Comments on I'm Still BuyingTypePad2009-05-26T15:19:33ZNAhttps://www.freemoneyfinance.com/tag:typepad.com,2003:https://www.freemoneyfinance.com/2009/06/im-still-buying/comments/atom.xml/Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570e29291970b2009-06-09T09:11:31Z2009-06-09T09:11:31ZRob Bennetthttp://www.PassionSaving.comPlease get a life man! These are important questions, Gia. Millions of middle-class investors have seen their retirements delayed by...<p>Please get a life man!</p>
<p>These are important questions, Gia.</p>
<p>Millions of middle-class investors have seen their retirements delayed by many years as a result of the massive marketing push for Passive Investing that has been led by The Stock-Selling Industry. We shouldn't take anything that those trying to sell us stocks tell us about stock investing on faith. A lot of the marketing slogans (buy-and-hold, timing doesn't work, stocks for the long run) are half-truths that don't stand up to serious scrutiny.</p>
<p>There's academic research dating back to 1981 showing that long-term timing always works. So the statement "timing always works" is every bit as true as the statement "timing never works" (it is true that short-term timing never works). So why do we so rarely hear that critically important side of the story?</p>
<p>And how are things going to change unless some of us stick our necks out a bit and fill people in on the realities?</p>
<p>Trolls like that are a middle-class investor's best friend!</p>
<p>Rob</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156feda683970c2009-06-09T09:06:12Z2009-06-09T09:06:12ZRob Bennetthttp://www.PassionSaving.comOr better yet, please post it here: http://www.iwillteachyoutoberich.com/forums/ That's a more suitable environment for this on-going discussion, and that's where...<p>Or better yet, please post it here:</p>
<p><a href="http://www.iwillteachyoutoberich.com/forums/" rel="nofollow">http://www.iwillteachyoutoberich.com/forums/</a></p>
<p>That's a more suitable environment for this on-going discussion, and that's where you can usually find me as well.</p>
<p>I'll take a look at the forum, Eugene. if there's a place there where a thread on Valuation-informed Indexing makes sense, I'll put one up and perhaps we will be able to engage in some helpful back-and-forth.</p>
<p>Just as you agree with me (at least to some extent) re valuations, I agree with you (to some extent) re simplicity. I am a big fan of indexing because it makes effective investing so simple. But there is no reason in the world why indexers should not be changing their stock allocations in response to big price changes. I have an entire section of my site devoted to providing articles on how to implement the "Valuation-Informed Indexing" strategy. Indexers who pay attention to valuations are able to retire many years sooner than Passive indexers.</p>
<p>I have a long history with the Vanguard Diehards and Bogleheads.org forums and the various "experts" who post there. They are good and smart people. I enjoyed posting with them a lot and I learned important things from talking things over with them. But they are extremely defensive about valuations questions over there. I was banned from both forums because I posted on Valuation-Informed Indexing and many community members showed a great interest in learning more and Mel Lindauer (the co-author of "The Bogleheads Gude to Investing") felt threatened. I think it is fair to say that that is not a good sign for the Passive approach to indexing. (which Mel advocates).</p>
<p>Indexing is wonderful. But all indexers should be paying attention to valuations and adjusting their stock allocations when necessary. That's my take in any event.</p>
<p>Rob<br />
</p>Gia commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fec0ffc970c2009-06-09T04:32:57Z2009-06-09T04:32:57ZGiaRob is such a troll. He always seem to "flood" PF blogs with his long-winded posts. So annoying. Please get...<p>Rob is such a troll. He always seem to "flood" PF blogs with his long-winded posts. So annoying. Please get a life man!</p>Eugene Krabs commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fe3fb3e970c2009-06-08T14:31:26Z2009-06-08T14:31:26ZEugene KrabsYes, all I originally said is that, essentially, investing passively is better than not investing anything at all. I did...<p>Yes, all I originally said is that, essentially, investing passively is better than not investing anything at all.</p>
<p>I did not specify that it has to be an all-stock portfolio. Risk tolerance, investment style, and retirement horizon should help dictate asset allocation, and that includes allocations in fixed-income.</p>
<p>I think we agree about DCA, because as I've said before, it isn't so much as that it's a superior form of investment strategy. But rather, it's a way to keep people who are normally not into investing to invest in the first place, and keep investing. 401(k) are a perfect example of this. This, I've said as well before.</p>
<p>But while I'd love to talk more about passive investing and valuations.... Actually, you know what? This is a 60 comment blog entry, and perhaps it's not the best place to do so. Believe you me, I have NO problems getting into it, but, this really is not the best place to do so.</p>
<p>Suffice to say, you bring up John Bogle. Please feel free to read the "Boglehead's guide to Investing". They don't particularly care for valuations at all. For that matter, Larry Swedroe and Rick Ferri's name has been brought up. As contentious as they are to each other, both agree that passive, index fund investing is a good starting point (but then differ about exactly how to beak the portfolio from there). Feel free to double check this at Diehards.</p>
<p>Do I think valuations is important? Actually, I think so, yes! Warren Buffett clearly did not get to where he is without using some kind of valuations. In fact, his original valuations method was based on work by his mentor, Ben Graham, who was the author of the book, "The Intelligent Investor". Please feel free to read that for his concept of "intrinsic value".</p>
<p>But even Warren Buffet himself has said that, "99.9% of all investors are better off simply using index funds." And he has repeatedly joked about how he is unable to make certain valuations, and therefore, it's imperative to stay within one's circle of competence.</p>
<p>In other words, the only thing I contend is that active investing-- and by extension, valuations-- is NOT a method for just anyone. It is NOT that easy in practice. Seriously, please feel free to pick a company in the Dow and valuate it for us. Or better yet, please post it here:</p>
<p><a href="http://www.iwillteachyoutoberich.com/forums/" rel="nofollow">http://www.iwillteachyoutoberich.com/forums/</a></p>
<p>That's a more suitable environment for this on-going discussion, and that's where you can usually find me as well.</p>
<p>If it means anything, I actually agree with you to some extent. But it's not enough to say, "Valuations is a good idea." A lot of things are a good idea in concept. It's in the execution that people tend to get hung up on. And that's why passive investing is such a good idea, because it helps many individual investors avoid most mistakes they might end up making on their own.</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570d5d86a970b2009-06-08T10:46:17Z2009-06-08T10:46:17ZRob Bennetthttp://www.PassionSaving.comBut while I may have misread your response, I am seeing a lot of disjointed factoids sewn together to support...<p>But while I may have misread your response, I am seeing a lot of disjointed factoids sewn together to support a rebuttal on a point that I did not originally make. That's what it seems like to me....</p>
<p>Thanks for putting it the way you did, Eugene. My guess is that we are coming at this from very different places. So yes, I think there is a lot of potential for miscommunication on both ends. I'm happy to try to do a better job of spelling out my beliefs re this question. It still might not work, and not necessarily through your fault or through my fault (it might be a combination or it might just be the Fates). But I am happy to give it another shot.</p>
<p>I view Passive Investing as the most reckless possible way to invest in stocks. Stocks are a risky asset class. That means that there are dangers that go with investing in them. As a general rule, I think we need to be willing to take on those dangers because the average long-term return on stocks is so much greater than it is for alternative investments. But we must be wary of the dangers.</p>
<p>The single biggest danger (by far) is the temptation to ignore the effect of valuations. Most people have no idea how big a factor this is because they have not looked at the historical data to see how big a difference it has always made in the past. The short version of the story is that Rational Investors (the Rational model is the opposite of the Passive model in every way -- the Rational model says that you MUST change your stock allocation in response to big price changes) have always done well in the long term and Passive Investors have always done poorly in the long term. Valuations make a big, big, big difference in the long term and the decision to become Passive is a decision to not take valuations into account when setting your stock allocation. Not good.</p>
<p>Now -- could it be that you are just saying that it is better to invest in something (not necessarily stocks) rather than not to invest at all? If that is what you are saying, then I really did misread you and I apologize. If the choice is between saving and having something to invest and not saving and not investing at all, saving and investing is obviously better. What I was trying to say is that if the choice is between investing in stocks passively and investing in something other than stocks, I vote for investing in something other than stocks. I believe that the Passive concept is too dangerous for those who are thinking of investing in stocks.</p>
<p>Dollar-cost averaging does not give adequate protection from the risks of ignoring valuations. Some people say that dollar-cost averaging permits you sometimes to buy low and sometimes to buy high, with the suggestion that it balances out over time. It doesn't work that way in the real world. Dollar-cost averaging means that you will be buying at all of various price points over a limited period of time. But when we are in a secular bull market (as we were during the time when both Passive Investing and dollar-cost averaging became popular), the investor who dollar cost averages is ALWAYS buying overpriced stocks. We were at insane price levels all the way from 1995 through 2008. Someone who began dollar cost averaging in 1995 was paying insanely dangerous prices for stocks for 13 years running!</p>
<p>Does that connect a bit better? If not, please feel free to come back at me again. I of course understand that you may not agree. My hope is just to make you feel that I have been responsive enough that I am at least addressing the points that you were actually raising.</p>
<p>Rob<br />
</p>Eugene Krabs commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570d2e51a970b2009-06-08T00:50:18Z2009-06-08T00:50:18ZEugene KrabsI'm sorry, was I unclear? I don't mean that sarcastically when I ask that. To paraphrase my own quote again,...<p>I'm sorry, was I unclear? I don't mean that sarcastically when I ask that.</p>
<p>To paraphrase my own quote again, "[For people who basically don't want to learn to invest on their own], I think we can all agree that to invest passively and automatically is better than to NOT INVEST AT ALL" (emphasis mine)</p>
<p>But you then go on about market conditions, intuitiveness of... rebalancing? Also, asset allocation, dropping big names, and presumably, passive investing is not a big deal. I'm actually fine with all that but....</p>
