“People Refuse to Buy Apples That Are Being Sold at Insanely Inflated Prices. Price Discipline Is the Magic That Permits Markets to Get Prices Right. Deny the Participants in a Market the Information That They Need to Act in Their Own Self-Interests and You Destroy That Market.”

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

The price of apples fluctuates based on many factors. If today’s price is $1, I have an asset worth $1, and can sell it for that price. There’s no pretend money at all.

If today’s fair price for an apple is $1 and someone tries to sell an apple for $3, there are ways to find out that that person is overcharging. People do that. They compare prices. Then they refuse to buy apples that are being sold at insanely inflated prices. It is that process of comparing prices that is the magic that makes free markets work. Price discipline is the magic that permits markets to get prices right. Deny the participants in a market the information that they need to act in their own self-interests and you destroy that market.

The stock market is just like any other market. The market participants are naturally drawn to correcting mispricings because it is in their self interest to buy more stocks when prices are good and to buy fewer stocks when prices are insanely inflated. The difference in the stock market as it has come to operate in the Buy-and-Hold Era is that the Wall Street Con Men and their Internet Goon Squads have made it impossible for market participants to obtain the information they need to act in their self-interests and thereby to exercise price discipline and set prices properly. It is because of the massive act of financial fraud that we have seen in the 33 years since Shiller published his research showing that there is precisely zero chance that a Buy-and-Hold strategy could ever work for even a single long-term investor that we are in an economic crisis today and that we have millions of people on the way to experiencing failed retirements.

It is not reasonable to compare the stock market with any other markets until we work up the courage as a society to enforce the laws against financial fraud. Once your prison sentence is announced, “Buy-and-Hold” will become an obscene phrase among investors. Investors who are able to engage in discussions of what the last 33 years of peer-reviewed research tells us about how stock investing works in the real work will act in their self-interests and will see that mispricings are corrected.

Was there no Pretend Money in the Madoff fund?

The only difference between the Madoff fund and Buy-and-Hold is that in the promotion of Buy-and-Hold we have seen financial fraud on a scale 5,000 times bigger. Madoff’s lies causes thousands of failed retirements. The Lindauer/Greaney/Bogle lies are in the process of causing MILLIONS of failed retirements. There is no comparison re the scope of the two acts of financial fraud. But the core principle — a mountain of deceptions that aims to exploit the Get Rich Quick impulse that resides within us all — is identical.


Buy-and-Hold Goon to Rob: “I Never Said I Knew the Extent to Which Valuations Might Affect Future Stock Prices. Correlation Data Suggests Historically They May Have to Some Extent, Some of the Time, Though Correlation Doesn’t Always Mean Causation. I’ll Be the First to Admit That the Future Is a Very Uncertain Place.”

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

Oh, don’t worry! I never said I knew the extent to which valuations might affect future stock prices. Correlation data suggests historically they may have to some extent, some of the time, though correlation doesn’t always mean causation. I’ll be the first to admit that the future’s a very uncertain place. No boorish hocomania here. I focus on the things I can control, like gainful employment and a high savings rate.

Valuation-Informed Indexing #228: The Fair-Value P/E Number Can Change (Slightly) Over Time

I’ve posted Entry #228 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Fair-Value P/E10 Number Can Change (Slightly) Over Time.

Juicy Excerpt: A huge benefit of the new strategy is the discipline that it imposes on the investor. Investors following Buy-and-Hold strategies tend to be self-congratulatory when prices increase by 30 percent. They elected to follow a strategy that always calls for large stock allocations and they were rewarded (temporarily) by the market for doing so. The feedback they are receiving is telling them that they have this investing thing figured out! Investors in those circumstances don’t feel much of a need to look too closely into the question of whether those 30 percent gains are truly justified.

