Those of Us Who Believe That Valuations Matter Always End Up Questioning Ourselves

Those of Us Who Believe That Valuations Matter Always End Up Questioning Ourselves
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I have my doubts.

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Today’s Valuation Levels Are Scary High

I believe in Valuation-Informed Indexing. I believe that Robert Shiller’s Nobel-prize-winning research is legitimate research. I believe that market timing always works. I believe that the safe withdrawal rate is a number that changes with changes in valuations. I believe that Buy-and-Hold is dangerous. I believe that today’s valuation levels are scary high and may bring on another economic crisis in not too long a time.

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The whole shebang. I believe. I really do.


I experience doubts from time to time. I will be drifting off to sleep at night and will wonder: “What if I got it all wrong? What if I have wasted the last 19 years of my life?”

A lot of smart and good and hard-working people are Buy-and-Holders. Who am I to believe that I understand things better than they do? Maybe my brain isn’t working right somehow. Maybe I got off track somewhere and then proceeded to dig myself deeper into a hole because I became embarrassed to acknowledge my mistake. These sorts of things have been known to happen with the humans from time to time.

The Behavior Of The Buy-And-Holders

Do you know what reassures me in those moments?

It’s the behavior of the Buy-and-Holders. They believe in what they say about how stock investing works. The evidence is very strong that they follow their own advice. They wouldn’t do that if they didn’t believe in it. So they believe. At least to a point.

But the Buy-and-Holders lack confidence in their claims. If they possessed confidence, they would welcome challenges to their ideas. They would understand that responding to challenges sharpens their thinking and they would want their thinking to be as sharp as possible. The Buy-and-Holders do not welcome challenges to their thinking. Do not. This I know from brutal personal experience.

Which says to me that they are not sure. They want to be sure. They know that they need to be sure to expect to be able to stick with their strategy during hard times, which they must if the strategy is to pay off. So they know that confidence is essential. But, even though the strategy is dominant today, they have never quite been able to achieve a high enough level of confidence to welcome challenges. Buy-and-Holders possess a tentative confidence, a shaky confidence.

That’s the worst of all possible worlds. A lack of confidence would make you humble. You would be open to learning experiences and would become aware of flaws in your logic early in the game. Complete confidence would get you through times when things are not playing out in the real world in the way that the theory in which your strategy is rooted says that things should play out. A shaky confidence keeps you in the dark during the good times and then causes you to bail on the strategy at the worst possible time for doing so, when prices are at their lowest.

Buy-And-Holders Deny Their Doubts

I like to think that my doubts spur me to reexamination of my tentative beliefs. I have been writing about Valuation-Informed Indexing for 19 years. I have put lots of ideas forward during that time. Rarely have the ideas been challenged. There have been a few exceptions. The exceptions are wonderful. They lead to learning experiences. But as a general rule the Buy-and-Holders far prefer to ignore my stuff than to engage me in debate over my claims.

But I still have doubts. I still question myself. The questioning helps me to anticipate objections that otherwise might cause me problems somewhere down the road. My take is that I am able to use doubt in a positive way, as a spur to further reflection and analysis. In contrast, the Buy-and-Holders deny their doubts and bury them in an effort to put on a show of confidence. Which means that the doubts remain; they are never addressed. They are buried in a place from which they can be resurrected when stock prices do scary things that make the Buy-and-Hold dogmas appear less than solid.

More and more I see stock investing as a social thing, an emotional thing, a psychological thing. We do not reason things out. We take positions for emotional reasons. Then we construct elaborate rationalizations in support of those positions. Buy-and-Holders do not like to engage in debate because they worry that their ideas will remain persuasive only for so long as they are examined only by true believers.

In the days before I was banned at the Bogleheads Forum, there were a number of posters who compared the tone of the discussions over whether market timing is a good or bad idea to the discussions held between dogmatic advocates of different religious traditions. There are certain beliefs that are so fundamental to a person’s understanding of life that he cannot bear to consider whether there are other belief systems of equal or greater merit. Most people don’t think of a belief for or against market timing as one of those sorts of belief. I have over time come to the conclusion that this stuff is scary important to people and that, once one elects to sign up with one of the two camps, one has a hard time imagining himself going to the other side.

Rob’s bio is here

Rob Bennett’s A Rich Life blog aims to put the “personal” back into “personal finance” - he focuses on the role played by emotion in saving and investing decisions. Rob developed the Passion Saving approach to money management; Passion Savers save not to finance their old-age retirements but to enjoy more freedom and opportunity in their 20s, 30s, 40s, and 50s - because they pursue saving goals over which they feel a more intense personal concern, they are more motivated to save effectively. He also developed the Valuation-Informed Indexing investing strategy, a strategy that combines the most powerful insights of Vanguard Founder John Bogle and Yale Professsor Robert Shiller in a simple approach offering higher returns at greatly diminished risk. Tom Gardner, co-founder of the Motley Fool web site, said of Rob’s work: “The elegant simplicty of his ideas warms the heart and startles the brain.”
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