“Buy-and-Hold Is Not Just a Bad Investing Strategy. It Is a Threat to the Survival of Our Free-Market Economic System. I Love My Country. I Want My Two Boys to Be Able to Grow Up in the Same Sort of Country That I Grew Up In.”

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

Rob, serious question here: do you think you’re obsessing about this topic? I agree with the idea that you believe in: buy and hold isn’t the best way to invest. Seriously, though, you must’ve thought to yourself, at least a few times…..that “perhaps I could broaden the range of topics beyond the one idea I talk about daily….that buy and hold is not the best way to invest.” ?

My primary message is not: “Buy-and-Hold is not the best way to invest.”

My primary message is: “Honest posting should be permitted on every discussion board and blog on the internet so that we can all discover together whether Buy-and-Hold is the best way to invest.”

Do you see the difference?

If we permit honest posting, we will have thousands of good and smart people helping us to learn the best way to invest. We can’t possibly go wrong with all that help.

For so long as the Ban on Honest Posting remains in place, we are at the mercy of the Wall Street Con Men. It’s all about making a buck and there is no place in this field for people of personal integrity.

I didn’t write about investing for the first three years in which I posted at Motley Fool. I was very popular. I was doing good and important work and I was happy about it. I have never been “obsessed” about investing issues. I could pretty much take or leave discussions of investing, all else being equal.

But all else is NOT equal. My “obsession” began on the evening of August 27, 2002, when Greaney threatened to kill my wife and children if I continued to “cross” him by posting honestly re safe withdrawal rates. And when 200 of my fellow community members endorsed his post.

That ain’t right, James.

Those people are in pain.

They need our help.

The people who promote Buy-and-Hold are also in pain. I have great respect for these people. I have learned wonderful things from them and I care about them. I want them doing good, clean, honest work again. I know that deep in their hearts they want that for themselves too. I don’t have any doubt about it.

Buy-and-Hold is not just a bad investing strategy today. It is a threat to the survival of our free-market economic system. It is also a threat to the survival of our political system. You saw the reaction to the economic crisis (caused by the continued promotion of Buy-and-Hold strategies for 33 years after the peer-reviewed research in this field showed that there is precisely zero chance that Buy-and-Hold can ever work for a single investor) on both the left (the Occupy Wall Street Movement) and the right (the Tea Party Movement). We are likely going to see something ten times worse following the next price crash, a price crash that will put us in the Second Great Depression if we don’t open the internet to honest posting soon after it unfolds.

I love my country, James. I want my two boys to be able to grow up in the same sort of country that I grew up in. One with our economic system. One with our political system.

I have a funny feeling that I am not the only one who wants that.

I have a funny feeling that you want that.

To get it, we need to be able to stand up to the Wall Street Con Men and their Internet Goon Squads when they push their smelly Buy-and-Hold garbage. I understand that you (and lots of others) are afraid. But there is no other way.

I am afraid too. I am just like you.

Do you want to know the difference?

The difference is that I am even more afraid of what happens to us all if we continue to duck this problem.

I do this not just for me. I do it for you. And I do it for my boys. And I do it for the Goons. And I do it for the Wall Street Con Men. And I do it for the millions of middle-class investors whose lives are in the process of being destroyed.

I wish someone else would do it, you know? It’s not the most fun job in the world. If someone else would step forward, that would make me very happy.

Do you see someone else stepping forward?

Someone needs to do this job. No one else has stepped forward. So I continue to give it my best shot. I can do no more and I can do no less.

None of the other good stuff that we all enjoy continues to exist unless we set this right. We all want to see it set right. But someone has to get the ball rolling in the right direction for good things to happen. It seems that somehow the Fates or God or Evolution assigned me to that job. Blame them, you know?

I love my country.

That’s the bottom line here, James.

That’s the reason for the “obsession.”

I wish you all good things.

Rob

Valuation-Informed Indexing #206 — When We Say That the Market Is Smart, We Are Flattering Ourselves

I’ve posted Entry #206  to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called When We Say That the Market Is Smart, We Are Flattering Ourselves.