In contrast, Valuation-Informed Indexers start with a default belief that the market value should only increase by 6.5 percent real each year. They can of course go with some other assumption if they choose. There is no rule that says that a Valuation-Informed Indexer cannot decide for himself that the fair-value P/E10 number has risen to 17 percent or 18 percent or whatever. Still, the default belief in a 6.5 percent return grounds the process of assessing how much stock returns have increased in something real. When you are acting on a belief that stock returns cannot be known in advance, a 30 percent gain is not entirely shocking — it’s a big gain but the numbers say what the numbers say! A Valuation-Informed Indexer understands that the U.S. economy could grow sufficiently productive to support an annual gain of 7 percent or perhaps 8 percent but is highly suspicious of numbers showing a 30 percent gain. That’s a healthy skepticism!

“Bernstein’s Lie Is Almost a Charming One. He Is Pretty Much Holding Up a Sign When He Tells It That Says ‘Don’t Believe a Word I Say!’ You Are Capable of Seeing Every Lie That I See. YOU JUST DON’T WANT TO SEE THEM.”

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

You always seem to read everyone’s mind since you know what they are thinking and when they are lying. Perhaps you should have a second career as a mind reader .

Do you not know when politicians are lying to you, Anonymous?

We all do. Give me a break.

Ataloss sent Bill Bernstein an e-mail asking him if he agreed with me that the methodology used in the Old School retirement studies is analytically invalid or not. Bernstein said that “of course” the methodology was valid but that anyone who used the numbers generated by those studies to plan a real retirement would have to be out of his or her mind. Does that sound like straight shooting to you?

Bernstein’s lie is almost a charming one. He is pretty much holding up a sign when he tells it that says “Don’t believe a word I say!” I mean, come on.

The lie is easy enough to see. A child could see it. BUT ONLY IF HE CARED TO SEE IT.

You are capable of seeing every lie that I see. YOU JUST DON”T WANT TO SEE THEM.

You have a large percentage of the accumulated wealth of a lifetime rising on Buy-and-Hold. YOU ARE COMPROMISED. I could show you a mountain of lies told by the Buy-and-Holders and you would shrug your shoulders. You want it all to be true. So for you it is true.

The question is — How are you going to feel about all those lies after the next price crash. Suddenly, the lies will all become visible to you. Suddenly, this massive act of financial fraud won’t seem like such a big joke to you anymore.

The lies that Bernie Madoff told were obvious. Some very smart people lost money by investing in his fund. How did this happen? Being smart doesn’t make you immune from Get Rich Quick pitches. If anything, it makes you better skilled at rationalizing away the lies that would otherwise serve as warning signs.

You WANT to be tricked, Anonymous. There is nothing difficult in tricking somone who wants to be tricked.

I notice when people are lying by comparing what they say in different circumstances and checking whether the stories match up. Jack Bogle says that investors should use the historical data as a guide to how to invest. The data says that a 60 percent reduction in one’s stock allocation is needed when prices go from where they were in 1982 to where they were in 2000. But Bogle says that a reduction in stock allocation of 15 percentage points is plenty. Huh?

It doesn’t take any superhuman power to see that the people who advocate Buy-and-Hold strategies are telling lies (often to themselves as well as to others). I don’t need to be a mind reader to pick up on lies that obvious. But I do need to know what the last 33 years of peer-reviewed research tells us about how stock investing works.

That’s why the Buy-and-Holders feel such a burning hate toward anyone who reports on what the peer-reviewed research says. The story told by the peer-reviewed research and the story told by the Buy-and-Hold advocates do not match. It’s not a close call. The two stories are OPPOSITE stories. One says that price always matters when buying stocks. The other says that it is okay to ignore price when buying stocks. Huh?

I hope that helps a bit.


“The Way to Do It Is to Add a Note to the Retirement Study Saying: ‘This Study Does Not Contain an Adjustment for the Valuation Level That Applies on the Day the Retirement Begins. There Is Peer-Reviewed Research Indicating That This Is an Important Factor. Studies Containing Such Adjustments Produce Very Different Numbers.’ When You Do It That Way, You Are Not Deceiving Anyone.”

