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Retire Early Home Page • View topic - JWR - still wiping the snot from Rob's runny nose

JWR - still wiping the snot from Rob's runny nose

Get the latest happenings from the world of Russell-mania. Learn how to become your own sorcerer's apprentice and mine financial statistics, torture numbers, and delete inconvenient data points to support your theories. Russell often teams up with Rob Bennett, author of Passion Saving to form the Troll Brothers when they post in tandem on Internet discussion boards.

JWR - still wiping the snot from Rob's runny nose

Postby DRiP_Guy » 01/04/09 at 11:29:20

Robert Michael "Hocus" Bennett, October 22, 2010: "I have been living off my savings for 10 years"
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Re: JWR - still wiping the snot from Rob's runny n

Postby Yipee-Ki-O » 01/15/09 at 00:09:33

Work is the refuge of those who have nothing better to do, Oscar Wilde
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Re: JWR - still wiping the snot from Rob's runny n

Postby DRiP_Guy » 01/15/09 at 06:13:19

Robert Michael "Hocus" Bennett, October 22, 2010: "I have been living off my savings for 10 years"
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Re: JWR - still wiping the snot from Rob's runny n

Postby hocus2009 » 01/15/09 at 08:36:35

that's why in a passive investing strategy it's important to have a bond to equities ratio appropriate for your risk tolerance.

If you went with an allocation that made sense at a time when the risk of owning stocks was low and didn't change it when the risk of owning stocks went to insanely dangerous levels, you were wildly overinvested in stocks when prices crashed. That's the entire point, Yip.

Setting your allocation properly is important. It is a logical impossibility for a Passive Investor to get it right. The thing that Passive Investors are passive about is their stock allocation!

Rob
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Re: JWR - still wiping the snot from Rob's runny n

Postby hocus2009 » 01/15/09 at 08:38:30

Many folks don't.

Rational Investors try.

Passive Investors make a deliberate effort not to change their allocations. That's the "strategy"!

Rob
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Re: JWR - still wiping the snot from Rob's runny n

Postby hocus2009 » 01/15/09 at 08:48:18

markets like this separate those who shouldn't be invested in equities from those who can live with risk.

This is the Passive Investing mindset.

The proper thing to do is to manage risk.

You can't manage it if you don't know what it is. The only way to learn how great the risk is at a given price level is to look at how stocks have performed at that price level in the past. Passive Investors do not do this!

Ask one, Yip. Ask a Passive Investor how much be believes he should lower his stock allocation when prices go to insanely dangerous levels. You will see that what I am saying here is so.

Most Passive Investors will tell you that there is no such thing as insanely dangerous stock prices. That's why so many Passive Investors were wildly overinvested from 1995 through the first part of 2008.

Passive Investors don't even consider risk. They are blind to it. They pay little attention to valuations. The reason why they don't pay attention is that they are passive. If you are not going to change your allocation in any event, why bother learning how risky your allocation has become?

Once you elect to go passive, you have given up your use of human reason re investing questions. The only way to get it back is to acknowledge the insanity of Passive Investing.

That's the key first step. Everything else follows nice and easy after that one. There's nothing that makes any of this hard to understand. But you cannot make sense out of Rational Investing for so long as you believe in Passive Investing. The two models start from totally opposite first premises. Passive says that you must not change your allocation in response to price changes. Rational says you must change your stock allocation in response to price changes.

The only question on the table is: Do valuations affect long-term returns?

If yes, simple logic demands a choice for Rational Investing.

If no, simple logic demands a choice for Passive Investing.

Rob
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Re: JWR - still wiping the snot from Rob's runny n

Postby hocus2009 » 01/15/09 at 08:49:49

having heard the BatSignal

Why do you refer to the historical data as "the BatSignal"? That's emotion talking. Thats the Passive Investing mindset.

Rob
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Re: JWR - still wiping the snot from Rob's runny n

Postby hocus2009 » 01/15/09 at 08:53:28

those investors who have been too frightened to buy stocks will now jump in with both feet.

You're looking at this from the standpoint of a Passive Investor.

Passive Investors make a deliberate choice to have their emotions rule them. Rational Investors aim to overcome their emotions to the extent possible. Rational Investors are guided by the historical data. The historical data shows that stocks offer a fine long-term value proposition at today's prices.

You're right that most investors are in panic mode today. That's because most investors have bought into the Passive Investing marketing slogans. The way to overcome panic is to teach people what the historical data says about how stocks are likely to perform starting from today's price levels. That means permitting people to hear about Rational Investing ideas.

Rob
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Re: JWR - still wiping the snot from Rob's runny n

Postby hocus2009 » 01/15/09 at 08:54:51

Nobody says they don't

How much did you lower your stock allocation when prices went to insanely dangerous levels?

That's the test.

Actions speak louder than words.

Rob
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Re: JWR - still wiping the snot from Rob's runny n

Postby hocus2009 » 01/15/09 at 08:56:28

the disagreement is how one can determine valuations in a manner that is actionable.

I wonder how people trying to learn how to invest effectively would go about doing this.

You've raised a real toughie here, Yip.

Rob
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Re: JWR - still wiping the snot from Rob's runny n

Postby hocus2009 » 01/15/09 at 09:01:10

Rob has fallen head over heals with PE10.

I've fallen head over heels for Rational Investing.

P/E10 is a tool used by Rational Investors. Nothing more, nothing less.

Humans use reason in all sorts of life endeavors. People who use human reason to build homes use hammers to get the job done. Are they in love with hammers? No. They appreciate their tools, that's all.

You are head over heels with the idea of having no tools. What tool do you use to know how much to change your allocation when prices go to insanely dangerous levels? You use nothing. That's your tool? Something beats nothing every time, Yip. P/E10 is a while big bunch better than anything that the Passive Investing Dogmatists have to offer. They're not even in the game. They don't even try to manage risk effectively. Their "tools" are marketing slogans.

Rob
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Re: JWR - still wiping the snot from Rob's runny n

Postby hocus2009 » 01/15/09 at 09:04:36

but is so far is unproven and perhaps even unprovable.

Good point, Drip.

Maybe I'll hide all my money in my mattress.

Or maybe I'll just go with the same stock allocation when prices are insanely dangerous as I went with when prices were reasonable.

Those sorts of approaches are certainly worth a try.

Rob
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Re: JWR - still wiping the snot from Rob's runny n

Postby Schroeder » 01/15/09 at 10:04:20

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Re: JWR - still wiping the snot from Rob's runny n

Postby hocus2009 » 01/15/09 at 10:35:30

THERE IS NO SYSTEM!

It is the Passive Investing mindset that causes you to believe that there must be a "system."

Systems don't work.

Rob
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Re: JWR - still wiping the snot from Rob's runny n

Postby hocus2009 » 01/15/09 at 10:36:24

I might add that John Bogle, William Berstein and other Passive Investing advocates fully agree that valuations affect long-term returns.

Yet they advocate Passive Investing.

Both things are so.

Rob
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