Juicy Excerpt: The market is comprised of people who own stocks. The market is us. When we argue that the market is smart, we are flattering ourselves.

The only way that the market could be smarter than the rest of us is if the people who comprise the market were smarter than the rest of us. Rich people own more stocks than people who possess low or moderate amounts of wealth. So, if you believe that rich people are smarter than people of low or moderate wealth, it would not be unreasonable to believe that the market is smarter than the rest of us.

But you don’t often hear people saying “rich people think inflation is headed upward” to support their arguments. The idea behind claims that the market believes something is that there is some ruthless truth-telling quality about markets that make their beliefs especially credible. I don’t see it. Markets are comprised of people and people get some right and some wrong regardless of whether they participate in markets.

“My Guess Is That Jack Bogle’s Confidence Level in Buy-and-Hold Is Something in the Neighborhood of 70 Percent. Enough to Permit Him to Rationalize That It Is Okay to Continue to Promote the Concept. But Not Great Enough to Justify Him Not Telling Every Person Who Comes to That Board About His Doubts.”

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

I suspect you are implying that the bogleheads thread is missing your input. Is that correct?

No, that’s not correct.

The thread is missing the honest input of THOUSANDS of good and smart people who should be contributing to that board community in an honest way but who today do not feel safe doing so.

Let’s take one hugely important example — my good friend Jack Bogle.

Jack obviously knows that Yale Economics Professor Robert Shiller has published research showing that there is precisely zero chance that Buy-and-Hold could ever work for a single long-term investor, right? WHY THE HECK ISN’T HE TELLING PEOPLE THAT AT THAT BOARD IN PLAIN AND SIMPLE AND CLEAR AND DIRECT LANGUAGE?

Has my good friend Jack gone fuckin’ insane?

Has he?

That’s a fair question, isn’t it?

Jack should have come out in 1981 and gave a speech saying that there was new research that cast doubts on the Buy-and-Hold strategy as it had been developed in its first-draft form by Bogle and the other Buy-and-Hold Pioneers. Had he done that, there would be no problem today. Had he done that, we would all be Valuation-Informed Indexers today.

Jack didn’t do that. He is one of the flawed humans. He messed up.

Okay.

So what do the rest of us do about that?

We could cover up for Jack, right? That might work for a few years, right?

But there’s a downside, isn’t there?

If we engage in a cover-up, we are engaging in financial fraud, a felony under the laws of the United States. We land in prison somewhere down the line. Perhaps the cover-up idea is not our best thought! Just perhaps!

Are there any other options?

There are.

The other option is to come clean.

That’s what I proposed on the morning of May 13, 2002.

Would there have been prison sentences had we opened the entire internet to honest posting on the morning of May 13, 2002?

I don’t think so. It is possible that there were some terrible things that happened before that date that I don’t know about and that I am wrong about this. But, going by what I know, there would not have been prison sentences if we all had come clean on the morning of May 13, 2002.

How about today?

I don’t see any way to avoid prison sentences today. But I am not God. Perhaps I am wrong. It has been known to happen.

Does it even matter?

We are all obviously better off if we come clean today than we will be if we come clean tomorrow. So let’s make it happen today, you know? Why the f not?

I don’t know how much confidence Bogle has in Buy-and-Hold.

My confidence is zero. I don’t believe that his confidence is zero. If it were zero and he continued promoting it, he would be The Frank Underwood of Personal Finance, a monster. I do not think of my dear friend Jack as a monster. So I do not view it as even remotely possible that his confidence is zero.

How about 100 percent? Could Jack’s confidence level in Buy-and-Hold be 100 percent?

No, that’s not possible. If it were 100 percent, he would be happy to hear people express contrary views and he obviously is not even a tiny bit happy to hear people express contrary views. So we can rule out 100 percent.

It’s not 0 percent and it’s not 100 percent. It’s something between those two.

Could it be 50 percent?

Perhaps.

I don’t know.

I cannot see into Jack’s mind.

My guess is that Jack’s confidence is something in the neighborhood of 70 percent. Enough to permit him to rationalize that it is okay to continue to promote the concept.