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

Ok, but again, being able to purchase a single premium immediate annuity late in life allows for a higher SWR. So would you agree all studies not including this critical factor get the numbers wildly wrong and should be corrected immediately? Simple question.

See for example:

“The results were rather striking; on a Monte Carlo basis, the 4.5% withdrawal rate for a moderate growth portfolio had a 12.6% risk of depletion, while annuitizing 25% of the assets dropped the risk of failure to 7.8% and annuitizing half the portfolio dropped it down to only 3.3%”


I don’t say that a study that fails to account for the effect of buying an annuity is wrong or needs to be corrected.

But I DO say that someone who employs death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs to block people from learning about the effect of buying an annuity is guilty of financial fraud and is on his or her way to life in a prison cell.

Intent to deceive is an element of the crime of financial fraud.

The person who leaves out a discussion of annuities in an SWR study has no intent to deceive. So there is no crime. If that person engages in the behaviors listed above, then he DOES evidence an intent to deceive. Then you have a crime.

John Greaney did not wake up one morning and say to himself:”I know what I will do. I will craft a retirement study that gets all the numbers wrong and thereby cause millions of people to suffer failed retirements and bring down the U.S. economy.” He made a perfectly understandable mistake. If he had acknowledged that mistake, we all would have moved forward in our understanding of these issues and we would not be living through an economic crisis today. It is the cover-up that is the crime here, not the mistake.

You are suggesting that people can leave things out of studies and that that’s okay. I don’t agree that something as big as the valuations factor should ever be left out. But I also believe that there are millions of people who do not view valuations as being as important as I believe them to be and I obviously believe that those people have a right to produce retirement studies. There are lots of people who like Greaney’s study and the other Old School SWR studies even after learning that those studies do not contain an adjustment for the valuation level that applies on the day the retirement begins. I believe that there is a way for those people to produce and share the retirement studies that they want to produce and not end up going to prison.

The way to do it is to produce the study the way that Greaney did and then to add a note saying: “This study does not contain an adjustment for the valuation level that applies on the day the retirement begins. There is peer-reviewed research indicating that that is an important factor. Studies containing such adjustments produce very different numbers. To get a full explanation of why some people think the valuations factor is so important, please go to the page [provide link here] where my friend Rob Bennett sets forth his Retirement Risk Evaluator calculator and read the materials at his site explaining why he thinks this is a better way to identify the safe withdrawal rate.”

When you do it that way, you are not deceiving anyone. You are presenting the case for what you think the SWR is with your own work but you are also putting your reader on notice that there is another school of thought in the academic community re how such calculations should be made. You are shifting the burden to the reader of the study to decide which model to follow when crafting his retirement plan. Take subterfuge out of the picture and you take prison sentences out of the picture.

It is not possible to make sense of any of this without taking into consideration the broader context in which all the events that have taken place have taken place. Humankind did not come into existence with complete knowledge of how stock investing works. We have been picking things up day by day for a long time now. We achieved a huge advance in 1965 when Eugene Fama discovered that short-term timing never works. I view that insight as the second most important insight in the history of investing analysis.

Fama made a mistake. Bogle had not yet founded Vanguard. So long-term timing was not a practical option in 1965. So Fama did not think to examine whether it works or not. If he knew what Shiller was going to discover years later, he would have announced his finding by saying that “Short-term timing never works.” But he didn’t appreciate the significance of the distinction between short-term timing and long-term timing. So he just said: “Timing never works.” That got us onto a path that led to an economic crisis more than 40 years later.

If these matters were not so important, the mistake would have been corrected in 1981, when Shiller showed that long-term timing always works and is always 100 percent required. But these matters are terribly important. They affect people’s life savings and people’s hopes for their futures. An entire industry had been built up promoting the Buy-and-Hold strategy between 1965 and 1981. The good and smart people who worked in this industry were too embarrassed to acknowledge their mistake. A common human defense mechanism that comes into play in such circumstances is cognitive dissonance. They rationalized the mistake away. They told themselves that it wasn’t that big a deal. And then they rationalized not pointing out the defect in their strategy to others on grounds that it was not such a big deal.