<p>I don't see how any of this would be relevant to disagreeing with my original point, which I've emphasized again in this response. DCA is another matter, but not one you're disagreeing with it seems. Or have I misread your response somehow?</p>
<p>If I seem krabby, I apologize. But while I may have misread your response, I am seeing a lot of disjointed factoids sewn together to support a rebuttal on a point that I did not originally make. That's what it seems like to me....</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570c24c03970b2009-06-05T17:59:53Z2009-06-05T17:59:53ZRob Bennetthttp://www.PassionSaving.com"For people like that, I think we can all agree that to invest passively and automatically is better than to...<p>"For people like that, I think we can all agree that to invest passively and automatically is better than to not invest at all"</p>
<p>I don't agree with that, Eugene.</p>
<p>I DO agree that we need to provide simple strategies for those who don't want to put a lot of time into researching how stocks work.</p>
<p>Valuation-Informed Indexing is as simple as it gets. All that the investor needs to do is to adjust his allocation once every 10 years or so, when prices get either extremely high or extremely low. It's a totally intuitive thing to do; all middle-class investors have bought things other than stocks and we all know that price matters when buying those things -- so it's easier to understand why there is a need to adjust our stock allocations in response to big price changes that it is to try to figure out what stocks are the one asset class for which price makes no difference. </p>
<p>And there is no need for the individual investor to figure out when to make the allocation changes. Once we leave the Passive model behind, we will be able to count on all of the various experts to let us know the realities. Each time stock prices get to dangerous levels, people like John Bogle and Jonathan Clements and Bill Bernstein will just come forward and tell us that we all need to lower our stock allocations. There's no need for any of this to be any big deal at all.</p>
<p>However, for those not willing to accept the need to make allocation changes (I doubt that there would be many in this group once the "experts" made the case for allocation changes clearly and strongly and firmly), I think it would be better to find other asset classes in which to invest rather than to invest in stocks passively. Acceptance of the Passive approach causes investors to become intensely emotional. And stocks can be dangerous for those who are not able to rein in their emotions. I would encourage people to learn the realities and only then move into a dangerous asset class like stocks.</p>
<p>Rob<br />
</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fcd1663970c2009-06-05T17:33:31Z2009-06-05T17:33:32ZRob Bennetthttp://www.PassionSaving.comany claim that a modified investment strategy can allow "everyone" to do better than the economy as a whole is...<p>any claim that a modified investment strategy can allow "everyone" to do better than the economy as a whole is simply bogus. The only way to improve investment such that everyone can retire five years earlier is to improve PRODUCTIVITY (that is, the baseline economy) such that everyone can retire five years earlier. </p>
<p>I think that's a fair statement, Lotherbot.</p>
<p>I believe that widespread adoption of a Valuation-Informed Indexing strategy would do just what you say is needed for us to add greatly to the productivity of the U.S. economy.</p>
<p>There have been four times in the historical record since 1900 in which we have permitted stock valuations to go to insane levels. We saw two things in the wake of each of those experiences of the Passive Investing philosophy: (1) a huge stock crash; and (2) a huge economic meltdown. There has not been one major economic crisis in over 100 years that was not preceded by insane stock prices.</p>
<p>So the key to avoiding the economic crises that do so much to limit the productivity of our economy is to teach people the key reality of long-term stock investing -- that price matters. The stock market is naturally self-regulating. When we all know to lower our stock allocations whenever prices get too high, prices can never again get too high. When things start looking bad, people sell stocks. That brings prices down to reasonable levels again and the economic crisis that always follows an out-of-control bull is headed off before it even begins.</p>
<p>Out-of-control bull markets destroy economies. They help absolutely no one. They hurt all of us. We all should be doing all we can to persuade policymakers to do everything they can to take the actions needed to see that we never experience another one. If we did, we could all retire at least five years sooner than what is now possible for us. I'm up for that!</p>
<p>Rob<br />
</p>The Math Guy commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fcaffcc970c2009-06-05T00:17:04Z2009-06-05T00:17:04ZThe Math Guyhttp://mathandyourmoney.blogspot.com/Glad to hear you're open to the idea of using SMA/EMA in the analysis of the financial markets. You're also...<p>Glad to hear you're open to the idea of using SMA/EMA in the analysis of the financial markets. You're also completely right in that one doesn't need a Ph.D. to understand/use any of the SMA strategies. My simple point though was that people with Ph.D.s are useful in evaluating the actual mathematical questions (which only have yes or no answers) that arise in the financial markets.</p>
<p>The SMA strategy is particularly simple, which is why I like it, but there are other more "advanced" strategies (for example, covered call writing with a portfolio of uncorrelated assets...but this involves the options "Greeks" as well as variations of Markovitz's modern portfolio theory to calculate expected return based on a probability measure....this also doesn't "require" a Ph.D, but it's certainly easier to understand/research if you do have one. Nonetheless, I don't want to keep taking up FMF's space so I'll likely just compile my thoughts on my site. </p>
<p>Happy investing!</p>Apex commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bf9ede970b2009-06-04T20:09:40Z2009-06-04T20:09:41ZApexMy whole comment was centered around your authenticating your conclusions based on Ph.D.s. Let me be blunt about my OPINION:...<p>My whole comment was centered around your authenticating your conclusions based on Ph.D.s. Let me be blunt about my OPINION: Ph.D.s don't matter in finance and they certainly don't matter for the analysis you are advocating. They make things worse more often than they help and we would be better served if all these financial leaders quit listening to their "quants"</p>
<p>If you want to claim Ph.D.s are important for the analysis you are advocating then please describe what part of doing SMA analysis requires a Ph.D. I could teach a 9th grade algebra student the basics of SMA or even EMA and they could understand it and fully perform all of the analysis you are advocating. </p>
<p>SMA decision making may lead to superior investing returns. It has nothing to do with Ph.D.s. Thats really my whole comment. You may have interpreted that as me attacking your analysis or your thesis. I am not. In fact I am curious about your book and have looked at it a bit. I think it is worth researching. Sorry if I made you think I was making a larger point than I was. My point was actually quite narrow: keep the analysis, drop the Ph.D.s :)</p>The Math Guy commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fca3928970c2009-06-04T18:53:46Z2009-06-04T18:53:47ZThe Math Guyhttp://mathandyourmoney.blogspot.com/Here's the key point: Having a Ph.D (in anything) makes you much better at conducting, evaluating, and understanding research than...<p>Here's the key point: Having a Ph.D (in anything) makes you much better at conducting, evaluating, and understanding research than those without it. It doesn't make you a better person, per se, but it does make you a better researcher. </p>
<p>As to your statement that having a Ph.D doesn't stop you from doing bad math, please realize that there is no such thing as bad math...by this I mean that there are only two outcomes in math: right or wrong (any mathematical statement/claim is either true or false). However, obviously the finance industry is NOT math, its behavioral finance mixed with psychology mixed with everyone trying to understand what's going on...which is where the math comes in. No sooner did Black and Scholes "discover" the options pricing formulas than their subsequent hedge fund implode. Was it bad math? No, it was misused mathematical CLAIMS, because unlike physics, there are no deterministic "laws of finance" upon which the investment world operates. So, in this context (i.e. in the context that most CEO's and hedge funds use quants and other Ph.Ds), those people are trying to apply math to understand the investment climate. So it's not that the math is flawed, it's that the attempt to boil down the markets to math that is flawed.</p>
<p>HOWEVER, what I'm saying is that it IS possible to pose questions in the investment world that have yes and no answers, easily verifiable by math. Here's one such question: would dollar cost averaging into the S&P 500 over the last 10 years have beaten applying the 10 month moving average timing model? This question has a simple, mathematical answer (no). And this answer is independent of any behavioral finance or psychology. It is purely true. But of course, the question now comes "can I somehow use this information to improve my FUTURE returns." This is where you start to run into the problem I highlighted above: mathematical modeling of a system without "laws."</p>
<p>BUT, even so, whether people like it or not, even the "wisdom" of "well, stocks always go up over long time frames" is based on....a mathematical analysis. What would happen, for example, if China's economy became larger than the US's (which it will)? And what if US stocks saw a prolonged divestment in favor of China's stocks (which they are) and if the US dollar was in danger of losing its role as world currency (which it is)...do you think that US stocks would continue returning 10% a year over 30 year time spans? Better yet, do you think you could get MORE by investing in Chinese stocks instead? </p>
<p>Although these questions can be debated, my points are three-fold: (1) given that institutional investors must invest in SOMETHING, and that in these modern times we little investors have access to just about all their investment vehicles, it's not only a fact that their investments (and therefore the markets) will shift asset classes, but it's also a fact that we can detect these shifts with simple math (the moving average system being one of them). (2) As a result of (1) (and the current possibilities with China), we need to seriously look into the future validity of the past investment advice advocated by the usual suspects. Moreover, (3) The math used in the investment world isn't flawed, it's the idea that a system composed of human decisions is inherently mathematical. Nonetheless, when applying math to particular investment questions, it IS possible to extract relevant and instructive information. And applying this simple math to DCA shows that it ISN'T a good way to invest in the markets (or at the very least that there are other better ways out there). </p>Eugene Krabs commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fca3767970c2009-06-04T18:50:46Z2009-06-04T18:50:47ZEugene KrabsWow, this thread has really blown out of proportion. So, DCA is the current stick being shook at? Timothy Middleton's...<p>Wow, this thread has really blown out of proportion.</p>
<p>So, DCA is the current stick being shook at?</p>
