I’ve posted Entry #462 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called It Is More True to Say That Timing Always Works Than It Is to Say That Timing Never Works.

Juicy Excerpt: Investors need to be reminded frequently that short-term timing never works. However, they need to be reminded even more frequently that long-term stock market timing always works. The price that will be paid for forgetting Shiller’s powerful insight is usually going to be greater than the price that will be paid for forgetting Fama’s powerful insight.

I’ve posted Entry #461 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Purpose of Investment Research Is to Learn Things About the Subject That Are Not Intuitive.

Juicy Excerpt: I of course do not believe that that’s the deal. I think that Shiller is on to something important. The portfolio statement says what it says because as a society we have made a collective decision to count irrational exuberance as real. We don’t even permit the implications of Shiller’s ideas to be discussed in an in-depth way at most internet sites. We want to believe that the numbers on our portfolio statements reflect reality. So we tune out challenges to those numbers and thereby keep our confidence up.

But the purpose of research is not to tell us what we want to hear. Marketing people can do that. The purpose of research is to dig deep and discover things about how stock investing works that are not intuitive, that are not widely known, that perhaps are even more than a little difficult to accept. That’s Shiller. That’s what he did with the 38 years of “revolutionary” (his word) peer-reviewed research that caused him to be awarded that Nobel prize. Shiller questioned our most fundamental beliefs about how stock investing works. And he backed up what he said with data. That’s an amazing trick.

I’ve posted Entry #460 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called How Should We Measure the Success of Shiller’s Ideas?

Juicy Excerpt: Shiller hasn’t changed anything. He is a failure. We are investing in stocks in the same way that we invested in stocks before he came on the scene.

I’ve posted Entry #459 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Good Side of Buy-and-Hold.

Juicy Excerpt: The thing that I like most about Buy-and-Hold is that it is the first investment strategy that at least purports to be rooted in science. The big problem in this field is that there is so much money to be made that people who work in the field are tempted to permit marketing considerations have too much influence over the advice they offer. The Buy-and-Holders showed us the way out of that trap by arguing that investment strategies should be rooted in peer-reviewed research. I fault them for not acknowledging Shiller’s “revolutionary” (his word) research from 1981 forward. But we need to give the Buy-and-Holders credit for making the case that peer-reviewed research matters. At least they have prepped the field for the acceptance of better approaches down the line a bit.

I recently posted Entry #458 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Permitting Honest Posting on How Stock Investing Works Changes How Stock Investing Works.

Juicy Excerpt: Is there a giant conspiracy? Yes and no. I don’t believe that a bunch of people met in a room and decided to mislead. What I like to say is that there is a conspiracy of ignorance. Up until 1980, we only knew a limited number of things about how stock investing works and, given what knowing that limited number of things told us, Buy-and-Hold looked like a very plausible strategy. Robert Shiller changed that when he published his Nobel-prize-winning research showing that valuations affect long-term returns. If Shiller’s research is legitimate, stock investing risk is not stable but variable and investors who want to maintain a constant risk profile over time have no choice but to adjust their stock allocations in response to big valuation shifts. But most of us have not incorporated Shiller’s findings into our understanding of how stock investing works because the old understanding permits us to continue to believe that the numbers on our portfolio statement accurately reflect the true, lasting value of our portfolio and we like being able to continue to believe that.

I’ve posted Entry $457 to my Valuation-Informed Indexing column at the Value Walk site. It’s called Valuation-Informed Indexers Have a Big Edge Over Buy-and-Holders in Trying to Focus on the Long Term

Juicy Excerpt: Buy-and-Holders believe that price changes are rooted in economic realities. If that is so, then both price jumps and price drops mean something. Price jumps signal that the economy is doing better than expected and price drops means that the economy is doing worse than expected. Stock investors are hoping that the economy will produce enough growth in their lifetime to finance their retirement plans. How could a Buy-and-Holder not have some emotional reaction to a report that stock prices are signaling whether his hopes in that regard will be realized or not?