I believe that it is a very, very big deal. I believe that the mistake needs to be acknowledged and corrected.

Millions of good and smart people don’t see it. They think that Buy-and-Hold works well enough.

The answer is not to suppress discussion of the differences between the two models. If it is ENCOURAGE exploration of the differences between the two models. It is by talking these things over that we all learn. I believe that the result of a national debate is that we all are going to become Valuation-Informed Indexers. But I am of course as prone to errors and misunderstandings as any of my other fellow humans. So I have to acknowledge that there is at least a theoretical possibility that it could go the other way, that the national debate could lead to an enhanced confidence in the merits of Buy-and-Hold.

Either way, having the debate is a positive. If the dominant model is flawed, we need to warn people of the dangers of following that model. If the dominant model is perfect in every way, people need to hear that so that they will appreciate the dangers of going along with what this Shiller fellow says and what this Bennett fellow says.

It is not possible that the right thing for me to do here is to agree to keep quiet about what I have learned about what follows from Shiller’s “revolutionary” (his word) findings. All of the scores of powerful insights that our communities have developed together (with me playing the lead role in encouraging the debate to go forward) need to be debated on a national scale, at every discussion board and blog on the internet.

Will there still be prison sentences after that is done?

If I had the power to make a deal where we would drop all the prison sentences in exchange for having the national debate, I would take that deal in two seconds. I would be a fool not to do so for a host of reasons.

I don’t have that power, Anonymous. I can advance lots of words making the case that we are all capable of making the sorts of mistakes that you Goons made and that we all should be merciful in our judgments and all that sort of thing. I am 100 percent happy to do that. So my willingness to do that is not an issue here.

I do not get to set the length of the prison sentences. That is done by the millions of middle-class Americans who are in the process of seeing their retirements fail. I have obligations to those people every bit as strong as my obligations to you Goons and to the Wall Street Con Men. I need to BALANCE the competing interests.

I am 100 percent happy to do everything in my power to help you out. That’s not an issue. But you have to understand that my power to help you out diminishes with every passing day that the Ban on Honest Posting remains in place. You are going to go to prison not just because you committed all the elements of the crime of financial fraud. You are going to go to prison because you committed all the elements of the crime of financial fraud AND because millions of people are angry about it.

There are not millions of people angry about it today. That’s why you are not in prison today. There are going to be millions of people angry about it following the next crash. I don’t believe that at that time any words that I put forward to appease the anger of those millions of people are going to make much difference. So the time available to us to work together to get your prison sentence shortened a bit is running out. That’s my sincere take.

I hope that all helps a bit.

Please let me know if you want to work together. If you do NOT want to work together, the sensible play for you is just to wait this thing out. If I am wrong and Bogle is right, we probably will not even see another price crash. So you are off the hook in that case. I obviously believe that we are going to see a crash and so I frequently warn you and others of the dangers of letting this thing play out in the way in which it is appears likely it will play out. But if I am wrong, nothing that I say matters, you know? It’s your life. Please feel free to play it whatever way you think best. But please understand that I intend to do the same from my side of the table. I think it would be best for all of us to come clean re these matters by the close of business today.

My best and warmest wishes go out to you and yours during this holiday season. Love is the answer. It’s not a close call.


Site Visitor to Rob: “Historically, Valuations Have Had Some Effect on Future Prices, Some of the Time. Shiller Will Tell You That. Vanguard Will Tell You That. Fama Will Tell You That. There Are No Two ‘Opposite’ (Your Word) Views.”

Set forth below is the text of a comment recently put to another thread at this site by a regular site visitor, followed by my response:

Can you name a single person who’s either pure BH or pure VII as you define them? A person who would never, ever change his allocations under any circumstances, or one who is forced to mechanically make changes based on valuations, with no consideration of other factors?

