Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Everyone knows there will be a crash someday. Even Fama (whose ideas you clearly don’t understand.) Everyone knows valuations affect returns. You’re saying nothing that isn’t already common knowledge.
Oh, except that “long-term timing ALWAYS works.” I could give you a hundred links to that exact quote. Yes, ALWAYS works. Except for every time that it’s been actually tried. Those times, it didn’t work.
Now here’s where you babble incoherently about being right even though you were wrong. Take it away.
Buy-and-Holders acknowledge that there will be a crash someday. But they don’t acknowledge the implications of that reality. Buy-and-Hold survives today despite 37 years of peer-reviewed research showing that it could never work for even a single long-term investor because Get Rich Quick strategies possess a huge emotional edge. People cannot bear to acknowledge that the real, lasting value of their stock portfolios is only one-half of the number written on the portfolio statement. You get away with insanely abusive posting behavior because of the edge. That edge disappears when all portfolio values are reduced by 50 percent. At that point the emotional advantage shifts to those recommending research-based strategies. That will be a big change.
Everyone does not know that valuations affect long-term returns. Shiller wasn’t awarded a Nobel prize because he said something that everyone knew. He was awarded a Nobel prize because he said something “revolutionary” (his word), something that stands everything that we once thought we knew about how stock investing works on its head. Many Buy-and-Holders are okay with saying “oh, yeah, valuations affect long-term returns” because they are aware that there is 37 years of peer-reviewed research showing that and they don’t want to look foolish. But how many are willing to acknowledge the far-reaching implications of Shiller’s findings? If valuations affect long-term returns, there ain’t no way on God’s green earth that anyone could calculate the safe withdrawal rate accurately without taking the valuation level that applies on the day the retirement begins into account. But how many Buy-and-Holders objected when Greaney resorted to death threats to shut down the discussions about safe withdrawal rates that hundreds of us wanted to have back at the old Motley Fool board? If the Buy-and-Holders thought through what it means to say that valuations affect long-term returns, they would want those discussions to proceed so that we all could enjoy a learning experience together and save millions of people from suffering failed retirements.
If it were common knowledge that the Buy-and-Hold retirement studies were in error, my famous post of May 13, 2002, would not have generated any controversy. The reaction to that post tells the tale. Yes, we all “know” that valuations affect long-term returns. The evidence that this is so is overwhelming. 100 percent of the evidence available to us today shows that this is so and 0 percent of the evidence available to us supports the Buy-and-Hold strategy. But we know this only in a hyper-technical, intellectual way. We have not processed the information and integrated it into our understanding of how retirement planning and asset allocation and risk management works. To integrate the powerful insight, we need to give ourselves permission to talk it over and to explore the implications of it from hundreds or thousands of different perspectives. We need to open every discussion board and blog on the internet to honest posting re safe withdrawal rates and scores of other critically important investment-related topics. That’s the critical next step. That’s when Shiller’s breakthrough insight begins paying huge dividends for every investor alive on the planet. We don’t learn about something by reading a few words and then going about our business as if those words had zero significance. We learn by participating in discussions in which the many practical ways in which the new knowledge changes how we think about the subject matter in a fundamental and far-reaching way are explored.
Long-term timing is price discipline. Price discipline is the key to every market that has ever existed. It is not possible for the rational human mind to imagine circumstances in which long-term timing, reasonably executed, would not work. If you look at the historical record, you will see that long-term timing has produced results superior to Buy-and-Hold in 90 percent of the return sequences that have turned up. The fact that Buy-and-Hold produced better numbers in 10 percent of the return sequences doesn’t mean that Buy-and-Hold was the better choice in those cases. The investor didn’t know in those cases what sort of return was going to turn up in the particular case. He took a huge risk by going with a Buy-and-Hold strategy. Measured on a risk-adjusted basis, Valuation-Informed Indexing is ALWAYS better. And that shouldn’t be even a tiny bit surprising to anyone who has spent a little bit of time thinking this stuff through. Long-term timing is price discipline. How could exercising price discipline when buying something ever be a bad thing?
I wish you all good things, Anonymous. But I believe that Buy-and-Hold is the past and that Valuation-Informed Indexing is the future. I am 100 percent sure. Could it be that I am wrong? It has been known to happen. If it were the case that I was wrong, I would probably be the last to see it because my biases blind me more than they blind anyone else. So maybe I am wrong, you know? We will have to wait a bit and see how things play out to know for sure. But I believe that the last 37 years of peer-reviewed research is legitimate research and that Shiller merited his Nobel prize and that Greaney’s study got the numbers wildly wrong, putting the retirements of thousands of friends of mine at grave risk of failing somewhere down the line. I am going to continue saying what I believe in my posts. Even if there were not laws making it a crime to do otherwise, I would do that because I think it is the right thing to do. I don’t want to see my friends suffer failed retirements because I didn’t have the guts to stand up to you Goons so I am going to continue doing so. I believe that it will all work out in the end far better than any of us can even imagine today. But we are just going to have to wait a bit to see all the amazing and wonderful stuff take place in the real world.
I naturally wish you the best of luck in all of your future life endeavors, my dear friend. Please take good care.
Incoherent Babbling Rob
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