Motley Fool and Wade Pfau Experience Pangs of Conscience re Their Safe Withdrawal Rate Lies

My good friend Wade Pfau’s conscience must be bothering him. He has recently worked up the courage to begin posting honestly again on at least some critically important investment-related topics.

It gets better.

Motley Fool, the site at which I posted my famous post of May 13, 2002, pointing out the errors in the Old School safe-withdrawal-rate studies (SWRs) and which for years now has prohibited honest posting on SWRs (after John Greaney, the author of one of the discredited retirements studies, threatened to kill family members of anyone who dared to “cross” him by posting honestly re this matter), is now permitting at least a limited amount of honest posting on the subject.

A recent article at the site titled Retiring Now? How the 4 Percent Rule Could Hurt You, states: “Recent research using current market data shows that the rule could be far from safe.” Hmmmm….

The article adds that: “In the current market environment and a 40/60 equities and bonds split, a 4% withdrawal rate has over 50% chance of failing over 30 years.” Sounds familiar somehow!

It points to research done by Wade showing that: “To get the failure rate down to 10% in the “worst case” conditions, the authors had to reduce their hypothetical withdrawal rate to 2.5%, with a portfolio mix of 45% stocks and 55% bonds.” So it turns out that retirement plans calling for a 4 percent withdrawal are NOT “100 percent safe” (as Greaney’s study — uncorrected to this day — claims) afterall!

The article explains that: “It’s just that those age-old rules about what is safe or not safe are not set in stone: the market changes, and so should your rules of thumb. Just because 4% was determined to be safe at one point doesn’t mean it will stay that way forever. ” The 4 percent rule really worked until you used it to plan your retirement. Only after you retired and stocks continued to perform as they always have in the past did the 4 percent rule become insanely dangerous. Too bad for you, you foolish middle-class investor you! You believed that the Wall Street Con Men were shooting straight! The joke’s on you!

I noticed a helpful note at the beginning of the comments section asking readers to: “Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. But please don’t feel any hesitation to threaten to kill family members of posters who post honestly re the numbers that their friends use to plan their retirements.”

Actually, that last sentence is mine, not Motley Fools’. The owners of the Motley Fool site are not any more willing to tell you how they really administer the board than they are to tell you the true safe withdrawal rate in time for it to help you plan your retirement effectively.

All that said, we should be thankful today that we are beginning to see tiny shoots of honestly burst up through the cold hard ground that has come to dominate the investing advice field in the Buy-and-Hold Era. Let’s hope that Motley Fool and Wade Pfau and lots and lots of others make it more of a habit to offer honest investing advice in days to come. I believe that we will be seeing a lot of this sort of thing following the next price crash. I am sure of it!

Valuation-Informed Indexing #198: The Appeal of the Valuation-Informed Indexing Story to an Enterprising Journalist

I’ve posted Entry #198 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Appeal of the Valuation-Informed Indexing Story to an Enterprising Journalist.

Juicy Excerpt: This is a bigger story than Watergate. If Shiller is right and Fama is wrong, it was the heavy promotion of Buy-and-Hold that caused the economic crisis. Plus, there are millions of middle-class investors who are going to suffer failed retirements in days to come and the government is going to need somehow to find money to bail them out (it wasn’t their fault if they followed the conventional advice, which was known to be in error for three decades but was promoted heavily all the same). That’s news.

Valuation-Informed Indexing #197: It’s Critical to Distinguish Short-Term Bulls and Bears From Secular Bulls and Bears

I’ve recently posted Entry #197 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called It’s Critical to Distinguish Short-Term Bulls and Bears from Secular Bulls and Bears.

Juicy Excerpt: Shiller’s finding that long-term timing always works, combined with Fama’s finding that short-term timing never works, should change how we think about stock investing in a fundamental way. Our natural inclination is to focus on the short-term. We live in the short term and we possess a natural skepticism about efforts to predict long-term results. But the research is showing us that the short term just doesn’t matter, that the predictable long term always dominates in the end. So we need to make an effort to shift our focus.