Of course you can’t. No such person exists. Even theoretically there’s no sane person who believes valuations can never have an effect on future returns, or one who says they must always. The data is clear – historically, valuations have had some effect on future prices, some of the time. Shiller will tell you that. Vanguard will tell you that. Fama will tell you that. There are no two “opposite” (your word) views.

The retirement study posted at John Greaney’s web site does NOT contain an adjustment for the valuation level that applies on the day the retirement begins. Greaney often referenced that study in his posts at the Motley Fool board. I put forward a post on the morning of May 13, 2002, that asked whether we should be considering valuations when we identified the safe withdrawal rate. You say here that: “Historically, valuations have had some effect on future prices, some of the time.”

So should SWR studies include an adjustment for the valuation level that applies on the day the retirement begins or not? I say they should. What do you say, Anonymous?


“For So Long as Valuation-Informed Indexers Defer to the Intimidation Tactics of the Buy-and-Holders and Hold Back from Giving Complete and Clear Explanations of Why We Favor the Theory Behind VII, Buy-and-Hold Will Remain Dominant and VII Will Not Experience the Growth That I Want to See It Experience.”

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

You’ve already agreed that nobody actually uses these strategies as you define them. Instead, everyone makes individual allocation decisions based on their unique situations. So why keep talking about two imaginary strategies?

You overstate things as is the usual Goon practice, Anonymous.

You are right (and it is an important point) that few investors follow Buy-and-Hold dogmatically or Valuation-Informed Indexing dogmatically. Some do. But they are in the minority.

But there are many investors who follow a somewhat softer version of Buy-and-Hold (what I call Strategy C). And there are a good number (but a much smaller number) who follow a somewhat softer version of Valuation-Informed Indexing (what I call Strategy D).

Neither of the two strategies are “imaginary.” Both have had great influence. Buy-and-Hold has had far more influence than Valuation-Informed Indexing thus far. But it is my belief that Valuation-Informed Indexing will have more influence in the future. It was the intent of the people who developed both strategies to develop a research-based strategy. That is a huge advance. So both strategies are of huge historical importance. Both increased our knowledge of how stock investing works. I don’t see how it is fair to refer to either strategy as “imaginary.”

I DO think it would be fair to say that the vast majority of investors find limited appeal in theory. Most investors live in the practical realm. They want to know what works, not what the research says. I think it is a mistake to ignore the theoretical. I think that the research can be a great guide to learning what works in the long term and that placing too much focus on what works can cause one to place too much focus on short-term results. But I do think that it is fair to say that most investors do not focus too much on the theoretical appeal of either of the two models.

Even investors who focus on the practical are unknowingly influenced by the theoretical. You believe with all your heart, mind and soul that the numbers on your portfolio statement are real. That is probably largely because you are drawn to the practical and accepting a number on a portfolio statement as real is a practical thing to do. But the bigger reality is that, if all the experts in this field told you that you need to make an adjustment to those numbers to obtain accurate numbers suitable for serving as the basis of your financial planning efforts, you would come to view the idea of making the adjustments as a practical thing to do and would begin doing it.

The line between the practical and the theoretical is not a thick, bold line. The one realm bleeds into the other. Even people who think of themselves as not interested in theory are influenced by it because they are influenced by the teachings of others who are influenced by theory in a more direct way.

I mentioned the other day that there was a time when physicians used bleeding as a cure for all sorts of illnesses for which it is not an appropriate remedy. Say that you were a doctor in those days and that you had developed an effective cure not involving bleeding for an illness conventionally addressed with bleeding. If you tried to apply that cure, you would have been attacked by those using the bleeding cure. You would be viewed as a threat by them. It would be said that your treatment was “dangerous.” Patients who didn’t care at all for theory and just wanted to be cured would run from you because they would view your methods as “dangerous” from a practical standpoint even though your methods were the proper ones. The continued reliance on the discredited theory would be holding back progress by holding back acceptance of a perfectly practical course of treatment by causing it to be perceived as less than practical.