<p>Timothy Middleton's article only backtests 2004. That's significant because cherry picking any one particular year is not exactly scientific (though to his credit, he does admit that in his article). Plus, looking at past performances should always be taken with a grain of salt.</p>
<p>However, Mr. Middleton does point to two research studies that claims to support his assertion. One of the link is now defunct. The other, for some reason, I can't get the full article. Maybe I'm electronically challenged, but I only see the abstract to a magazine publication published back in 1993.</p>
<p>With all that said though, I don't deny that DCA is a sub-optimal investment strategy. Because, for something that arbitrary, chances are good that it can generate sub-optimal results.</p>
<p>But what isn't being mentioned here, and what has only been glossed by this 2005 article is that DCA proves its mettle against average investors who does not come to sites like these, and who does NOT want to put forth the time and effort towards active investing. For people like that, I think we can all agree that to invest passively and automatically is better than to not invest at all.</p>
<p>So, it isn't so much that DCA is best strategy available. But rather, DCA is good because it help many average investors avoid most of the pitfalls associated with investing. The same is conceptually true with index funds, and even mutual funds in general. Again, the idea here is not so much about increasing alpha, but rather, reducing beta.</p>
<p>But then, I don't know anyone who has ever stepped forward and said, "DCA is the greatest investment strategy in the whole wide world!" Or did somebody actually say that in this thread, and I actually missed it? :D</p>LotharBot commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fca221e970c2009-06-04T18:09:53Z2009-06-04T18:09:54ZLotharBotRob: re: "Valuation-Informed Indexing lets you retire five years sooner than would otherwise be possible." and other statements regarding an...<p>Rob: re: "Valuation-Informed Indexing lets you retire five years sooner than would otherwise be possible." and other statements regarding an "overall" improvement "for everyone":</p>
<p>Investment is nothing magical. Investment is merely buying a part of the economy. Therefore, any claim that a modified investment strategy can allow "everyone" to do better than the economy as a whole is simply bogus.</p>
<p>The only way to improve investment such that everyone can retire five years earlier is to improve PRODUCTIVITY (that is, the baseline economy) such that everyone can retire five years earlier. It's to make our means of production more efficient without subsequent gains in consumption... which is highly, highly unlikely. It's more likely that improved efficiency in production will lead to people working to an older age (at easier jobs), increasing consumption, and having altogether better lifestyles.</p>
<p>What you call "Rational investing" can give people a leg up over those using a pure "Passive investing" model, and it can help them keep their money instead of giving it to expensive investment brokers, and it can even send useful signals to the economy that will increase productivity somewhat... but it's not going to magically create value out of nothing. On the one hand, you advocate a good strategy, but on the other hand you sound like a religious leader or a commission-based broker promising something for nothing.</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bf356b970b2009-06-04T16:43:59Z2009-06-04T16:44:00ZRob Bennetthttp://www.PassionSaving.com"Personally, I would sooner trust someone whose primary education is experience rather than someone who's primary experience is education." Just...<p>"Personally, I would sooner trust someone whose primary education is experience rather than someone who's primary experience is education."</p>
<p>Just for the record, I put common sense first. That trumps just about everything else in my book. I start with common sense and then look to things like the historical data to confirm what common sense tells me. I would be reluctant to put my trust in findings supported by research if it defied common sense.</p>
<p>Rob</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bf33f7970b2009-06-04T16:41:04Z2009-06-04T16:41:04ZRob Bennetthttp://www.PassionSaving.comI agree with your conflict of interest statement but your take would imply these people were just lying. They were...<p>I agree with your conflict of interest statement but your take would imply these people were just lying. They were using quants to fools us and didn't actually believe their math meant anything.</p>
<p>This comment was not directed to me but it is so important that I feel a need to offer my take anyway.</p>
<p>I believe strongly that the vast majority are not lying.</p>
<p>There is a phenomenon in the psychological literature called "Cognitive Dissonance." When some sort of conflict develops in our thinking that is painful to deal with, we ignore it.</p>
<p>There was a time when the literature supported the claims being made today. Then new research came along showing something very different. People had already built careers teaching the old stuff. And people had spent huge sums of money marketing the old stuff. And people had come to personally believe in the old stuff.</p>
<p>So it has been very, very hard for people to acknowledge the earlier errors and reverse themselves.</p>
<p>People know enough to be defensive. They know that they are on shaky ground. But they very, very much do not want to know the realities. So when they hear about new studies or articles or books, they look the other way. They don't want to know. So they don't know.</p>
<p>Marketing considerations do indeed have an influence. The sorts of people we are talking about often make salaries of $1 million or more. All that goes up in smoke if they take in the lessons of the new research and stop endorsing the conventional wisdom. That's heavy pressure not to ask too many questions, not to work this stuff too hard.</p>
<p>We're dealing with humans, not data processing machines. We need always to keep that in mind.</p>
<p>We're all flawed humans. I don't believe that there is any such thing as an "expert" in this field today. I think that we all need to make an effort to adopt more humble stances. </p>
<p>Rob<br />
</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc9eb50970c2009-06-04T16:29:09Z2009-06-04T16:29:09ZRob Bennetthttp://www.PassionSaving.comI appreciate your attempt for radically altering the investment landscape, but I think we will have to agree to disagree...<p>I appreciate your attempt for radically altering the investment landscape, but I think we will have to agree to disagree on the scale with which this can be successful if you give humans free choice.</p>
<p>I think you did a good job of making your case, Apex.</p>
<p>It could be that I am being willfully optimistic re this one.</p>
<p>Rob</p>Apex commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bf23da970b2009-06-04T16:24:33Z2009-06-04T16:24:33ZApexI guess I am missing your point because I don't see how the "everyone was doing it" argument changes my...<p>I guess I am missing your point because I don't see how the "everyone was doing it" argument changes my point which was essentially that having a Ph.D. doesn't stop you from doing really bad math and having others even those with conflicts of interest follow/believe it. And thus Ph.D. math doesn't prove much about the correctness of the analysis with respect to financial investing. In fact the Ph.D. might make someone think they are more clever than they are and justify complex math models that are not correct. Thats how I see it anyway.</p>
<p>Again I am not saying analysis is not possible. I just don't necessarily gain confidence from the Ph.D. Personally, I would sooner trust someone whose primary education is experience rather than someone who's primary experience is education.</p>The Math Guy commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc9e0f7970c2009-06-04T16:11:34Z2009-06-04T16:11:34ZThe Math Guyhttp://mathandyourmoney.blogspot.com/Well, I don't actually know what they (the CEO's) were thinking, but when you factor in the fact that the...<p>Well, I don't actually know what they (the CEO's) were thinking, but when you factor in the fact that the derivatives market today totals about 500 TRILLION, it becomes pretty clear that EVERYONE was in on the game. So in a way, we don't need to know what they're thinking, we just have to look at what they actually did, and a 500 trillion dollar derivatives market clearly shows that they were all investing in these things hand over fist. So, in fact, they are holding on to these things. Where to you think that first bailout of bear stearns went? It went to Goldman to settle CDS contracts it had on it. Karl Denninger has been ranting about this type of stuff for years now. And, to add perhaps the PERFECT example of the inherent conflict of interest and the misuse of Ph.D's, let me end with one word:</p>
<p>Enron.</p>Apex commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc9d44a970c2009-06-04T15:49:05Z2009-06-04T15:49:05ZApexI agree with your conflict of interest statement but your take would imply these people were just lying. They were...<p>I agree with your conflict of interest statement but your take would imply these people were just lying. They were using quants to fools us and didn't actually believe their math meant anything. </p>
<p>If that was true then surely GS, Lehman, Bear, BAC, Citi, etc. would not have held any of this risk themselves. They would have just sold it all off to the rest of us suckers, made the profit, and been flying high when it all went south. </p>
<p>Only if they actually believed their quants would they have held this stuff themselves and been decimated by it.</p>
<p>So how did that play out again?</p>The Math Guy commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc9cc8b970c2009-06-04T15:35:34Z2009-06-04T15:35:34ZThe Math Guyhttp://mathandyourmoney.blogspot.com/There's a subtle point that you've overlooked by simply taking that quote out of context. The whole backbone of my...<p>There's a subtle point that you've overlooked by simply taking that quote out of context. The whole backbone of my comment is the inherent conflict of interest these financial advisers/professionals have. The finance Ph.D's you're talking about DO have these inherent conflicts of interest (hmmm, if I'm Goldman Sachs and I see everyone securitizing mortgages around me, when the supply of prime mortgages starts to dry up and I start thinking of securitizing sub-prime ones you better believe I'm gonna want my quants (aka Ph.D's) to give me a way to do it (i.e. CDS)). </p>
<p>So it's important, again, to ask yourself "who am I listening to, and what are THEIR true interests." The research on the pitfalls of DCA is solid, and it comes from people who care about the illogical advice most of us are sold on. True researchers only have one motive: to advance the understanding of whatever is being researched. The simple fact that the Ph.D's you're talking about work for an industry where conflict of interest is rampant effectively turns their expertise into hired "peace of mind" for the CEO's to take on further risk.</p>
<p>So, again, who are we listening to, and what are their true interests. My answer is simple: listen only to what you can prove and understand, and if anyone else disagrees, let them prove you wrong. I guarantee that both parties will emerge better educated and with a deeper understanding than otherwise.</p>Apex commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bef4df970b2009-06-04T15:05:06Z2009-06-04T15:05:07ZApex"Don't believe me? Then believe the people with Ph.D's in Finance (although you should believe me since I have a...<p>"Don't believe me? Then believe the people with Ph.D's in Finance (although you should believe me since I have a Ph.D. in Math, but anyway):"</p>