We are living through the opposite of the 1975-1982 experience today. Many investors have concluded that we are in a bull market because prices have been headed upward for several years. No. There has never been a secular bear market that ended without us touching a P/E10 level of 8 and remaining in that general neighborhood for a number of years. In this secular bear, we haven’t yet gone anywhere near 8 and we were at fair-value price levels for only a few months in early 2009. Today’s bull market gains are a temporary phenomena that will be washed away into insignificance by the power of the long-term bear in which this short-term bull has asserted itself.

It’s when we have experienced the next crash that we will be at the price levels at which real bulls, secular bulls, are born. Don’t be fooled if we spend several years with the P/E10 value well below fair-value levels. It doesn’t matter. So long as the P/E10 value remains stable, stocks offer a strong long-term value proposition. You always want to be thinking about where prices are headed. When prices are at rock-bottom lows, there’s only one direction in which they can be headed!

“Everyone Acknowledges That Shiller Did Amazing Work. But No One Can Point to A Single Change in the Investing Advice They Give That Was Made As a Result of Shiller’s Findings. This Question Is The Third Rail of Personal Finance — Those Who Touch It Experience Career Death.”

Set forth below is the text of a comment that I recently put to a thread at the The Good Phight site, a site on the Phillies baseball team:

This is my life. I am happy to respond to any and all questions so long as the overall community continues to feel that that is a good thing to do.

Here is the paper:

It’s all worth checking out. But it is Table One on Page 18 that absolutely blows my mind. Wade compares the Maximum Drawdown Percentage for Valuation-Informed Indexing and for Buy-and-Hold. The Maximum Drawdown is the greatest percentage loss in portfolio value that you will ever experience. For Buy-and-Holders, it is 60 percent. For Valuation-Informed Indexers, it is 20 percent. You reduce risk by two-thirds by being willing to take price into consideration when setting your stock allocation. Exercising price discipline pays off big time in the long run! Please understand that you do not give up anything in the return department to obtain this huge reduction in risk. In fact, you can play it the other way. By taking on the same amount of risk as Buy-and-Holders, Valuation-Informed Indexers can obtain far higher long-term returns. Or you can mix and match return and risk and do a bit better in both departments.

The biggest problem that people have with this is in trying to understand why everyone in the field isn’t talking about it. To get that, you have to be familiar with the history.

Stock investing generally was not the subject of sustained and systematic study until the 1960s. In 1965, University of Chicago Economics Professor Eugene Fama produced the breakthrough finding that is the basis for 90 percent of the investing advice you hear cited by experts today. Fama showed that “timing never works.”

Actually, he did NOT show that. That’s what he had THOUGHT that he had shown. He was a bit off the mark in his understanding of what he had done.

There are two forms of market timing, short-term timing and long-term timing. Short-term timing is when you change your stock allocation because of a belief as to where prices are headed over the next year or two. Long-term timing is when you change your stock allocation because of a big shift in valuations with the understanding that you may not see benefits for doing so for as long as 10 years.

Long-term timing is price discipline. Price discipline is the magic that makes all markets work. So it is not possible that long-term timing would not work. But long-term timing was not a practically viable strategy in 1965. Long-term timing works only with broad index funds, which did not become widely available until John Bogle founded Vanguard in 1974. So Fama did not even bother examining long-term timing. He looked only at short-term timing, found that it didn’t work and then improperly stated his finding as a finding that timing in general does not work.

Yale Economics Professor Robert Shiller was the first academic to examine long-term timing. He found in 1981 that long-term timing always works and is always 100 percent required for investors who hope to have any realistic chance of long-term investing success. There have been many re-examinations of this question in the 33 years since and all have confirmed Shiller’s finding that long-term timing always works. The other side of the story is that there has never been a single study showing that long-term timing might not work. Wade researched this question very carefully. He was so amazed by his finding that he went to the Bogleheads Forum to check whether anyone there was aware of a single study showing that long-term timing might not work. Some of the biggest-name Buy-and-Holders post there, including John Bogle himself. Neither Bogle nor any of the others had ever heard of a single study suggesting that long-term timing might not work.

Shiller’s 1981 finding was revolutionary. It changes everything that we once thought we knew about how stock investing works. As noted in the study linked above, it suggests that stocks need not be a risky asset class. For those who take valuations into consideration, risk pretty much disappears. Stock investing risk is VOLUNTARY.