That’s where we stand in the investing realm today. The theory behind the Buy-and-Hold strategy has long been discredited. But in the practical realm Buy-and-Hold remains dominant. There are few pure Buy-and-Holders. But the vast majority of investors follow stock allocation strategies more in line with the theory behind Buy-and-Hold than in line with the theory behind Valuation-Informed Indexing.

That’s what I want to see change. I want people to follow the strategies that appeal to them. But I want them to be able to hear about the strengths and weaknesses of both theories before making a choice. So it is important to me that I and all other community members who believe in Valuation-Informed Indexing be permitted to post honestly. If we all post honestly, I believe that knowledge of how the VII theory works will spread over time and stock allocation choices that are at least somewhat influenced by that theory will become more popular. For so long as we defer to the intimidation tactics of the Buy-and-Holders and hold back from giving complete and clear explanations of why we favor the theory behind VII, Buy-and-Hold will remain dominant and VII will not experience the growth that I want to see it experience.

I hope that helps a bit.


“People Don’t Shift to a New Model Because They Are Exposed to Some ‘Information’ About It. Conversion Is a More Gradual Process. People Need to Be Permitted to Talk Things Out. With LOTS of Different Proponents of the New Idea. They Need to Be Able to Challenge Those People, To Ask Lots of Hard Questions. They Need to Be Able to Watch to See the Extent to Which Friends of Theirs Are Convinced Over Time.”

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

What new information do you have that you believe people have not already heard from you?

That’s a super great question, Anonymous.

It’s not information that people need. Everything that I say is rooted in information supplied by Shiller back in 1981. People can hear the phrase “valuations matter” 10,000 times and not have it have any influence on how they invest.

What people need is discussion. People need to talk these things through.

And people need exploration. Most people do not today appreciate the many far-reaching implications of the finding that valuations matter. One of the reasons why I posted so frequently is that the finding that valuations matter affects every strategic question that comes up in stock investing. I want to show people that this advance in our knowledge changes everything we once thought we knew about how stock investing works. It is not a single information bit that I am supplying. It is an entirely new way of thinking about the stock investing project. People can only come to appreciate how important this is if Valuation-Informed Indexers show them how it applies in hundreds of different circumstances.

And people need multiple sources of confirmation of the insights. I am not going to be the only one posting about Valuation-Informed Indexing in days to come. We need to have THOUSANDS of posters doing this. People are just not going to believe what one person says and for good reason. We need to hear Bogle comment on VII. And Bernstein. And Burns. And on and on and on and on.

Those people are not going to offer only positive comments. That’s good. People will not learn from hearing only positive comments. People need to hear positive comments from posters who believe that positive comments are warranted. And people need to hear negative comments from posters who believe that negative comments are warranted. That’s how learning experiences work. We need a National Learning Experience re the last 33 years of peer-reviewed research in this field and re how the findings of the post-1981 research relate to the findings of the pre-1981 research (which also contains many powerful insights, to be sure).

Do you see?

There was a fellow named “Earnabuck” at the Bogleheads Forum when I posted there. He didn’t agree with most of my investing ideas. But he was a big defender of mine because he believed strongly that all posters should be permitted to post their sincere views. He said one time that he was present for the Motley Fool discussions and that at the time he agreed with Greaney but that over time he had come to agree with me that the valuation level that applies at the time the retirement begins must be taken into consideration in the calculation of the safe withdrawal rate.

That was an amazing statement.

The guy was obviously not biased against me. So when he agreed with Greaney, he was not being a Goon. And the guy was obviously smart. So why couldn’t he appreciate the simple point that I made on the morning of May 13, 2002, within one or two hours of the time I made it?

He couldn’t. That’s clear beyond any reasonable doubt.

The point is a painfully simple one. The price you pay matters when buying stocks just as it does when you buy anything other than stocks. Could anything be more obvious? But this guy really did not get it for a long, long time. It took him YEARS.

We do not lack for information, Anonymous. That is not our problem. Humans are not information processing machines. That’s not how they operate.

We need to talk about this stuff. Openly. Honestly. Bluntly.