<p>Are these Ph.D.s better than the ones held by the financial analysts in the banking industry and the Fed Board Governors who determined through quantitative analysis that we had now found out how to properly assess future risk of less credit worthy borrowers to the point that through mortgage backed securities and credit default swaps we could take on these riskier customers, spread the risk and effectively fully hedge for it so that we could now loan to people who "conventional wisdom" had said were not credit worthy?</p>
<p>I am not saying that proper analysis can't be done, but the record of Ph.D.s in finance is not very good. It proves very little other than that people can be educated beyond their common sense.<br />
</p>Apex commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc9b668970c2009-06-04T14:55:44Z2009-06-04T14:55:45ZApex"How did we get people to drive to recycling bins?" Very few do or did. When I grew up we...<p>"How did we get people to drive to recycling bins?"</p>
<p>Very few do or did. When I grew up we recycled aluminum cans only because they paid us for it, in fact my cousin and I used to go to the local landfills and scour them for aluminum cans and collect them to recycle and the landfills were loaded with them. When I moved to places that didn't have an easy place to get paid for it, I didn't bother. Then we had garbage service that actually mandates that there be separate recycling containers. They made it so easy that it was hardly worth not doing. But very few people were collecting their own recylcing, driving to a recycling center, and turning in the recycled materials for free. </p>
<p>"How did we get people to not smoke in restaurants?"</p>
<p>We passed laws, we did here in Minnesota just a few years ago. Prior to that we had smoking and non-smoking sections and most smokers still smoked in restaurants and the non-smoking sections were mostly just the less smokey section. I am not sure what state you live in but in the upper midwest if you don't force people not to smoke, they will sit right next to you without any thought that you do not care for all the smoke they are filling your air with. </p>
<p>"How did we get people to contribute to blood drives?"</p>
<p>Very few do. Less than 1 in 10 donate and less than 1 in 4 of those that are elligible to donate do so. <br />
<a href="http://www.americasblood.org/go.cfm?do=page.view&pid=12" rel="nofollow">http://www.americasblood.org/go.cfm?do=page.view&pid=12</a><br />
And they have made it very easy, they come to your work, your church, tons of places, yet still less than 1 in 4 of those who could do it, do it.</p>
<p>I think all those examples prove my point. No matter how much you make people aware, no matter how much you make it a social good or a social stigma, if you give them choice you can't even get 50% of the people to do "the right thing" unless you mandate it by law, pay them to do it, or make it painlessly easy. </p>
<p>I appreciate your attempt for radically altering the investment landscape, but I think we will have to agree to disagree on the scale with which this can be successful if you give humans free choice.</p>The Math Guy commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc99bbf970c2009-06-04T14:08:45Z2009-06-04T14:08:45ZThe Math Guyhttp://mathandyourmoney.blogspot.com/I totally agree Rob. And for those that are following the Industry's "wisdom," please take 5 MINUTES of your time...<p>I totally agree Rob. And for those that are following the Industry's "wisdom," please take 5 MINUTES of your time to save yourself the disappointment of lost future gains by realizing that Dollar Cost Averaging (DCA) is a TERRIBLE way to invest. Don't believe me? Then believe the people with Ph.D's in Finance (although you should believe me since I have a Ph.D. in Math, but anyway):</p>
<p>Go read: <a href="http://moneycentral.msn.com/content/P104966.asp" rel="nofollow">http://moneycentral.msn.com/content/P104966.asp</a><br />
and read the two academic articles cited toward the end of that article. </p>
<p>Here's the kicker:</p>
<p>"Numerous studies of real market performance, models, and theoretical analysis of the strategy have shown that in addition to having the admitted lower overall returns, DCA does not even meaningfully reduce risk when compared to other strategies, even including a completely random investment strategy."</p>
<p>You should read that last part again..."even including a completely random investment strategy." Think about this for half a second: this means that anyone following the "wisdom" of their financial advisers, or other so-called "experts" in finance who advocate "easing into the market" through DCA are getting SOLD. Follow the actual RESEARCH and not SALESMANSHIP and you'll discover that investing with DCA is pretty much equivalent to investing RANDOMLY. In other words, DCA investing is akin to waking up every morning and flipping a coin and if it's heads you invest that day, if it's not you don't.</p>
<p>Now, will this "strategy" make you money in the long-term? Yes. Is it the best strategy you could use? Absolutely NOT. If you even glance at those two articles, you'll notice the word "Sub-Optimal" in the title. DCA (aka random investing) does produce returns...suboptimal ones. Wouldn't you rather have made an extra $200,000 to $500,000 by the time you retire? </p>
<p>We all need to wake up and read the research, not rely on the people who are trying to SELL us investment products. I mean, come on, how many times have you asked the mechanic who just performed the free 20 point checkup on your car if your car is in good shape? Don't you think there's an inherent conflict of interest for the mechanic? (lie to you (or at least spin the truth) to get some business, or tell you the actual truth and risk the loss of your business).</p>
<p>The only way to investment success is through sweat and hard work, not through "tried and true" methods which you should just take on faith (ESPECIALLY when there is AMPLE evidence telling you that these methods aren't the best strategies).</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc97429970c2009-06-04T13:06:23Z2009-06-04T13:06:24ZRob Bennetthttp://www.PassionSaving.com"Stop trying to find a new market timing strategy, without admitting to yourself that you are timing the market." I'm...<p>"Stop trying to find a new market timing strategy, without admitting to yourself that you are timing the market."</p>
<p>I'm not the least bit coy about saying that I time the market, Mark.</p>
<p>I say that timing is mandatory for the long-term investor who wants to have any realistic hope of success. I don't even see how it is possible to imagine having any realistic hope of success if you are not willing to time the market.</p>
<p>Think about what it means to time the market. When you purchase any asset, it is key to get a good price, right? Well, how do you get a good price when buying stocks? By timing. There is no other way to do it.</p>
<p>I believe that timing has gotten a bad name because The Stock-Selling Industry had devoted hundreds of millions of dollars promoting the marketing slogan that "Timing Doesn't Work." There is a technical/legalistic way in which that is so. There is a good bit of academic research showing that short-term timing (changing your allocation with the expectation of seeing a benefit within a year or so) doesn't work. I would never give two seconds consideration to the idea of engaging in short-term timing. But the same historical data that shows that short-term timing never works also shows that long-term timing (changing your allocation with the expectation that it may take five years or even longer to see a benefit) always works. It is every bit as accurate to say that "Timing Always Works" as it is to say that "Timing Never Works" (it all depends on what form of timing you are talking about).</p>
<p>I view it as a breakthrough that we learned that short-term timing never works. But it was every bit as big a breakthrough when we learned that long-term timing always works. I think that we should be teaching investors both of these critically important realities. We have spent hundreds of millions promoting the message that short-term timing never works. Now we need to spend hundreds of millions promoting the message that long-term timing always works and is required for long-term investing success.</p>
<p>If we had all timed the market back when prices first went to la-la land, we wouldn't be in this economic crisis we are in today, Mark. Timing isn't the problem. Timing is the solution.</p>
<p>Rob<br />
</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc96f18970c2009-06-04T12:54:11Z2009-06-04T12:54:11ZRob Bennetthttp://www.PassionSaving.comthe best service you could provide would be to get the market valuation model accepted as a respected possible investment...<p>the best service you could provide would be to get the market valuation model accepted as a respected possible investment strategy rather than the grand unified investment strategy that will bring about massive market volatility smoothing and global investment peace. (said a little tongue in cheek).</p>
<p>I respect the intelligence of what you are saying, Apex. And my sense is that there are many who think as you do. However, my take is that only a strategy precisely the opposite of what you are proposing here can work.</p>
<p>Please don't think that I started out trying to change the world. The history of this is that I put up a post at the Motley Fool site reporting on what I had learned about the errors in the Old School retirement studies. There was great interest. And then a fellow who had posted an Old School study at his web site got it in his head to destroy the entire board rather than permit people to learn the realities. And many tolerated this! Including the site owner! (The Retire Early board had been the most successful board at the site until it was destroyed.)</p>
<p>I found these realities amazing. I had always assumed that most people were trying their best to learn how to invest effectively. What I had seen happen with my own eyes told me that this is not so. Most people are trying not to learn how to invest effectively but to avoid ever having to acknowledge that something they once believed had turned out not to be so. I recently asked the fellow who destroyed the board how much he lost in the stock crash. He said "well in excess of $1 million." But he still devotes all his life energy to blocking people from learning the realities at discussion boards and blogs. I have never heard him put forward a peep of protest re the people who told him about the strategies that caused him to lose well in excess of $1 million.</p>
<p>Stock investing is 70 percent emotional and 30 percent rational. There are thousands of people today who devote enormous amounts of mental energy to coming to an understanding of 30 percent of the picture. There are few who even look at the 70 percent. And the strategies that work re the 70 percent are often the opposite of the strategies that work re the 30 percent (because what appeals emotionally is often the opposite of what appeals intellectually). So we actually have a situation today where 70 percent of our efforts to understand investing are being directed not to unearthing the realities but to rationalizing things that make us feel good emotionally but destroy our investment portfolios. We are working harder and harder and spending more and more to destroy ourselves ever faster and ever more effectively.</p>
