having a completely inelastic demand for equities is a bit bonkers; no-one acts that way with life’s other important commodities.”

13) “I wrote up the programs to test your Valuation-Informed Indexing strategies against Buy-and-Hold, and I must say that the results look very promising…. I am quite excited about the findings so far. As you say in the podcast, Valuation-Informed Indexing should beat Buy-and-Hold about 90 percent of the time, and I am getting results that support this for various strategies.”

14) “I have been toying with the idea of sending the paper to the Journal of Finance, which is the most prestigious journal in academic finance.”

15) “Now that I am accounting for risk, I am even more amazed by how well Valuation-Informed Indexing works.”

16) You shouldn’t be too excited with great wealth accumulations if they happened due to unusually high valuations, and low wealth accumulations shouldn’t be as scary if valuations are also quite low.”

17) “My idea is to show many different tables with results over the whole period for returns and risks. Valuation-Informed Indexing always provides more returns for often less risk.”

18) “No matter what I try, Valuation-Informed Indexing will still perform better in 85-95% of cases for 30 years.”

19) “I have a new figure for showing this as well. And a nice figure showing the outperformance percentages across rolling periods of lengths between 1 and 40 years. I think it is all quite persuasive.”

20) “You haven’t seen anything yet! This was just the secondary study. I’m still working on the main one!”

Rob

Re: The Hill-and-Valley Return Pattern Explains High Stock Valuations

RobBennett — Wed, 19 Feb 2020 09:47:53 -0000

What I am saying is that what we all believed about how stock investing works in 1980 has been proven wrong. Shiller published research in 1981 showing that the market is not efficient. The idea that the market is efficient is the foundation stone for the entire Buy-and-Hold Model. If Shiller turns out to be right, then everything that the Buy-and-Holders have ever said about how stock investing works is wrong. That's simple logic, Sammy. If the market is efficient, risk is constant and market timing is a bad idea. If valuations affect long-term returns (this is impossible if the market is efficient and yet this is what Shiller showed is so), then risk is variable and investors seeking to maintain the same risk profile over time MUST practice market timing.

For 39 years now we have been living in a twilight zone where we know intellectually (because we have access to Shiller's research) that market timing is required but in which we cling to Buy-and-Hold emotionally because we prefer thinking that the numbers on our portfolio statement are real and that we do not need to divide by two to identify the true and lasting value of our portfolio. We are going through a process taking us from a discredited model to a true research-based model. Progress has been slow. But we are seeing progress. We awarded Shiller a Nobel prize. That shows clearly that we care deeply about getting these matters right, even though we really, really, really want it to be the Buy-and-Holders who are proven right (because our portfolios are assigned a higher value by the Buy-and-Holders at times of insanely high prices).

My primary argument is that we need to launch a national debate on the question of whether is is the Buy-and-Holders or Shiller who is right. We need to hear from people from all points on the spectrum of opinion re these matters. The Buy-and-Holders need to feel 100 percent safe to express their sincere beliefs. And the Valuation-Informed Indexers need to feel 100 percent safe to express their sincere beliefs. And the people in the middle (that's the majority) need to feel safe to express their sincere beliefs.

That's where I am coming from, in any event, Sammy. I naturally wish you all the best that this life has to offer a person.

Rob

Re: The Far-Reaching Economic Implications of Shiller’s Research

RobBennett — Tue, 18 Feb 2020 18:04:35 -0000

I'm not going to post a link, Sammy. We have gone through the exercise on several occasions.

It always ends up the same. I adjust for valuations and you do not. So you say that you are ahead and I say that I am ahead. It's always going to be that way. Whether a valuation adjustment is needed or not make a big difference.

This is why Buy-and-Holders have a hard time talking to Valuation-Informed Indexers. We only disagree on one thing, whether the market is efficient or not, But that one difference affects every strategic choice. Shiller created an entire new model for understanding how stock investing works. There is today not one academically respected model for understanding how stock investing works, there are two.

I wish you all good things. But I believe that Shiller's Nobel-prize-winning research is legitimate research. So I feel compelled to say that I believe that and to examine every investing topic from the perspective that follows from having a belief that Shiller's research is legitimate research. Nothing that I say makes sense from the perspective that follows from having a belief that the market is efficient.

Rob

Re: The Far-Reaching Economic Implications of Shiller’s Research

RobBennett — Tue, 18 Feb 2020 17:11:45 -0000

I have compared outcomes with you, Sammy. We have done that. The problem is that you treat the numbers on your portfolio statement as real. You do not adjust for valuations.

I believe that, at a time when stocks are priced at two times fair value, you need to divide the numbers on your portfolio statement by two to identify the true and lasting value of your portfolio, the amount that is backed by economic realities and not just by a temporary irrational exuberance.

I don't trust the non-adjusted numbers. That's the entire point of all my work. That's the Shiller revolution. If half of your portfolio is the product of irrational exuberance, that needs to be taken into account. And you do not like the idea of making that adjustment.

Rob

Re: The Far-Reaching Economic Implications of Shiller’s Research

RobBennett — Tue, 18 Feb 2020 15:26:17 -0000

Okay, Sammy.

I naturally wish you the best of luck with whatever investment strategy you elect to follow, in any event.

Rob

Re: The Far-Reaching Economic Implications of Shiller’s Research

RobBennett — Tue, 18 Feb 2020 14:56:36 -0000

I love Shiller. Shiller and Bogle are my two favorite investment advisers of all time and I rank Shiller first. (Bogle, by the way, said in a post to the Bogleheads Forum, that he could see how market timing could work so long as the investors employing it only practiced it when prices got to extremes -- I agree that there is no need to engage in market timing more than once every ten years on average but I say that it is absolutely critical to engage in it on those rare occasions when prices get totally out of control, like today). I have devoted 18 years of my life to exploring Shiller's ideas. So I think it would be fair to say that I have made my respect for the man pretty darn evident.