We need to be friendly to those on “the other side.” We need to be respectful.

But we MUST all say what we truly believe. That’s how humans learn.

I could talk about this aspect of the question for a long, long time. So I am going to stop there unless you ask further questions.

But the question you are asking here could open all sorts of doors if you would ponder the matter a bit.

You Goons are not bad people. I do not say that.

The Wall Street Con Men are not bad people. I do not say that.

We all want the same things. We are all on the same side.

If you could LISTEN to what the other side is saying without so much defensiveness, you could learn some amazing things. In time you would come around.

Or not. I believe that you would come around. Perhaps I am wrong. If you did not come around, you would still gain from the experience. By letting the other side have its say and seeing that you were not persuaded, you would be confirmed in your current beliefs. You would over time become more confident in what you believe. Which is a big plus when you are following a strategy that you must stick with for it to work.

People don’t shift to a new model because they are exposed to some “information” about it. Conversion is a more gradual process. People need to be permitted to talk things out. With LOTS of different proponents of the new idea. They need to be able to challenge those people, to ask lots of hard questions. They need to ponder things over time. They need to be able to watch to see the extent to which friends of theirs are convinced over time. They need to try out different possibilities.

We have had the information we need for 33 years. Now we need to take it to the next step and start enjoying the big-time learning experiences that follow from it.


“Prison Sentences Protect Us From Our Darker, More Goony Selves. Take Prison Sentences Out of the Investing Advice Game and You Are Flooded With Investing Advice That Constitutes Financial Fraud and an Economic Crisis That Darkens Life for Millions.”

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

Rob, this prison sentence talk is just smelly garbage.

I don’t agree with you, Sensible.

The laws against financial fraud are part of our political system. Prison sentences are part of our political system. When I say that I love my country, I am saying that I think that our system is a good one. There is a reason why we have laws against financial fraud and there is a reason why we have prison sentences. It is to protect us from situations like this.

We should be enforcing our laws and putting people who violate them in prison. We should have started doing that a long time ago. Had we done that, we all would be in a much better place today.

Everything changed in 1981. If men were angels, Bogle would have given his “I Was Wrong” speech within a few weeks of when Shiller published his revolutionary research showing that valuations affect long-term returns. Bogle was working in this field. It’s hard to imagine that he didn’t hear something about this amazing research. He’s a very smart guy. So it is hard to imagine that it didn’t strike him that Shiller’s findings constituted a major challenge to the model for understanding how stock investing works that he had been promoting.

So he should have gotten up on a stage and said “I Was Wrong” or “Perhaps I Was Wrong’ or “It’s Beginning to Look As If I May Have Been Wrong About Some Things” or at least “I Don’t Really Think I Was Wrong But You Certainly Need to Know About This Research That Points in That Direction and We All Need to Be Exploring the Implications of This in Coming Days.”

He certainly should have said SOMETHING along those lines. Had he done so, lots of smart people would have gone to work and explored the question. Maybe the questions would have been resolved quickly, maybe not. We certainly would not have found ourselves in a situation where some guy whose only expertise in the field is that he figured out how to post stuff to the internet would on the morning of May 13, 2002, put a post to the Motley Fool site noting that John Greaney’s retirement study did not contain an adjustment for the valuation level that applied on the day the retirement began and we would have seen a nuclear explosion of abusive posts in response that would continue for 12 years to come.

So Bogle messed up. Big time.

Fine. But it wasn’t just Bogle who messed up.

Why didn’t journalists DEMAND that Bogle make some sort of speech?

Why didn’t economists put forward their own takes?

Why didn’t thousands of investment advisors integrate Shiller’s findings into their recommendations and write articles explaining why the new research changed our assessment of every strategic issue?

Why didn’t people develop new calculators?

Why didn’t the authors of the Trinity study include a warning in their retirement study that their calculations were all based on the pre-1981 research and that calculations done on the post-1981 research would yield very, very different numbers?

That’s the issue here. It wasn’t one guy who messed up. It was an entire society. Bogle messed up and most of us went along for the ride. Why?