<p>We cannot turn this around with a niche strategy. People are very much affected by what their friends and neighbors and co-workers say. So long as we are spending millions and millions of dollars to persuade ourselves of the merit of strategies that can never possibly work, we are going to suffer worse and worse and worse financial losses. What we need is to reverse the polarity. What we need to do is to come to understand that the realities of stock investing are not something to fear but something to embrace.</p>
<p>Look at the safe withdrawal rate (SWR) issue. That's what got this started. When you calculate the SWR accurately, you find that the withdrawal rate that is described in the Old School studied as "100 percent safe" has only a one in three chance of working out for those who retired at the top of the bubble. That means that there are going to be millions of busted retirements resulting from just this one error of the Passive Investing model (and there are hundreds). This idea of burying our heads deep in the sand cannot continue indefinitely. We are someday going to have to take a serious look at what we have done and get about the business of fixing the mistakes.</p>
<p>The move to Passive was a big move. Passive is a model that claims to be "scientific" -- there are studies looking at historical data and all this sort of thing. But the model was designed with marketing considerations uppermost in mind. Mixing science with marketing creates big problems. Science is objective. Marketing is about appealing to the emotions. Mix these two in the way they were mixed in development of the Passive model and you are going to create huge explosions.</p>
<p>What I love about the Passive model is the grounding in science and objectivity. What I am trying to do is to preserve what is good in the Passive model by kicking out what is bad in it. To advance in our understanding of what works, we need to use scientific-like analyses. That was a very big move and a very good move. But we cannot continue to let the science play second fiddle to the marketing considerations. When you promote yourself as reporting science, you take on a responsibility to put the marketing stuff in second place.</p>
<p>The marketing power behind Passive Investing is huge. We are not going to be able to overcome it. The only way over the mountain that I see is to use the marketing power for good. If marketing could be used to persuade millions to believe in Passive, then marketing can be used to persuade millions to believe in Rational. That's good marketing. That's marketing working in the service of the science rather than in opposition to it.</p>
<p>People want to learn how to invest effectively. That's the bottom line. So long as that is so, there's grounds for optimism. I acknowledge that we have a black mountain that we need to get past in getting the Passives to say the three magic words ("I" and "Was" and "Wrong"). But I believe that once we get to that point it's all downhill sledding from that point forward. Once everyone is working on the same side (as we all should have been going back to the very first day of the discussions -- we are all pursuing the same goal after all), progress is going to be attained very, very quickly (I hope!).</p>
<p>Rob<br />
</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570be919f970b2009-06-04T12:19:44Z2009-06-04T12:19:44ZRob Bennetthttp://www.PassionSaving.com"In light of the human condition and what it makes people do I am just not sure how you can...<p>"In light of the human condition and what it makes people do I am just not sure how you can get most people to act like benevolent robots always working towards the slow steady accurately valued asset base for the masses."</p>
<p>How did we get people to drive to recycling bins?</p>
<p>How did we get people to not smoke in restaurants?</p>
<p>How did we get people to contribute to blood drives?</p>
<p>Yes, people have a low, nasty, mean side. People also have an intelligent, generous, loving side. Both of these things are so.</p>
<p>When it comes to investing, we actually have something working for us that wasn't working for us re those other initiatives -- personal self-interest. Valuation-Informed Indexing lets you retire five years sooner than would otherwise be possible. For those who don't want to pay attention to valuations just because it's good for the economy, there's the financial freedom angle. How many people do you know who wouldn't like to achieve financial freedom five years sooner?</p>
<p>Even the Stock-Selling Industry would be helped by making the change. How is the industry doing now, when half the population is scared to death to put their money into stocks? Would it really hurt the industry so much if we avoided these crazy up and down swings? More people would feel comfortable buying stocks and stocks would perform better. It would be a win/win/win/win/win.</p>
<p>What we have here is a Tragedy of the Commons problem. Every single person on Planet Earth benefits from us all learning the realities of stock investing. But most of us see it as being in our self-interest to set up obstacles to seeing that happen. It's comparable to the environmental situation. Everyone benefits from having clean air and clean water. But if there are no public service efforts to remind people of their responsibilities to take care of the environment, people are going to engage in thoughtless behavior that pollutes it. It's the same with the stock market. We all benefit from having a functioning and rational market. But we are all weak and we all need to be reminded from time to time of the realities and of our responsibilities in this regard.</p>
<p>I see no reason to believe that most people will not be willing to go along once they are permitted to hear about the realities. Yes, there will be some who will be tempted to follow Get Rich Quick strategies. Guess what will happen to them if the investing experts and the politicians and the economists are all advising us to lower our stock allocations because prices have gone too high? Prices will be driven back down and the greedheads will lose out. After that happens two or three times, everyone will get the message. The conventional wisdom about stock investing will become something far different and far more healthy than what it is today.</p>
<p>The reality is that the statement "timing always works" is every bit as accurate as the statement "timing never works." It's just a question of what form of timing you are talking about. The reason why most today know about the reality that "timing never works" but not about the reality that "timing always works" is that The Stock-Selling Industry has spent hundreds of millions of dollars promoting the one idea and zero promoting the other. What if we change that? What if we pass a law saying that they must spend as much money promoting Rational Investing over the next 10 years as they have spent promoting Passive Investing over the past 30? What happens then?</p>
<p>What happens then is that stock investing becomes a far more sane thing than it has ever been before. I don't see it as just a "good idea" for us to act as a society to bring that about. I see it as mandatory. The purpose served by stock investing has changed. We have in recent decades decided as a society to encourage middle-class investors to use stocks to finance their retirement plans. There are responsibilities that go with that. One of those responsibilities is that we lay off the worst of the marketing nonsense and begin shooting straight with middle-class people as to how stock investing works in the real world. We cannot continue to encourage people to invest in this asset class and not permit them to hear the realities of how stock work. I just do not think it will fly long-term to do this.</p>
<p>There is not one person who ends up losers if we all work together to bring on the change. Not one. We're all winners. Call me a cockeyed optimist if you want, but it seems to me that there has to be some means of bringing about a change that leaves every single person a winner and creates not one loser anywhere. I believe that this is an idea whose time has come. And I think that all of those who are critics today are going to become very excited indeed once we begin taking serious steps to bringing the rest of the world around. There are very few who are so cynical that somewhere deep in their hearts they don't like the idea of making the world a better place.</p>
<p>Rob<br />
</p>Apex commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc88ab4970c2009-06-04T05:50:24Z2009-06-04T05:50:24ZApexRob, Thanks for the response and analysis of my comments. I would like to respond to one thing you said...<p>Rob,</p>
<p>Thanks for the response and analysis of my comments.</p>
<p>I would like to respond to one thing you said about my comment with respect to volatility smoothing being theoretical. </p>
<p>If I read you right you are saying you think if we could get a large percentage of people to understand the valuation model and react appropriately to it that we could drastically smooth volatility. In theory that seems all perfectly true to me. The reason I doubt it working on a grand scale is because people are emotional, independent minded, greedy, fearful, bastards (pardon my french - but the last one refers to all the ways people cheat and lie to subvert the system). In light of the human condition and what it makes people do I am just not sure how you can get most people to act like benevolent robots always working towards the slow steady accurately valued asset base for the masses. If you don't get most people doing that then I think you still get the massive valuation swings you get now.</p>
<p>I think your efforts to get a place at the investment wisdom table is admirable and worth pursuing. However I don't see much chance of you converting all the other oracles at the table to your religion. I think it's much more likely that improper market valuation will continue to occur as long as their are markets and money chasing them and the best service you could provide would be to get the market valuation model accepted as a respected possible investment strategy rather than the grand unified investment strategy that will bring about massive market volatility smoothing and global investment peace. (said a little tongue in cheek).</p>Mark C commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc849fc970c2009-06-04T03:22:16Z2009-06-04T03:22:17ZMark CRob: After reading your posts, it's clear you are worrying too much about things you and we all have no...<p>Rob:</p>
<p>After reading your posts, it's clear you are worrying too much about things you and we all have no control over. Chill out and be positive on the long term growth of the global economy, and the market indexes will respond in time to that growth. Stop trying to find a new market timing strategy, without admitting to yourself that you are timing the market. It sounds like you tried the "passive" approach with the advice of some stock pickers and it didn't work out for you recently. You're much better off with index funds and a healthy dose of reality when it comes to expected returns. </p>
<p>I think you're committing a fallacy of false dilemna when you use the most extreme example of "passive" investing to advocate for "rational" investing. From what I can understand, you believe passive investors have never hear of stop loss. As I explained earlier, I have a much more rational view of passive investing.</p>
<p>It's not worth raising your blood pressure to try and maintain a 10-20% annual return, when 7% will do just fine. Any good financial calculator will prove to you that saving a higher percentage of your income every year, say 25%, will lead to a much bigger pile of money in retirement than saving only 10% and getting a 15% return. Just simplify your life, live frugally througout your working years, and you'll be able to retire early and comfortably. When you pay yourself first and try hard not live beyond your means, it's easier to do without unnecessary things later in life.</p>
