The Investor’s Scenario Surfer is an amazing tool. I have performed
hundreds of runs with it and find that I learn something new almost every
time. It teaches you what you need to know to be a successful investor –
how to respond to surprising return results with intelligent, measured
responses. My Valuation-Informed Indexing portfolio often beats the three
Buy-and-Hold portfolios by hundreds of thousands of dollars. But it often
doesn’t look like it is going to turn out that way early in a 30-year run.
Buy-and-Hold often goes ahead for a stretch of years. The calculator shows
that Valuation-Informed Indexing is the true stay-the-course strategy. It
demonstrates the value of patience.
The Surfer has one significant flaw, however. It only permits you to see
what happens over a 30-year time period. If you begin investing at age 25
and die at age 85, that’s 60 years. I have often wished that the calculator
could examine how the two strategies compare over a longer stretch of time.
That’s the purpose of The Lifetime Return Examiner.
The Lifetime Return Examiner works just the same as the Investor’s Scenario
Surfer but generates returns for 60 years rather than 30 years. As with the
Surfer, it generates one year of returns at a time and reports to you the
CAPE value that applies after the return for that year is taken into
account. You then consider whether you want to stick with the same stock
allocation or change it to something more suitable to the new valuation
level. The calculator reports on the results for Buy-and-Hold portfolios of
80 percent, 60 percent and 20 percent so that you can compare the results
obtained from a market timing approach with results obtained using the
now-dominant strategy.
It is a bit of a pain to have to scrawl to the section of the calculator
containing the “enter” button 60 times in the course of a run. So my guess
is that most investors will prefer using the Scenario Surfer. But I think
that there are insights that can only be mined by seeing how
valuation-informed strategies apply over an entire investing lifetime.
You’re going to be dealing with a 60-year run in real life. So it makes
sense to occasionally undergo a training session on a calculator that
examines the true long-term performance of the two strategies.