Because there was so much freakin’ money to be made by doing so.

The Buy-and-Hold Lies generated $12 trillion in Pretend Money. That provides for a whole big bunch of marketing efforts. Every time another dollar of Pretend Money was created, someone was there to claim “credit” for it. “Hey, you have that dollar in your account because you believed the Lies that I told you! Stick with me, I’ll tell you even more Lies as time goes on and you can enjoy even bigger Get Rich Quick fantasies!” Those were the unspoken words spoken to millions of middle-class investors over and over again by the hustlers who continued to advocate Buy-and-Hold strategies for years and even decades after the peer-reviewed research showed that there is precisely zero chance that a pure Get Rich Quick approach could ever work for even a single long-term investor.

Humans are weak. Dangle $12 trillion in free marketing before their eyes and there is a good chance that they will do the wrong thing and rationalize away their ethical concerns. How does a society protect itself against something like that?

We protect ourselves with laws against financial fraud, Sensible. We protect ourselves with prison sentences.

That’s the wonderful role they play in our system. When we send people off to prison for massive acts of financial fraud, we help lots of people. We obviously help the millions of middle-class investors who need access to honest and accurate reports as to what the peer-reviewed research says. But those are not the only people we help. We help all the economists because we make it possible for them to do honest work. We help all the journalists because we make it possible for them to do honest work. We help all the investment advisors because we make it possible for them to do honest work. We help all the web site owners and bloggers and policymakers because we make it possible for them to do honest work.

We even help the freakin’ Goons! You Goons don’t want to go to prison. Had Motley Fool kicked John Greaney out on his rear end when he advanced his first death threat, John would not be on his way to a long stay in a prison cell today. He would have been banned from our community for six months. At that time, I would have put forward a post suggesting that we give him another chance to play nice and everyone would have agreed and that would have been that. Instead, he is in this horrible place today where he is going to prison himself and where a lot of his friends are going to prison with him. Huh? That’s a good development how?

That’s the magic of prison sentences announced at the proper time, Sensible. Prison sentences are our friends. They are an important part of our system. Prison sentences protect us from our darker, more goony selves. Prison sentences are like “You’re out!” calls in baseball. They send a signal that you are doing something wrong and that you had better change the way you play the game if you want to win the World Series. Take “You’re out!” calls out of baseball and you ruin the game.

Take prison sentences out of the investing advice game and you find yourself flooded with investing advice that constitutes financial fraud and an economic crisis that darkens life for millions.

Thousands of our fellow community members have expressed a desire that honest posting on the last 33 years of peer-reviewed research be permitted at every discussion board and blog on the internet. Their voices are going to be heard. They are going to get what they want. I am going to see to it.

They are going to get what they want through the magical power of prison sentences. Prison sentences are wonderful stuff in the right circumstances. The announcement of your prison sentence will permit millions of good people to learn what they need to learn to enjoy far higher returns than they ever imagined possible while taking on far less risk than they ever imagined possible. That’s amazing, life-affirming stuff. We couldn’t do it without our laws against financial fraud and without our willingness as a society to send you and your Goon pals off to prison for a long, long time.

That’s the system that I love. That’s the country that I love.

Prison sentences for Goons smell very, very, very sweet.

It is goonishness and Buy-and-Hold strategies that are the foul smelly stuff causing so much human suffering. Yucko!

We’re on the one-yard line. Perhaps another year. Perhaps two.

Patience, Grasshopper! We’re all going to be famous! It’s all going to turn out for the best, just as John Walter Russell predicted many years ago! With every day that passes we inch a bit closer to that final wonderful paragraph of the story at which I peeked before working up the courage to advance that famous post of the morning of May 13, 2002.

Three Cheers for Prison Sentences! Three Cheers for Putting You Goons Away for a Long, Long Time!

Hang in there, man. It gets better. A LOT better. Yes, even serving your time in prison is better than living out the rest of your days with the prospect of a future prison sentence handing over your head.

My take.