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</p>LotharBot commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc7cee0970c2009-06-03T22:44:28Z2009-06-03T22:44:28ZLotharBotFMF said "If you're buying for the long-term, yes, stocks are always a good buy IMO." Something being a "good"...<p>FMF said "If you're buying for the long-term, yes, stocks are always a good buy IMO."</p>
<p>Something being a "good" or "bad" buy isn't a matter of how long you plan to hold it... it's a matter of how much you have to give up to get it, how much it's worth to you, and how it fits in with the rest of your purchases etc. It's a price(including opportunity cost)/benefit calculation, same as anything else. Even with a 20-year horizon, buying stocks at the peak of the bubble last year would not have been a good buy; it would have been at best an average buy. Buying this year in February would've been a great buy, IMO.</p>
<p>Now, making a series of buys which range from "average" to "great" puts you in pretty good shape overall, which is the point of dollar-cost averaging. But you can do better. You can do like I did in the past few years and say "gee, stocks and real estate seem to be inflated. I'll stay away from them." Then when they drop, you can buy twice as much of them for the same value -- which puts you in much better shape for your 20-year horizon.</p>
<p>You can't "time" markets in the sense of finding the exact peaks and valleys, or in terms of consistently out-guessing them day in and day out. But you can recognize that certain assets are valued higher or lower than they should be for various reasons, and spend money on things you can get at a good price rather than things you can get at a poor price. I think we'd all agree that, during the beanie baby craze, a smart investor would've noticed the things were overpriced; why do we pretend you can't do the same with more general asset classes?</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bcd3fb970b2009-06-03T21:26:34Z2009-06-03T21:26:35ZRob Bennetthttp://www.PassionSaving.comSo I think both Rob and FMF are right! Group hug? :) You made so many good comments that I...<p>So I think both Rob and FMF are right! Group hug? :)</p>
<p>You made so many good comments that I hardly know where to start, Apex. But I'll start with the group hug idea because I think that is the most important thing. Yes to group hugs! We need lots of group hugs! I do not want to hurt anyone's feelings. I do not! I have said this about 10,000 times (not here, at other places) and some seem to have a hard time believing me. But I will swear again and again that this is so (and there is a record that can be checked if anyone cares to do this). I am not trying to be a negative. I am trying to be a positive.</p>
<p>So again, definitionally, beating the market can only be done by a minority of people.</p>
<p>This is certainly so. It is not a problem. We all agree that the stock market provides an average long-term return of about 6.5 percent real. So we are covered. We do not need to beat the market. The average long-term market return is plenty good enough for all reasonable people. We don't need to worry about this one at all.</p>
<p>I guess what I am saying is I do not subscribe to passive absolutism with respect to investment valuations being irrelevant. However, that being said, for many this may just be beyond their grasp/time/ability/interest/etc. </p>
<p>Have you ever tested this, Apex? I have seen great interest in these questions at many places. I don't get the sense that this is at al beyond the grasp of the vast majority of middle-class investors. Many have a hang-up about it today. The hang-up is that this is not what the "experts" have been telling them for 30 years. What if the experts changed their tune? That would change everything, wouldn't it? If we convince the experts to change the message they push, everything is groovy, so far as I can see. </p>
<p>And we have contacts with some of the most influential experts. Our discussions were held at the Vanguard Diehards board for several years. Bogle and Bernstein and Swedroe and Ferri all participate there. If we get those four to sign on, I think it would be fair to say that we are well on our way to being written up in the Wall Street Journal and Money magazine and so on. At that point, it's everywhere and the long national nightmare is over.</p>
<p>The debate is really around how one can accurately determine valuation, and obviously that is very much harder to do.</p>
<p>There's great truth in this comment. But I don't see that as a reason for not discussing this stuff. I see it as an argument for discussing it. If valuations matter and if we today do not know enough about valuations to make effective use of the insight that valuations matter, it seems to me that the first priority is to learn more about how valuations work. That means talking about this stuff and encouraging as many other smart people to talk about this stuff as we possibly can.</p>
<p>This would be optimal for everyone involved as it would represent a huge smoothing of volatility</p>
<p>This is why I am here. This is my vision.</p>
<p>but its also just theoretical stuff that could never occur in practice.</p>
<p>So was the idea of putting a man on the moon. Until we did it.</p>
<p>I do believe there is an inherent conflict of interest in the financial services industry as suggesting that stocks are ever too high to buy is not good for business. </p>
<p>Precisely so. However, I have also seen a good number of signs that there are people in the industry who would like to get out of the corner they have painted themselves into. I propose that responsible people do all that they can to make that happen for the greater good of every single person involved.</p>
<p>I think FMF gives some pretty darn good advice as opposed to what they might get from other sources such as paying for high priced money managers and commission based financial planners.</p>
<p>It's a wonderful blog. I am certainly not saying different.</p>
<p>Wouldn't it be all the more wonderful if this blog led the way to us figuring out how to put a man on the moon?</p>
<p>Rob</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bcc203970b2009-06-03T21:02:59Z2009-06-03T21:03:00ZRob Bennetthttp://www.PassionSaving.comInvesting using a passive, long-term strategy can also mean dollar-cost-averaging, diversification, quarterly re-balancing, and positioning for risk according to one's...<p>Investing using a passive, long-term strategy can also mean dollar-cost-averaging, diversification, quarterly re-balancing, and positioning for risk according to one's age and need for cash flow in retirement.</p>
<p>That's all so and that's all positive. Mark.</p>
<p>Please don't be led to believe by my strong criticism of the Passive model that I do not feel great respect and affection for those who have developed and advocated this approach. John Bogle is my fourth favorite investing advisor of all time (behind only Robert Shiller, John Walter Russell and Warren Buffett). It is by reading Bogle's book that I first got on the path I am on today. I think the guy is a genius and I often refer to him as the godfather of the Rational Investing model (I acknowledge that Bogle advocates Passive Investing but I believe that he has put forward at least as many statements supporting Rational Investing (rational investors change their allocations in response to big price swings) as he has statements supporting Passive.</p>
<p>Bogle says that you should take four factors in consideration when setting your stock allocation: (1) the long-term track record of stocks; (2) your life goals; (3) your financial circumstances; and (4) your risk tolerance. I add a fifth factor -- the stock valuation level that applies at the time.</p>
<p>I think it would be fair to say that that's pretty much the only difference between us. There are lots of implications that follow from including that fifth factor. So I think the difference is a big enough deal to justifying describing the Rational approach as an entirely different model. But that one difference is pretty much the entire story.</p>
<p>I am NOT saying that Passives are dumb. No way, no how. I am NOT saying that Passives are bad people. No way, no how. I am saying that Passives made a mistake.</p>
<p>I sincerely believe that with my entire heart, mind and soul. And the implications if I am right are huge. If the Passives made the mistake that I believe they made, then there are going to be millions of people suffering busted retirements in days to come as a result of that mistake. This can be demonstrated with numbers.</p>
<p>What would you have me do in such circumstances, Mark?</p>
<p>If some of the Passives would chill out a bit, I think we could turn this into something wonderful. My personal view is that the things we have learned (it's not just me who has been working this for seven years now, there are hundreds of us who have been working it in the Retire Early and Indexing discussion-board communities) represent a win/win/win for every single investor in the world.</p>
<p>Why has it been so hard to get this issue on the table, to get some serious people to permit discussions of it while not letting emotions get too out of control?</p>
<p>If you have any thoughts re that one, I would very much like to hear them. I obviously do not have any bad motive here. I am trying to help people out. I am a human and humans make mistakes. So that's a possibility. But why not have discussions of the question until we get to the bottom of it? Why not get as many smart people involved as we can to see where it goes?</p>
<p>Is anyone able to imagine any possible downside?</p>
<p>Rob<br />
</p>FMF commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc9ca7970b2009-06-03T20:25:26Z2009-06-03T20:25:26ZFMFhttp://www.freemoneyfinance.comApex -- You consistently crack me up!<p>Apex --</p>
<p>You consistently crack me up!</p>Apex commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc93de970b2009-06-03T20:14:04Z2009-06-03T20:14:04ZApexI will say that I find some truth to the valuation argument. I think intuitively most of us agree that...<p>I will say that I find some truth to the valuation argument. I think intuitively most of us agree that valuation matters. The debate is really around how one can accurately determine valuation, and obviously that is very much harder to do. I do make some of my own personal valuation assessments and change my investment actions based on them, but I am not going to enter the debate about how one determines such things as I don't have any good metrics. I do it intuitively and certainly wouldn't suggest thats a good model for others to follow.</p>
<p>What I do want to comment on is the idea that the advice being dispensed concerning valuation applies to the masses. By definition it cannot. For instance, if the masses agreed on a means of determining valuation and also agreed and acted such that the second anything became over-valued the masses got out of that investment and the second it got undervalued the masses moved into that asset, then assets would always be perfectly priced and would never represent any over or under valuation. This would be optimal for everyone involved as it would represent a huge smoothing of volatility but its also just theoretical stuff that could never occur in practice.</p>
<p>However what it shows is that if something like using moving averages or some other method were to work, it would not be obviously clear and would not be widely used or it would stop working. This is actually a widely known idea in financial investing. Any rule which is too closely followed quits working. There is some evidence this began to happen with the Dogs of the DOW theory, assuming it was valid to begin with, which is also probably debateable.</p>