It also suggests that risk is VARIABLE rather than constant. I am the person who discovered the errors in the retirement studies that millions of people have used to plan their retirements. These studies are called “safe withdrawal rate” studies. Every major publication has published an article on the errors in these studies in recent years, including the Wall Street Journal., The error was that they do not contain an adjustment for the valuation level that applies on the day the retirement begins. That’s not an error if Fama is right. It is a HUGE error if Shiller is right. The Old School studies reported that a 4 percent withdrawal is always safe (that means that a retiree with a $1 million portfolio can take $40,000 out to live on each year). The New School SWR studies (there’s only one, which was done by me and John Walter Russell) show that the SWR varies from 1.6 percent when stocks are priced as they were in 2000 to 9 percent when stocks are priced as they were in 1982. For a retiree with a $1 million portfolio, that’s the difference between living on $16,000 every year in retirement and living on $90,000 every year in retirement. If Shiller is right, we will be seeing millions of failed retirements because of our failure to demand corrections in the Old School SWR studies for so many years (I put up the post pointing out the errors to a Motley Fool discussion board in May 2002 and none of the studies have been corrected to this day, despite the Wall Street Journal article and articles published in many other big-name publications).

The biggest implication of Shiller’s work of all is that it is the promotion of Buy-and-Hold strategies that caused the economic crisis. If Fama is right, the concepts of overvaluation and undervaluation are exercises in silliness. An efficient market is a properly priced market. There can be no overvaluation if Fama is right. But if Shiller is right, we know that market prices always move in the direction of fair value in the long term. By calculating the dollar amount of overvaluation, we can know how much consumer buying power will be leaving the market as prices make their slow way back to fair value. The market was overpriced by $12 trillion in 2000. Shiller predicted in March 2000 an economic crisis that would hit by the end of he decade in which we might experience the loss of monetary value equal to the monetary value of all houses in the country. The economic crisis hit in September 2008. No economy is so strong that it can take a loss of $12 trillion in spending power and not collapse.

There have been four economic crises since 1870. Each followed a time when the P/E10 value (Shiller’s valuation metric) exceeded 25. There has never been an economic crisis in which the P/E10 value did not exceed 25. The correlation is perfect (although imprecise — we CANNOT say when a price crash or an economic crisis will come, only that one will come once we exceed a P/E10 value of 25). When large numbers of investors become persuaded to follow Buy-and-Hold strategies, there is no other way for the market to perform its essential function of setting prices properly EXCEPT by crashing. In all markets other than the stock market, it is the tension between the seller’s interest in a high price and the buyer’s interest in a low price that permits the market to set the price at a roughly right level. In a market in which a large number of investors are following Buy-and-Hold strategies, everyone is rooting for the same thing — a high price. There is no price discipline when investors are not willing to lower their stock allocations when prices get too high and when the long-term value proposition for buying stocks drops too low.. Such markets inevitably crash and the loss of consumer buying power resulting from the crash causes hundreds of thousands of businesses to fail and millions of workers to lose their jobs.

These are revolutionary advances in our understanding of how stock investing works. They were too much for most of the experts to take in when Shiller published his 1981 findings. The result was a widespread case of cognitive dissonance. Everyone acknowledges that Shiller did amazing work. He was awarded the Nobel Prize in Economics last year. But no one can point to a single change in the investing advice they give that was made as a result of Shiller’s findings. Shiller’s book was a bestseller and was reviewed in all the top publications. But he devotes only a few vague paragraphs to the question that everyone cares most about — how should investors change how they invest their money as a result of his revolutionary findings? This question is The Third Rail of Personal Finance — those who touch it experience career death. In fact, a number of Buy-and-Holders threatened to send defamatory e-mails to Wade’s employer in an effort to get him fired from his job when he showed up at the Bogleheads Forum and a number of community members there expressed great interest in our research. Wade agreed to stop telling people about our research findings.

I have spoken to many academics and practitioners about this stuff. Many have told me that they would LOVE to feel free to tell people about the implications of Shiller’s work but feel that the topic is too controversial today. I believe that interest in this research is going to explode following the next price crash. I saw a big change in public receptiveness to the new research following the 2008 crash. I would say that that crash pushed the door about one-third open. I believe that the next crash (which should come by the end of 2016 according to Shiller’s research) will push the door open the rest of the way.