BUT NOT GREAT ENOUGH TO JUSTIFY HIM NOT TELLING EVERY PERSON WHO COMES TO THAT BOARD ABOUT HIS DOUBTS!

My good friend Jack has to tell us about his doubts. He MUST do this. Or he will go to prison too. And that is just too, too, too sad.

Do you see, Anonymous?

We don’t just need Rob Bennett contributing honestly to the Bogleheads Forum. We need Jack Bogle contributing honestly to the Bogleheads Forum.

And Bill Bernstein.

And Wade Pfau.

And Larry Swedroe.

And Scott Burns.

And J.D. Roth.

And Mike Piper.

And Carl Richards.

And Michael Kitces.

And Bill Schultheis.

And on and on and on and on and on.

We need EVERYONE contributing their honest thoughts to every investing board and blog on the internet.

Do you see?

Rob

“The Research Is Not Freakin’ Human! The Research Doesn’t Have a Get Rich Quick Urge Residing Within It. So the Research Doesn’t Fall for All the Foolish Fantasies That We Humans So Often Fall For. That’s Why We Are Able to Reduce Risk by 70% Just By Being Willing to Abandon the Buy-and-Hold Fantasy.”

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

I don’t know Rob, the ability to make guesses about the future and get them wrong doesn’t seem like a very valuable skill.

It’s not, Anonymous. We couldn’t possibly agree more.

But people have been doing it since the beginning of time, haven’t they?

That’s why I love the idea of rooting one’s strategies in the peer-reviewed research so freakin’ much!

Doing that gets you out of the realm of the subjective and brings you into the realm of the objective.

The Buy-and-Hold Pioneers were 100 percent right about that one. That’s why I love them so darn much. That’s why I want to bring Buy-and-Hold back to what it was in its early days — a research-based investing strategy.

I intend to continue to make guesses about the short-term future. I’ll probably get most of them wrong. Perhaps I will stumble onto a gold mine with one of them someday and we will all benefit. Perhaps not. The key, though, is that I will always ALSO continue advocating the first research-based strategy. And that means that there will always be plenty of people who will know not to pay too much attention to those subjective short-term guesses because the core of a long-term investing strategy has to be the peer-reviewed research, which as of today tells us that short-term guessing doesn’t work.

You’re engaged in short-term guesswork every day that you wake up and leave your Buy-and-Hold strategy in place, Anonymous. There’s now 33 years of peer-reviewed research showing that Buy-and-Hold can never work for a single long-term investor. Yet you solider on. Why?

Because there’s a Get Rich Quick urge that resides within all of us that tells us to ignore the research and to fall for the illusion that we will this time manage to pull off something that has never been pulled off before — to invest all our retirement money pursuant to a pure Get Rich Quick approach and not live to regret it sooner or later. Good luck with that!

We can’t do it.

My guesses often turn out wrong. So do Bogle’s. So do Shillers. So do yours.

There is only one strategy that has never failed for 140 years running. The research-based strategy.

Why? Because the research is not freakin’ human! The research doesn’t have a Get Rich Quick urge residing within it. So the research doesn’t fall for all the foolish fantasies that we humans so often fall for.

That’s why we are able to reduce risk by 70 percent just by being willing to abandon the Buy-and-Hold fantasy, Anonymous. It is the Buy-and-Hold fantasy, the idea that subjective guessing games might work out this time even though they have never before worked out, that is the cause of most of the risk of stock investing. It turns out that not only is Get Rich Quick not the solution, Get Rich Quick is actually the problem!

I am sure.

When I guess, I call it guessing. I don’t shift to a pure Buy-and-Hold strategy because I made one or two lucky guesses. Yes, I speculate in columns. And, yes, it appears that my track record with the speculation stuff is no better than the track records of the thousands who have gone before me. But at least I don’t advocate speculative investing strategies. I advocate Valuation-Informed Indexing. I advocate the true research-based stuff.

Do you see how that makes a difference?