<p>The main point is that the market long term cannot return more than the gain in value provided by the companies in the market. If everyone tried to follow moving averages using the same kind of strategy it would not be possible to beat the market because the very actions of the masses would be self correcting. Either their actions would prevent valuation imbalances from happening or if they did happen, then once the masses went to move on them the imbalance would immediatley disappear and only the few fortune ones who moved first would have been saved from the correction to proper valuation. You can't have the masses all selling an over-valued market. Someone has to buy it and if they all went to sell it, it would immediately correct to or below proper valuation. </p>
<p>So again, definitionally, beating the market can only be done by a minority of people.</p>
<p>If we could get the market to always be properly valued that would be best for the masses. But thats not going to happen.</p>
<p>Barring that I think both FMF and Rob's proposals are rational and helpful. I would love to see more research into how you can determine proper valuation long term. Perhaps it is as simple as long term smoothed PEs (which I think approximates what Rob proposes with his PE-10 model). If more people subscribed to the valuation model I believe the effect would be a smoothing of volatility and a more equalizing of investment returns for all.</p>
<p>I do believe there is an inherent conflict of interest in the financial services industry as suggesting that stocks are ever too high to buy is not good for business. So I think thats partly why it's partly an accepted fact that stocks are always good for the long term. If long term is very long, and stocks are an up trending asset (which has been true for hundreds of years) then yes eventually stocks must return more than a cream can. The question is still worth asking though if changing allocation between stocks and bonds and other assets at different times based on valuation models makes sense. I personally think it has validity. I make valuation determinations on everything else in my life. I make it on investments as well. It's admitedly much harder with investments because determining both proper valuation and likely time frame to valuation correction are very difficult. But I still take it into account in my allocations. </p>
<p>I guess what I am saying is I do not subscribe to passive absolutism with respect to investment valuations being irrelevant. However, that being said, for many this may just be beyond their grasp/time/ability/interest/etc. And for them (which is most) I think FMF gives some pretty darn good advice as opposed to what they might get from other sources such as paying for high priced money managers and commission based financial planners.</p>
<p>So I think both Rob and FMF are right! Group hug? :)<br />
</p>Mark C commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc6e9d970b2009-06-03T19:41:54Z2009-06-03T19:41:54ZMark CRob: You're definition of long-term investing for growth as "passive" is over-simplification. The "buy and hold" approach has nothing to...<p>Rob:</p>
<p>You're definition of long-term investing for growth as "passive" is over-simplification. The "buy and hold" approach has nothing to do with buying stocks at any price and holding until you sell in retirement. Investing using a passive, long-term strategy can also mean dollar-cost-averaging, diversification, quarterly re-balancing, and positioning for risk according to one's age and need for cash flow in retirement. Retirement also should not be seen as a time when everyone is going to withdraw all their 401k savings and blow it all on a trip around the world. Most well-prepared retirees will withdraw between 5-10% per year on into their 70's or 80's depending on health and lifestyle.</p>
<p>History continues to prove out these points.</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc68db970b2009-06-03T19:34:17Z2009-06-03T19:34:18ZRob Bennetthttp://www.PassionSaving.comAlright FMF, you win! I shall refrain from every commenting on your blog from hence every more...... You obviously have...<p>Alright FMF, you win! I shall refrain from every commenting on your blog from hence every more......</p>
<p>You obviously have to do what you think is best for you, Trask. But I feel a need to say that I hope you will reconsider.</p>
<p>There's a section in the book "The Wisdom of Crowds" in which the author explains that communities are often "smarter" than any individual member of the community. But that happens ONLY if ALL community members share their views frankly and plainly. If minority viewpoints are suppressed, the entire community misses out on the balance and back-and-forth it requires to make sense of the topics being considered.</p>
<p>It is your patriotic duty to come back here from time to time and help us all out, Trask!</p>
<p>(I'm joing around. Kinda, sorta.)</p>
<p>Rob<br />
</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc64be970b2009-06-03T19:29:08Z2009-06-03T19:29:08ZRob Bennetthttp://www.PassionSaving.comYou CAN get rich this way -- just maybe not as rich as if you timed the market. But this...<p>You CAN get rich this way -- just maybe not as rich as if you timed the market. But this doesn't matter. Look at FMF. He got to where he is following his own advice. So it works. There are multiple paths to becoming rich, and his advice evidently is one of them.</p>
<p>I like the balance evidenced in your post, Rick.</p>
<p>I don't say that there is no one who ever got rich following a Passive strategy. I say that it is a high-risk approach, not suitable for the typical middle-class investor.</p>
<p>We don't know yet where FMF is going to end up. If valuations go to where they have gone on all earlier occasions at which we went to the sorts of valuation levels that we saw in recent years, we have another 50 percent price drop coming sometime within the next five years or so. When we see that, the media tune is going to be extremely negative on stocks. Is FMF going to continue buying then? I think that remains to be seen. He is still buying today, but we are only at fair value today. The real test of a Passive strategy comes when we are at half of fair value and we stay there for some time. I don't think that FMF has really been tested yet.</p>
<p>The other thing is that some Passives are lucky enough to get in at times when following a buy-and-hold strategy is a lot easier than it is for most middle-class investors who try the idea. If you started buying in 1975, you were so far ahead by 2000 that even nine years (and counting) of bad returns has not been enough to hurt you all that seriously (it certainly is so that stocks offer an amazing long-term value proposition). How about the people who only began saving enough money to invest in stocks from 1995 forward? Those people are far less likely to see this strategy work out.</p>
<p>Just about any strategy can work for a small number of investors. Even buying lottery tickets works for a small number. For Passive to be viewed as a good strategy for the typical investor, it would have to work for a high percentage of those who employ it. The historical data does not support arguments that Passive is going to work out for too many (in my interpretation of it!). Passive has always in the past caused hugh stock crashes (bigger than what we have seen thus far) and huge crashes has always caused most investors ignoring valuations to get out of stocks.</p>
<p>During the 1990s, we used to hear stories of very old people who just refused to buy any stocks. There were lots of people who laughed at them. I think we should learn from them, not laugh at them. Those are the investors from an earlier era who came to believe that it is a reasonable approach to put large amounts of money into stocks without first learning the extent to which price levels affect long-term returns. </p>
<p>I think it is sad that we need to keep relearning these lessons over and over and over again. If it sounds too good to be true (and the idea that you don't need to take price into consideration when buying something sure sounds too good to be true to my ears), it's probably not true.</p>
<p>Rob<br />
</p>Mark C commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc71fa7970c2009-06-03T19:06:22Z2009-06-03T19:06:22ZMark CFMF: Why don't you just post a graph of the S&P or Dow from 1994 to the present day, plot...<p>FMF:</p>
<p>Why don't you just post a graph of the S&P or Dow from 1994 to the present day, plot the mean along the peaks and valleys? You'll see a gradual, non-"hockey stick" growth of well over 7% per year, which is much better than bonds, money market, or private 401k fixed income funds. Let the wave of 1999-2000 cancel out the trough of 2008-2009, and the index will follow the gradual ascending mean return over your 10- or 20-year periods.</p>
<p>Dollar-cost averaging, and rebalancing according to age and risk, is the only way to invest and beat fixed income investments. </p>
<p>Pigs get fat, hogs get slaughtered...<br />
</p>FMF commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc716ff970c2009-06-03T18:53:56Z2009-06-03T18:53:56ZFMFhttp://www.freemoneyfinance.comTrask -- What I said wasn't out-of-context, misleading, or heated. RWH -- Ohhhhh! A pony!!!!!!!<p>Trask --</p>
<p>What I said wasn't out-of-context, misleading, or heated.</p>
<p>RWH --</p>
<p>Ohhhhh! A pony!!!!!!!</p>Trask commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc4a32970b2009-06-03T18:50:39Z2009-06-03T18:50:40ZTrask*The sort of out-of-context/misleading/heated comments by Trask are totally out of line. There's no use in having a conversation with...<p>*The sort of out-of-context/misleading/heated comments by Trask are totally out of line. There's no use in having a conversation with this sort of person.</p>
<p>And yet you used one of my comments for a post and have had an extended conversation about the whole thing. Lol! </p>
<p>Alright FMF, you win! I shall refrain from every commenting on your blog from hence every more......</p>rwh commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc4597970b2009-06-03T18:45:52Z2009-06-03T18:45:52ZrwhI made a killing buying auto industry stock at .02 and selling when it spiked to .07. I moved to...<p>I made a killing buying auto industry stock at .02 and selling when it spiked to .07. I moved to San Francisco and bought a pony.</p>Eugene Krabs commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc330f970b2009-06-03T18:24:09Z2009-06-03T18:24:09ZEugene KrabsI haven't read mebane faber's white papers yet, but I have to say that an investment strategy based on simple...<p>I haven't read mebane faber's white papers yet, but I have to say that an investment strategy based on simple moving average seems... dangerous to me. Because moving averages are based on past performances, and past performances are no indication of future performances.</p>
<p>I don't recall Warren Buffett ever saying, "I think this is a great investment because it's been perform so well in the past six month."</p>
<p>But again, I haven't read his paper, so please feel free to take my comment with a grain of salt. But after that, please be careful not to be "dazzled" by the numbers. I suspect that if it was that easy, we'd all be doing it by now.</p>
<p>And seriously, moving averages?</p>FMF commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc244c970b2009-06-03T18:00:39Z2009-06-03T18:00:39ZFMFhttp://www.freemoneyfinance.comRick -- I know! You would have thought I said people should not get a pet or move to another...<p>Rick --</p>
<p>I know! You would have thought I said people should not get a pet or move to another city to save on overall costs or something! ;-)</p>