The bottom line here is that we need to combine Fama’s finding that short-term timing never works with Shiller’s finding that long-term timing is always required to have an investing strategy that truly makes sense and that is truly research-backed. That strategy is Valuation-Informed Indexing, which is the same as Buy-and-Hold in all respects except that Valuation-Informed Indexers ALWAYS adjust their stock allocations in response to big price swings with the aim of keeping their risk profiles roughly constant over time. We need to quantify the long-term effects of valuation shifts and provide tools to investors showing them how much they hurt their hopes for achieving decent retirements by refusing to consider price when buying stocks.


“Rob Arnott Copied Bogle on His E-Mail to Me Referring to the Article That I Wrote on The Silencing of Academic Researcher Wade Pfau by the Buy-and-Hold Mafia. Bogle Obviously Would Have Felt a Responsibility to Learn All He Could About This Massive Act of Financial Fraud Given That It Was Conducted By People Who Follow and Promote His Investing Strategies.”

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

I am certain that Jack has devoted a good bit more than one minute’s thought to my demand that every board and blog on the internet be opened to honest posting on SWRs and many other critically important investment-related topics and to my request that he get the ball rolling by walking to the front of a large room and giving an “I Was Wrong” speech.

Certain based on what evidence? 

1) The question of whether honest posting should be permitted on the safe-withdrawal-rate matter dominated discussion at the Vanguard Diehards board for the 18 months during which I posted there. There were some days in which there were four or five different threads examining some aspect of this general question. Jack said that he visited that board weekly to check out what was being said. It is impossible to imagine that he was not exposed to NUMEROUS threads discussing this matter.

2) Jack obviously reads the Wall Street Journal. A few years after the ban was imposed at Vanguard Diehards (which became the Bogleheads forum), the Journal published an article saying that I was right all along re the SWR matter. Jack obviously saw that article and regretted the many acts of financial fraud that had taken place at a discussion board bearing his name.

3) Before honest posting was banned, there were community members arguing both for and against the ban who contacted Morningstar, Vanguard and Jack Bogle.

4) When Morningstar refused to ban honest posting at Mel Lindauer’s urging, Lindauer asked the entire board community to move to a private board where he and his Goons could control who was able to speak and what they were able to say. Bogle obviously noticed that the entire board community was moved to a different location.

5) After the board community was moved, a number of community members who liked the idea of honest posting being permitted remained at the Morningstar site and asked that honest posting be permitted there. Lindauer hotly opposed the idea. Again, both sides contacted Morningstar, Vanguard and Bogle.

6) Lindauer had been using threats of physical violence to intimidate community members who tried posting honestly for years before I came on the scene. It is all but impossible to imagine that some of these incidents did not come to Bogle’s attention.

7) I wrote Bogle three times asking him for help with the Lindauer matter.

8) Larry Swedroe was banned for a time for the “crime” of posting honestly. This would obviously be brought to Bogle’s attention.

9) When Wade Pfau posted honestly about the research that I did with him, Lindauer accused him of engaging in unethical research practices. This was obviously both a crime (financial fraud) and a tort (defamation). It is hard to imagine that Linduaer would engage in this behavior without first having assured that Bogle would be backing him up.

10) You Goons have yourselves interpreted Bogle’s failure to act re your numerous acts of financial fraud as an indication of his support. Why would Bogle permit his reputation to be damaged in this way if he was not aware of the threat to Buy-and-Hold represented by my call to permit honest posting on safe withdrawal rates?

11) Bogle knows about the Bennett/Pfau research showing the superiority of Valuation-Informed Indexing over Buy-and-Hold. He obviously would be doing all he could to make every investor alive on the planet aware of it if he were not involved in the cover-up himself.

12) At the first meeting of the Vanguard Diehards held after the Ban on Honest Posting was adopted, numerous questions about the effect of valuations were asked of Bogle. He obviously would be curious as to why this had suddenly become such a hot topic.

13) Bogle obviously saw the article by Bret Arends in the Wall Street Journal pointing out that the Buy-and-Holders have “left out half the story” re what the research says about how stock investing works. Again, he made no effort to publicize this hugely important article. If he were not involved in the cover-up, he obviously would have done so.