That said, I can acknowledge that it would be a good thing if Shiller made his advocacy of market timing more explicit. He has recommended it on several occasions and his life's work shows the need for it. But I would like to see Shiller write an entire book on all the ins and outs of market timing, when to do it and when not to do it, how to do it, why it is so important. That's a book that we all need to see and learn from.

And of course it is not only Shiller who could write such a book. Shiller's research is available for all to review. We need to get lots of people absorbing its powerful lessons and writing books on the many benefits of market timing. I am writing a book on the subject. So I am doing my part. But I am some guy whose only claim to expertise in this field is that I figured out how to get posts to appear on internet discussion boards. This niche should not be left to me. We should have hundreds and hundreds of smart and good people pitching in.

Shiller changed the world in a very positive way, Sammy. That is why he was awarded a Nobel prize. And the thing that he did, if you want to reduce it down to one sentence, is that he showed that market timing is absolutely essential for all investors hoping to achieve long-term success. That's the thing that we did not know before Shiller came along that those who have spent some time thinking about his research findings now do know. If stock gains that are caused by overvaluation are nothing more than irrational exuberance and do not reflect any economic realities, then stock investing risk is not constant but variable. If risk is variable, then an investor who wants to maintain the same risk profile over time MUST practice market timing.

Three cheers for market timing! We once thought that it was not necessary but now we know better. So now we can all live richer lives on a going forward basis.

Rob

Re: The Far-Reaching Economic Implications of Shiller’s Research

RobBennett — Tue, 18 Feb 2020 14:29:35 -0000

Shiller said (in 1996) that investors who failed to lower their stock allocations in response to the high CAPE value were going to live to regret it. He was encouraging people to use CAPE to time the market.

And good for him! Stock prices are self-regulating so long as investors practice market timing. Market timing (price discipline!) is magic. Stocks are today priced at two times their fair value. We obviously would all be better off if stocks were priced properly. How are we going to get prices down if we don't engage in market timing? That is how it is done.

The alternative to market timing is just to wait for a price crash. Is that better? A price crash would mean that millions of people would suffer failed retirements. And trillions of dollars of spending power would disappear from the economy. That would push hundreds of thousands of businesses into bankruptcy and cause millions of workers to lose their jobs. Political frictions would increase, just as they did following the 2008 crash (many of the political frictions that we are seeing today got started with the 2008 crash, which was caused by the failure of many investors to practice market timing (price discipline) in response to the high CAPE values that applied in those days.

I see market timing as far better response to high prices than price crashes. We can achieve gradual corrections to out-of-control prices through market timing. With price crashes, we see huge losses of wealth take place suddenly. Price crashes are a shock to our economic system. It's the difference between adopting a more balanced diet when your doctor warns you that you are overweight and just waiting for a heart attack to arrive. A price crash is the economic equivalent of a heart attack. Not a good thing.

The reason why people who make a living selling stocks discourage market timing is that there is short-term money in it for them to persuade people that the thing they sell is always worth buying. For the investor and for the country as a whole, market timing is the far better approach to getting prices back to reasonable levels once we have all let our emotions get the better of us.

Are you able to suggest some means other than market timing or price crashes to get prices back to reasonable levels once too much irrational exuberance has put us in a dangerous place, Sammy?

Rob

Re: The Far-Reaching Economic Implications of Shiller’s Research

RobBennett — Tue, 18 Feb 2020 11:03:57 -0000

Shiller published an entire paper in July 1996 telling investors that those who stuck with their high stock allocations despite the high stock valuations that applied at that time would live to regret it within 10 years. That's a recommendation of market timing, Sammy.

In the days following the 2008 price crash, he said that investors should not get back into stocks until the CAPE value dropped below 10. Again, that's a recommendation of market timing.

Market timing is price discipline. Price discipline is what makes markets work. Persuade enough investors not to practice market timing and the market becomes dysfunctional. Then we all have big problems. Shiller was able to predict the price crash (and economic crisis) that we saw in 2008 in a book that he published in 2000 because his study of the market's history showed him that that's where price indifference always takes us. The only way that we can get prices right again once they have gone wrong is through market timing. It is absolutely essential.

My sincere take.

Rob

Re: Our Ongoing Study of How Stock Investing Works Is Not Taking Place in a Controlled Environment

RobBennett — Wed, 12 Feb 2020 11:44:37 -0000

Okay, Sammy.

Rob

Re: Our Ongoing Study of How Stock Investing Works Is Not Taking Place in a Controlled Environment

RobBennett — Wed, 12 Feb 2020 09:14:19 -0000

Okay.

I stand by the post.

I think that the question that I ask (how does Shiller's Nobel-prize-winning research findings change our understanding of safe withdrawal rates and of scores of other investment-related topics?) in the post is the most important public policy question before the people of the United States today.

We all need to know how best to invest our retirement money. And, until we launch a national debate aimed at exploring the far-reaching implication of Shiller's Nobel-prize-winning research, we will not know that. Even if it turns out that Buy-and-Hold really is best after all, we are better off concluding that after hearing out the challenge presented by the many good and smart people (about 10 percent of the population today) who believe that Shiller's Nobel-prize-winning research is legitimate research.

My best and warmest wishes to you, Sammy.

Rob