Valuation-Informed Indexers approach the investing project with a very different perspective. We start with an assumption that the economy will continue in the future to generate enough wealth to support stock gains of roughly 6.5 percent real per year and ignore gains of more than that as the product of irrational exuberance rather than of anything of lasting economic significance. For us, price gains are no better than price drops. Price gains increase the size of our portfolio (a plus) while lowering the expected long-term return from that point forward (a negative) and price drops diminish the size of our portfolio (a negative) while increasing the expected long-term return from that point forward (a plus). We are able to tune out the emotional noise that the Buy-and-Holders very much take to heart because the positives and negatives of both price gains and price drops cancel each other out.

I’ve posted Entry #456 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Black Swan Concept Confuses Our Understanding of How Stock Investing Works More Than It Illumines It.

Juicy Excerpt: The 2008 crisis was not a Black Swan. Buy-and-Hold encourages price indifference when it advises investors not to practice market timing. Widespread price indifference causes bull markets to get out of hand. Then, when the market performs its core function of getting prices right by crashing them (it’s not possible to get prices right in any other way in a nation of Buy-and-Holders), trillions of dollars of spending power are removed from the economy and we all suffer the consequences.

The economic crisis was a predictable event. In fact, it was predicted by the leading voice challenging the Buy-and-Hold Model. We all should be taking the warning that it delivered to us to heart before we repeat the mistakes that brought it on.

I’ve posted Entry #455 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Neither Buy-and-Hold Nor Valuation-Informed Indexing Are Truly Subject to a Testable Hypothesis.

Juicy Excerpt: There’s only one question that matters — are stock price changes caused by a rational assessment of economic developments or by swings in investor psychology? If price changes are caused by a rational assessment of economic developments, you can trust the numbers on your portfolio statement — they are rooted in economic realities. If price changes are caused by swings in investor psychology, they cannot be trusted to report accurately your accumulated wealth. Investor psychology can change on a dime and most of your life savings can be transformed into so much cotton candy to be blown away in the wind.

I’ve posted Entry #453 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Difficulty in Persuading Investors That Valuations Matter Is That They Matter So Much.

Juicy Excerpt: But once we look at the numbers and see how much valuations matter, an exception becomes very much required. At the top of the bubble, the odds that a retirement using a 4 percent withdrawal would survive 30 years was only 30 percent. If those numbers are accurate, our failure as a society to insist that retirement studies report numbers properly will have caused millions of failed retirements once stock prices return to fair-value levels or lower in the wake of the next price crash. If we were to acknowledge that, we would have to make changes to how we design retirement planning studies.

And we don’t want to!

Not for any intellectual reason. For the purely emotional reason that, for so long as prices remain high, our portfolio statements show that we are all closer to retirement than we really are for so long as we can maintain the illusion that valuations do not matter. The day that we accept that Shiller’s research is legitimate is the day that we are required to acknowledge that we all are a lot farther behind in our efforts to finance our retirements than we want to believe we are. Fudging the numbers is the only alternative to acknowledging the realities. So we insist that just about everyone who works in this field fudge the numbers.

I’ve posted Entry #452 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Shiller Should Write a Sequel to “Irrational Exuberance” Titled “Buy-and-Hold Is Dangerous.”

Juicy Excerpt: Please consider the title. It should shock you. Shiller’s book argues that much of our stock wealth is phony wealth. Is that not what the phrase “Irrational Exuberance”  suggests? The conventional (Buy-and-Hold) view is that stock price changes are caused by economic developments. So they are real. You can count on them to finance your retirement. Shiller is saying something different. He is saying that they are rooted in emotion, that to the extent that the numbers on our stock portfolios are larger than what they would be if stocks were priced at fair-value levels, they are temporary and cannot be counted on to finance a retirement.

But he never actually says those words. He makes a compelling case for his belief that inflated stock prices do not possess lasting significance. But he never spells out how dangerous a situation it is that the vast majority of investors still possess confidence in the Buy-and-Hold Model.