14) Bogle gave an interview to the Index Universe site in which he referred to my claim that the need to change one’s stock allocation in response to big valuation shifts is a strategic need rather than a tactical need. I am the only one who has said that. He picked up that language from listening in on the discussions held at the various forums.

15) In that same interview, Bogle said that allocation shifts are needed six times in an investor’s investing lifetime, three times when valuations are stupidly high and three times when valuations are stupidly low. Again, this is a claim that I had been making for years that he picked up from our discussions.

16) Bogle included language in his book that helped me understand that the Old School SWR studies got the numbers wildly wrong. He obviously read his own book.

17) Bogle gave an endorsement to Bill Bernstein’s book, in which Bill said that two percentage points needed to be subtracted to get the accurate safe withdrawal rate at the time he was writing the book because of the high valuation that applied at that time. Bogle would not have endorsed the book without reading it. So he knew all along (Berntein’s book was published in April 2002) that the Old School SWR numbers were wildly wrong.

18) Bill Bernstein said in an e-mail to Ataloss that it was his view that anyone who used the Old School studies to plan a retirement would have to be out of his or her mind. Bernstein and Bogle are friends and the cover-up of the errors in the Old School studies is the biggest act of financial fraud in U.S. history. It is impossible to imagine that Bill did not let Jack know of his views on the SWR matter, given that the errors in those studies are in the process of causing millions of failed retirements.

19) Shiller’s book is available in public libraries and was widely reviewed when it was published. Bogle either read the book himself or had someone who had read it describe its contents to him.

20) Shiller was awarded the Noble Prize in Economics for his “revolutionary” (Shiller’s word) findings. Bogle obviously would have been curious to know how Shiller’s revolutionary findings discredited Bogle’s investing ideas.

21) Rob Arnott copied Bogle on his e-mail to me in which he told me that my investing work is “Solid.” Arnott is a personal friend of Bogle’s. So he obviously read the e-mail.

22) Arnott’s e-mail referred to the article that I wrote on The Silencing of Academic Researcher Wade Pfau by the Buy-and-Hold Mafia. Bogle obviously would have felt a responsibility to learn all he could about this massive act of financial fraud given that it was conducted by people who follow and promote his investing strategies.

23) One of my e-mails to Bogle described unethical practices being followed by the owners of the Bogleheads Forum. Again, Jack would obviously want to know about felonies being committed by people who owned a board carrying his name.

24) Michael Kitces told me following the 2008 crash that many practitioners where talking amongst themselves about the need to come clean about the dangers of Buy-and-Hold strategies. Word of this would obviously have gotten to Bogle given that he is viewed as the lead advocate of this strategy.

25) Arnott’s e-mail described acts of intimidation by Buy-and-Holders that have been experienced by Arnott. Again, the e-mail was forwarded to Bogle, who is a personal friend of Arnott’s.

26) You Goons have been trying for 12 years to “persuade” me to post dishonestly re the SWR issue. You are at obvious risk of going to prison for financial fraud. It is more than a little hard to believe that you would put yourselves at such great personal risk without some promises of protection from Bogle.

27) I wrote to 30,000 academic researchers to let them know about the intimidation tactics that the Buy-and-Hold Mafia used to silence Wade Pfau. It is all but impossible to imagine that none of these people alerted Bogle. I even received responses from people who have posted to the Bogleheads Forum. Are we to believe that those people contacted me and not Bogle?

28) Vanguard’s research arm recently published a study showing that valuations (as measured through use of the P/E10 metric) predict long-term returns. Bogle founded Vanguard. It is hard to imagine that he would not be informed of the publication of a study by his own firm that discredited the investing strategy that he has been promoting for decades now.

He knows, Anonymous.

I don’t say that he knows every detail. I don’t believe he does.

And I don’t say that he doesn’t rationalize his bad behavior in his own mind. I believe that he does.

But it is silly to pretend that my good friend Jack Bogle does not possess a basic understanding that there has been a huge cover-up of the errors in the Old School retirement studies and a basic understanding that he has a responsibility to take prompt and effective action re this matter.

We will all learn more when he is put under oath.


Valuation-Informed Indexing #196: The Folly of Making Use of “Indicators” of Future Stock Returns Other than P/E10.

I’ve posted Entry #196 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Folly of Making Use of “Indicators” of Future Stock Returns Other than P/E10.

