Is It Mean to Tell People That Their Portfolio Is Worth Only 50 Percent of What They Think It Is Worth?

Sometimes it’s a good idea to cut through all the jibber-jabber and just make the point that needs to be made. I have certainly felt on occasion that I could have saved myself a lot of time and effort by writing a two-word article saying “Valuations matter” and left it at that. I elected instead to write lots of articles with lots of words because the CAPE value told me that people were not picking up on the idea and so I felt a need to figure out why and then address whatever obstacles to understanding were blocking progress.

The actual worth of your portfolio

In this article, I want to go to the emotional heart of the thing. If it makes you feel a desire to punch me, it’s okay with me if you get some sort of stuffed animal and give it my name and punch the stuffing out of it. If that gets the repressed anger out of you, good. That’s the point of all these words. And of course it would be a quicker and more direct path to the end point of the project.

Today’s CAPE value is 32. That’s not quite 34 but it’s close. The math would be easier if it was 34, so let’s say that it is 34. Your stock portfolio is worth only half of what you have been led to believe it is worth. If the stated value of your portfolio is $1 million, its real, lasting value is $500,000. If the stated value of your portfolio is $10,00, its real, its lasting value is $5,000. Like that.


Hence the death threats.

Hence the acts of extortion aimed at academic researchers who backed me up.

Hence the board bannings.

The internet discussion board is a personal medium. The people who met at the Motley Fool’s Retire Early board were effective savers. They were proud of their ability to save large amounts of money and looking forward to the cool things they could do with their lives once they started their early retirements. When I wrote about effective saving strategies, they loved me. I was articulating thoughts that they had about how to manage money that had made their lives better but that they had never quite reduced to words. It made them happy to see me do that. I was affirming life choices that they had made. I was their friend.

When I told them that their stock portfolio was worth only half of what they had been led to believe, I was doing the opposite. I was saying that they had been fooling themselves, that they weren’t nearly as close to retirement as they had come to believe they were. Instead of making them feel close to achieving their dreams by highlighting the magic associated with sound money management strategies, I was telling them that they had a long way to go just to get to the point where before I had spoken they believed they had already achieved.

I was being a creep!

And I wouldn’t stop!

They asked me to kindly stop and I did not.. Then they asked less nicely, more urgently, and still I did not stop. Then they threatened to kick me off the board if I did not stop and still I did not stop. Then they kicked me off the board.

I didn’t have creepy intentions. My intentions were to help out my friends. These people had achieved amazing things. Most people struggle to save enough to be able to retire at age 65. These people were retiring at age 60 or at age 55 or at age 50 or at age 45 or –believe it or not – at age 40. I directed a lot of mental energy to figuring out how they did it.

Planning is the magic trick

My conclusion after hearing their stories and studying them to discover common themes is that the magic trick is planning. People achieve financial freedom early in life because they make that an aim. Pretty much everyone can achieve some form of early financial independence if they put their mind to it. Few think it is possible. So few try. The difference between those who achieve the goal and those who do not is that those who achieve the goal think it all through and make a plan.

It’s a life-affirming thing to do. It thrills me that that is an option open to most of us. It so excited me to reflect on that reality that I devoted years of my life to writing a book about it, Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work.

The book that I am working on re investing is a follow-up to that book. If you become an effective saver, you are eventually going to have to invest the money you save. If thinking things through and having a plan makes sense in the saving area, it also makes sense in the investing area. Valuation-Informed Indexing is what investing would be if we put our minds to it. I mean no offense when I tell you that you have been doing it all wrong. I want to share with you a life-affirming approach to investing just as at an earlier time I shared with lots of people a life-affirming approach to saving.

The saving stuff made people happy. The investing stuff made people mad. Sorry!

I feel that the phony baloney Buy-and-Hold stuff will hurt you in the end. People push that stuff on you because they don’t want you to hate them the way that you hate me. It’s not too awfully hard to understand why they don’t want that, is it?

People will offer better investing advice if we stop hating them for doing so. It’s really up to us. I don’t think it’s mean to tell people the truth about stock investing. It seems mean on the surface and in the short term. But in the end it is the people telling you the truth who are your real friends.

Rob’s bio is here.


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