<p>I agree with what you said in general, but there are a couple things I disagree with: I don't think most people can pick the right stocks or time the market even if they have the best skills/knowledge available, lots of time, and sizeable finances to do so. For thoughts on this, see how some of the biggest financial companies and the managers they pay to try and do these things, can't do them:</p>
<p><a href="http://www.freemoneyfinance.com/2009/06/why-even-the-best-investors-cant-pick-winning-actively-managed-funds-consistently.html" rel="nofollow">http://www.freemoneyfinance.com/2009/06/why-even-the-best-investors-cant-pick-winning-actively-managed-funds-consistently.html</a></p>FMF commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc2061970b2009-06-03T17:54:39Z2009-06-03T17:54:40ZFMFhttp://www.freemoneyfinance.comMath Guy -- I thought so. But you can write back in a few years and say you told me...<p>Math Guy --</p>
<p>I thought so. But you can write back in a few years and say you told me so. That will be sweet.</p>
<p>I'm not against the conversation (the comments are still up, right?). But here's my take on the situation:</p>
<p>*The sort of out-of-context/misleading/heated comments by Trask are totally out of line. There's no use in having a conversation with this sort of person.</p>
<p>*This blog is about what I've done/what I'm doing and that's what I write about. So far, comparing what I've done and what you suggest, my method has worked for me extraordinarily well (based on my net worth), so I'm not really looking to change.</p>
<p>*I don't believe claims of "earning 24%." Maybe you are the next Warren Buffett, but "24% returns" and "it's not rocket science" are two phrases that, when together, send huge warning signs my way.</p>
<p>That said, if you'd like to write a guest post here on "How to Make 24% on Your Money", I'll look it over. I'm sure a lively discussion would follow.</p>Rick commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc1ef7970b2009-06-03T17:51:43Z2009-06-03T17:51:43ZRickI always love these arguments. So many passionately wrong arguments on every side :-) Anyway, I think this goes back...<p>I always love these arguments. So many passionately wrong arguments on every side :-)</p>
<p>Anyway, I think this goes back to a comment I made yesterday. You can beat the market, if you want to spend the time and effort to learn the market. If you don't want to spend this time, index funds are indeed the best way to go. And anyway you look at it, index funds do beat most actively managed mutual funds.</p>
<p>Further, if you want to invest the time, you can time the market, at least to some extent. You get the idea when stocks are overvalued, and when they are undervalued. You might not perfectly time the market, but as long as you're close enough, that's enough to beat the market as a whole. HOWEVER, if you don't want to spend time researching this, periodic investments and dollar cost averaging is the way to go. You CAN get rich this way -- just maybe not as rich as if you timed the market. But this doesn't matter. Look at FMF. He got to where he is following his own advice. So it works. There are multiple paths to becoming rich, and his advice evidently is one of them.</p>
<p>I agree somewhat with Trasks' statements, but then he went off and said a whole bunch of things are contradictions. No they are not. Just to address one of these statements, he said, "You tell readers spend less than you earn but expect 10% market returns - contradiction." This is not a contradiction. Spend less than you earn. Invest the difference. Expect 10% market returns on the amount invested. Easy as pie. Not contractictory at all. And sure, our economy is based on consumption. Maybe we should move our economy back to manufacturing and innovation -- things that actually CREATE wealth, rather than just redistributing it. Yes we have work. But no, this is not contradictory.</p>
<p><br />
All that said, I do think the economy is in for some bad news. I do not believe we are out of the rough. I personally believe we are in for about 10 more years of negative to flat real returns. Any nominal returns we do see will be due to ultra-high inflation caused by the Fed's reckless policies. Already we see evidence that the treasury is having difficulty selling all the debt that the government is going into. If China decides to stop buying treasuries, the only entity that will purchase them is the Fed, and this will cause such high inflation your head will spin.</p>The Math Guy commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc14e3970b2009-06-03T17:32:47Z2009-06-03T17:32:47ZThe Math Guyhttp://mathandyourmoney.blogspot.com/Well, since it takes about 3 years for something earning 24% a year to double, if I were independently wealthy...<p>Well, since it takes about 3 years for something earning 24% a year to double, if I were independently wealthy AFTER using this strategy then I must have been independently wealthy BEFORE starting this strategy. Sadly, I wasn't, and thus using this strategy hasn't changed that by much. Moreover, Faber only came out with his white paper toward the middle of 2007 (in case you're interested, the monthly moving average strategy was UP 5.2% for 2008, and the "24%/year strategy" was UP 14.8% for 2008), so using any of these strategies have at most made anyone 11 to 24% wealthier.</p>
<p>This is in fact the crucial point though. I too in 2006 when I started looking around for investing advice came across the usual "wisdom," but because of my training I shopped around for other strategies which had more rigor to them. It took me a while to search around (and experiment) with various investment strategies. Long story short, I discovered several which made more sense (both from a logical perspective AND from a risk control perspective) than simply "dollar cost average into the market and you'll be fine after 30 years."</p>
<p>Rather than continue defending myself, I have one simple question for FMF: </p>
<p>Why do you seem to be so against the type of discussion Rob, I, and some of your other readers are advocating? </p>
<p>If you are really interested in helping your readership would it not be prudent to at least hear out other people's opinions, even though they might completely "conflict" with your own (I put it in quotes because I agree with Rob, we BOTH have much to learn from each other)? Moreover, would it not be also in YOUR best interest to compare others' research on the markets? </p>FMF commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc0912970b2009-06-03T17:14:16Z2009-06-03T17:14:16ZFMFhttp://www.freemoneyfinance.comMath Guy -- Since it's not rocket science and since you can earn 24% per year, I assume you're independently...<p>Math Guy --</p>
<p>Since it's not rocket science and since you can earn 24% per year, I assume you're independently wealthy from your investments, correct?</p>The Math Guy commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc6d87f970c2009-06-03T17:13:03Z2009-06-03T17:13:03ZThe Math Guyhttp://mathandyourmoney.blogspot.com/Well put. Glad to know there are other "Rationals" out there.<p>Well put. Glad to know there are other "Rationals" out there.</p>Rob Bennett commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bc05ff970b2009-06-03T17:09:06Z2009-06-03T17:09:06ZRob Bennetthttp://www.PassionSaving.comThat's not what I'm saying -- exactly. Here's what I am saying: Thanks for your response, FMF. My sincere belief...<p>That's not what I'm saying -- exactly. Here's what I am saying:</p>
<p>Thanks for your response, FMF.</p>
<p>My sincere belief is that there is a communication problem here. I think Math Guy is absolutely right that the Passives have gotten in the habit of stating their personal beliefs as if they were objective truth. That's what needs to change. The Passives should certainly say what they believe. But they need to be more modest in their claims and more open to other points of view.</p>
<p>I certainly don't question your intelligence and I certainly don't question your good will. I do question the investing advice.</p>
<p>We can predict effectively how stocks are going to perform in the long term (ten years out). I have studied that question in great depth and there is now a mountain of evidence showing that this is so. Given that that is so, it just does not make sense to go with a high stock allocation at times when stock prices are where they were from 1995 through 2008. The historical data shows that at the top of the bubble the most likely 10-year return on a broad stock index was a negative number.</p>
<p>You're right in a sense that in the long term things will work out. But only in the very distant long term. It could take 25 or 30 years for the Passives to be back at a place where they will have earned a decent return on their money. Those who protected their portfolios by lowering their stock allocations when prices were insane are in much better circumstances today and will be earning compounding returns on the money they didn't lose by giving in to the pressure to invest passively for many, many years.</p>
<p>We all should be working for the same goal -- to learn how to invest more effectively. Rationals should be listening to Passives and Passives should be listening to Rationals. We all know different things. There is no One True Way.</p>
<p>Rob</p>Old Limey commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e201156fc6ce83970c2009-06-03T16:59:39Z2009-06-03T16:59:39ZOld LimeyPlanning for one's retirement has to be predicated on the future of the US economy. The government, the Federal Reserve,...<p>Planning for one's retirement has to be predicated on the future of the US economy.<br />
The government, the Federal Reserve, the Secretary of the Treasury, and many commentators these days are putting a very favorable spin on every news item that appears. This is probably what they should be doing in order to keep people's hopes and spirits up.</p>
<p>I have found one of the very best and most informative programs on TV to be Fareed Zakaria's GPS program on CNN, aired in two time slots on Sundays. Even though we retired 16 years ago my wife and I watch or record it regularly. On 5/31/09 he had two guest speakers discussing the US economy, they were Niall Ferguson and Joshua Cooper Ramo. A video of this interview is available at CNN.COM .If you search for Fareed Zakaria you will find the "Economy Panel" interview near the top of the page.</p>
<p>If you want to know what's really going on, not just the spin, I encourage you to listen to these well known experts and take their views into consideration. It could help you decide how to plan for your future.</p>The Math Guy commented on 'I'm Still Buying'tag:typepad.com,2003:6a00d83451bcbd69e2011570bbfc20970b2009-06-03T16:56:16Z2009-06-03T16:56:17ZThe Math Guyhttp://mathandyourmoney.blogspot.com/My suggestion is that we take a quantitative look at investment decisions. The moving average system is one such possibility....<p>My suggestion is that we take a quantitative look at investment decisions. The moving average system is one such possibility. Look at Mebane Faber's 3,6,12 month average across asset classes for another (which, by the way, applying this to 2X leveraged Stocks, Gold, Real Estate, and unleveraged long-term Bonds yields the 24% per year). </p>
<p>Guys, this isn't rocket science. The logic is simple: would you rather have faith in the markets or be in control of your money? Would you rather invest based on the hope that the market will perform well or follow a sensible approach based on how the market is CURRENTLY performing?</p>
<p>You don't have to agree that using a monthly moving average on the market works well, or that rotating asset classes which have negative correlations gets you better returns with less risk, but you should AT LEAST recognize the need for such a discussion, ESPECIALLY when the market lost nearly 40% last year.</p>