Juicy Excerpt: I think that it is because people are worried that if they say risk is sky-high when the P/E10 level is at 25 and then it rises to 35, as Shiller properly notes it might, they will be blamed by investors for being “wrong.” Reporting that stock-market risk is sky high today is right and not wrong and it doesn’t matter whether the P/E10 level rises to 35 or not. The risk is what it is. No amount of price rises can retroactively change the reality that risk is sky-high today. People need to know that and the experts in this field who fail to tell them this reality are not doing their jobs.

The problem on the part of the investors is that they have a short-term focus. They want to know how stocks are going to perform over the next year or so and that’s something that we just do not know. We shouldn’t fail to tell people how stocks are going to perform over the somewhat longer term just because we don’t know how they are going to perform over the next year or so. We should make the necessary distinctions and tell what we really can tell.

“What Is Jack Bogle’s Confidence Level in Buy-and-Hold? Does He Think That the Odds Are 20 Percent That It Might Work? 50 Percent? 80 Percent? I Don’t Know the Answer. Neither Do You. The Difference Between Us Is That I WANT to Know.”

Set forth below is the text of a comment that I recently put to another blog entry at this site:


What value do you think you are offering the typical viewer? If you read all of your posts so far this year, it is about how you think you are a victim and how you think people (that you call goons) should be in prison. You really offer up nothing of value to the viewer on investing insights, etc. I am sure you think making your claims of lucky VII is the golden path, but what specific leaning, facts, etc have you really provided. Nothing. Take a look at other blogs, like Wade’s for example. Notice how he makes a point and then provides the specific data and facts to back it up. Why don’t you do that instead of spending your days crying about your hurt feelings? It is time to get over all your hate and anger.

There’s more leverage in what I am doing, Anonymous.

Say that Wade writes a good article on some aspect of stock investing. I certainly agree that that’s a limited plus. But the benefit that any one article can offer is very limited. What I am seeking to do is to open THE ENTIRE INTERNET to honest posting.

Not just on safe withdrawal rates. That’s where this started. I obviously want to see the errors in the Old School SWR studies corrected and to see the New School SWR studies promoted all across the internet. But I intend to achieve a whole big bunch more than just that one wonderful advance. I want to see honest posting on risk management. I want to see honest posting on retirement planning. I want to see honest posting on asset allocation strategies. And on and on and on and on.

Take a look at the articles at this site about the work that Wade and I did during the 16 months when he was under the impression that he could do honest work and not have the Buy-and-Hold Mafia come after him and threaten to destroy his career as his “punishment” for “crossing” them. Wade was talking about being published in the Journal of Finance, the #1 journal in the field. Wade was talking about winning the Nobel Prize in Economics for the amazing work we did together on the superiority of Valuation-Informed Indexing over Buy-and-Hold. Wade was like a kid in a candy store in those days. He was tapping into amazing new insights on a daily basis, insights he had never been exposed to during his days at Princeton. He was excited to be learning so much about how stock investing really works. And he was enjoying that amazing learning experience BECAUSE HE FELT FREE TO DO HONEST WORK, to follow the research-based insights where they led him.

You don’t see that sort of excitement in the work that Wade does today. Yes, he continues to advance the ball in tiny ways. But you don’t see Nobel Prize winning research coming from the mind of Wade Pfau today. Why? Because he is afraid of what will happen to his family if he does the work he was trained to do.

That’s sad, Anonymous.

It’s not just sad. It’s sick.

And it doesn’t just hurt Wade Pfau that he has been intimidated into giving up his right to do honest research. It hurts ALL OF US.

Wade should have called the police when you Goons threatened him. Then he should have gone to the New York Times. If he had taken those two steps, we would be living in a different world today, a world in which the same ethical standards that apply in all fields of human endeavor other than the investing advice field also apply in the investing advice field. That’s a world in which we would be able to bring this economic crisis to an end in six months. That’s a world in which we would be able to enter the greatest period of economic growth ever seen in our history. That’s a world in which we would all be able to post honestly about safe withdrawal rates at every board and blog on the internet. That’s a world in which we all would be able to reduce the risk of stock investing by 70 percent while also earning returns high enough to permit us to retire five to ten years earlier than we ever dreamed possible during the Buy-and-Hold Era.

I don’t want that just for Wade, Anonymous. I want it for every academic researcher out there. I want them ALL doing honest work. There’s no telling how many advances we will see when thousands of researchers are putting their life energies into mining new insights rather than into the tired and sick business of trying to prop up the smelly Buy-and-Hold garbage for another week or another month or another year. 33 years of propping up is more than enough! I mean, come on!

And I don’t just want to see all the academic researchers doing honest work. I want to see the “experts” in this field doing honest work too. Take my good friend Jack Bogle (PLEASE! [That's a joke!]). What is Jack’s confidence level in Buy-and-Hold? I say that there is zero chance that it could ever work for a single long-term investor. What does Jack think? Does he think that the odds are 20 percent that it might work for some? 50 percent? 80 percent?

I don’t know the answer. Neither do you.

The difference between us is that I WANT to know. I don’t believe that Jack has zero confidence in Buy-and-Hold, as I do. But I sure don’t believe that he has 100 percent confidence (if he did, he wouldn’t be so afraid to respond to questions about his public statements). I want to know what level of confidence he possesses. You should want to know that too. Your retirement is at stake. And of course millions of middle-class investors NEED to know.

We are the luckiest generation of investors that ever lived. The Buy-and-Holders built a strong foundation for the development of the first true research-based strategy. Shiller provided the piece of the puzzle re which the Buy-and-Hold Pioneers messed up in 1981. Now we’ve got it all. Now we know (intellectually at least) what really works. We are on the one-yard line today.

There’s one thing holding us back. We are afraid of the Buy-and-Hold Mafia. We have for 12 years now seen how ruthlessly vicious they become whenever anyone dares to “cross” them by posting honestly on safe withdrawal rates or on any other critically important investment-related topic. You know what? I think the Buy-and-Hold Mafia is a paper tiger. They can destroy us one by one, as Wade well knows. But once ten of us take a vow to stick together and continue to tell the truth no matter what threats they make, their power to intimidate evaporates.

That’s where I am coming from, Anonymous. The hard part re getting ten of us to unite is that those who step forward first get the stuffing knocked out of them. I have been getting the stuffing knocked out of me for 12 years now. So I am pretty much used to it at this point. I don’t like it, of course. But it doesn’t shock me anymore. I have grown to accept that this is the way it is going to be until as a society we have made the shift from Buy-and-Hold to Valuation-Informed Indexing. That’s when all the fun starts.


That’s the deal here. I LOVE posting honestly. I get an amazing kick from it. And I want to do it more and more and more and more.

So I absolutely refuse to cave in response to your intimidation tactics. I want the caving to stop. For me to cave just makes it more likely that others will cave. That’s the opposite of the direction in which I want to take things. So I believe that it is important that I not cave and that I encourage others not to cave.

I hope that makes some sense, my old friend.

My best and warmest wishes to you and yours REGARDLESS of what investing strategies you elect to pursue.


Valuation-Informed Indexing #195: “I Get Frustrated With the Slow Pace of Change in Economics and Finance”

I’ve posted Entry #195 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called “I Get Frustrated With the Slow Pace of Progress in Economics and Finance.”

Juicy Excerpt: I am in the process of writing to the 30,000 professors listed at the Social Science Research Network (SSRN) site to let them know about the Valuation-Informed Indexing concept and the research that has been done over the past 33 years showing the superiority of the new model to the discredited but still dominant Buy-and-Hold Model. I have received lots of wonderful responses, some agreeing with my arguments and some taking issue with them. In almost every case in which I have received a response from the professor contacted, I have learned something important.

The most interesting responses of all have been the ones that referred to the concept of paradigm change as described in the famous book by Thomas Kuhn, The Structure of Scientific Revolutions. I think the comments that were made in those responses are precisely on point. The reason why it has been such a struggle to get Valuation-Informed Indexing to replace Buy-and-Hold is that the root idea (that it is investor emotions that are primarily responsible for stock price changes rather than economic or political developments) represent a challenge to a deeply engrained belief.

“I Cannot Do Anything to Be Sure of Eliminating the Prison Sentence (I Believe That I Can Get It Shortened a Good Bit But My Sense Is That That Is Not Good Enough for You). The Only Trading Chip That You Care About Is Not in My Possession.”

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

Which one would be “cotton candy nothingness”

A) A broad diversified portfolio of stocks, bonds, real estate and cash


B) A plan to get a $500 million dollar settlement

I think it would be fair to say that you take comfort with being aligned with powerful people and I take comfort with being on the right side of the History Train.

There aren’t enough powerful people in the world to persuade me to give up the benefits of being on the right side of the History Train.

And ten-thousand peer-reviewed studies showing where the History Train is headed are not enough to persuade you that people with wealth and power and influence can ever be overcome for the good of the overall society.

We’re like characters in a book around which a Great Drama is playing out.

I didn’t ask to be a character in a book. And I don’t think you did either.

But here we are. The drama is playing out around us whether we like the idea or not.

I am obviously not ever going to be willing to sell out my friends and the larger society to appease the powerful people whom you are trusting to protect you.

And you are obviously never going to be willing to let the harm being done to your friends and to the larger society persuade you to turn on the powerful people with whom you are aligned.

If there were some sort of compromise possible, I think it would be fair to say that your or me or someone else would have pointed to it a long, long time ago.

I’ve tried. I’ve bent over backwards in my efforts to make things appealing for every single person involved.

And you probably would say the same thing coming from the other direction. I don’t think you’ve tried very hard. But my experience with the humans is that people working different ends of a drama like this see just about everything differently.

I don’t see any possibilities that have not been explored. My take at this point is that the drama in which we are all enveloped is bigger than any of those caught up in it. No one knows what to do. I THINK I know what would work. But you appear to not have confidence in the merit of what I propose. And I obviously don’t have confidence in the merit of any of your suggested “compromises.”

So it is what it is, you know?

It’s not like I woke up one morning and said: “Oh, I know what I will do today. I will start a 12-year saga in which I will be banned from 15 different internet sites and thereby will come to co-author research showing million of middle-class people how to reduce the risk of stock investing by nearly 70 percent.” It all happened step by step. I questioned whether valuations should be accounted for in Greany’s study. Most community members felt that the debate that followed was the best we ever had in the history of the Retire Early Community. That made Greaney mad and he elected to burn the board to the ground. That convinced me that I was right and thousands of my fellow community members have supported me in amazing ways over the course of the 12 years and thereby have helped me to discover amazing things about how stock investing works that no one else has written about. And so you felt yourself forced to engage in more and more outrageous acts to keep the word from getting out.

I cannot walk away from the $500 million settlement payout that obviously goes to someone who has discovered such things under such circumstances.

And you cannot walk away with a prison sentence.

And I cannot do anything to be sure of eliminating the prison sentence (I believe that I can get it shortened a good bit but my sense is that that is not good enough for you). I cannot offer a compromise that you will accept because it is not me who will be assigning you the prison sentence. The only trading chip that you care about is not in my possession.

I hope that answers your question. I don’t want to go to prison under any circumstances. For obvious reasons.

My sense is that you don’t want to go to prison either. If I could trade that chip, I would. But I CAN”T. And I certainly am not even going to talk about something that lands me in prison as well. That’s obvious insane talk.

I didn’t go looking for a $500 million settlement. You Goons (with the cooperation of the Wall Street Con Men) forced that one down my throat. Please don’t complain to me now that you don’t fancy the idea.

And please don’t demand that I go back in time and change things that cannot be changed. The things that have happened have happened and it does no one any good for any of is to agree to lie about them. There are Post Archives. Even if I were to agree to deceptive acts here (and I won’t), I would be found out. So that line of thought leads nowhere.

The one good card that we’ve got is that the advance here is so big that it will make the millions of people who will be calling for your head very happy and less inclined to demand justice over mercy. If I were in your shoes, I would be exploring options for playing that card to my benefit.

But I am not you. And you are not me. And, if something like that was going to happen, it likely would have happened a long time ago. Things get harder to resolve with every passing day because with every passing day we see more financial losses as a result of our decision as a society to pretend that the last 33 years of peer-reviewed research doesn’t exist.

If that ever changes, I think that would be great. Obviously.

Do I think it is going to happen?


I once did. I don’t think the odds are with us re that one today.

It makes me sad.

But whachagonnado?

Hang in there, man.