It’s harmless fun to write a speculative column. You hurt millions of people when you put fantasy numbers in a retirement study and mislead people into thinking that it is based on anything real.

You don’t see me threatening to kill your wife and children because you pointed out that one of the silly predictions that I made in my column didn’t work out, do you?

That’s the difference between me and John Greaney. John Greaney is a Buy-and-Holder. I am not. So my ego is not wrapped up in all the subjective Get Rich Quick garbage. I can laugh at my mistakes. John has to cover his up out of shame. Yuck! Not this boy. Find somebody else, you know?

I wish you all good things, my long-term subjective fantasy-following Goon friend.

Rob

“We Don’t Want to Admit to Ourselves That We Have Fallen for a Get Rich Quick Scheme. The Hard Part Is the Part Where the Person Comes Clean WITH HIMSELF. Once We Can Become Honest With Ourselves About How We Are Not Nearly As Smart As We Once Pretended We Were, All Sorts of Good Things Become Possible.”

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

“When people work up the courage to call someone out on a discussion board, they will also work up the courage to file lawsuits and to demand criminal prosecutions. Why wouldn’t they?”

A snarky note on a message board requires no effort, no intelligence, no validity, and virtually no time. There are many orders of magnitude between that and a successful lawsuit or criminal prosecution. If you cannot understand that, then there really is no common point of reference to discuss anything with you.

There was nothing even a tiny bit snarky about the comments in which people called Taylor Larimore out on his dishonesty, Seriously. Most of the people who made those comments liked the guy and admired the guy. They had kept quiet about their doubts about lots of things he said for years. They were worried about what their fellow community members would think of them after they spoke their minds. It took a lot for them to work up the courage to do what they did. Their comments were rooted in love, not snarkiness.

I know how those people feel. It took me a lot of time to work up the courage and love to call John Greaney out on his b.s. And it took me a lot of time to work up the courage and love to call Mel Linduaer out on his b.s. And it took me a lot of time to work up the courage and love to call Jack Bogle out on his b.s.

If people can work up the courage and love need to take on Larimore and Lindauer and Greaney and Bogle on discussion boards, they can work up the courage and love needed to file lawsuits and to demand criminal proceedings. It certainly takes more work to bring a lawsuit. Obviously. But there are huge benefits to be had by bringing these lawsuits. We are talking about people who will have lost most of their life savings. Are you saying that no one will be able to work up the energy to file a lawsuit to obtain recovery of most of his life savings? Huh? That does’t make even a tiny bit of sense.

Bernie Madoff is in prison today. Someone must have worked up the energy to make that happen. The 13-year cover-up has destroyed the lives not of thousands but of MILLIONS. I have a funny feeling that there will be no shortage of people working up the energy to take action.

The hard thing is working up the courage to violate the Social Taboo. That’s been the story re these matters going back to the morning of May 13, 2002. Get Rich Quick investing strategies are cons. We LOVE them. Love them, love them, love them. It’s in our human nature to fall in love with Buy-and-Hold/Get Rich Quick investing strategies. But it is also in our human nature to feel great shame when we fall for such garbage. So we HATE coming clean. We hate it, hate it, hate it.

The story of the past 13 years is that it is very, very, very hard for us to work up the courage to act. We don’t want to admit to ourselves that we have fallen for a Get Rich Quick scheme. And we don’t want to call out our friends and neighbors and co-workers for doing so. We don’t want people getting mad at us for calling them “fools,” which is what we are doing when we point out that someone has followed a Buy-and-Hold/Get Rich Quick investing strategy. So there is a big wall to climb in getting these lawsuits filed.

But the hard part is not the filing of the papers. The hard part is working up the courage to say out loud the words “that is a big pile of smelly garbage.” Take a look at my work. I say those words freely and plainly and frequently today. But it wasn’t like that back in May 2002. I was tentative then. I was cautious. I felt uneasy going to the places to which I was going. That’s how the people who called out Taylor on his trickery felt. And they were the ones who had worked up the courage to go that far. That was a minority of the board population even in the days when the P/E10 level was 13. Most have never gone that far or anything close to it.

But the feeling spreads.

When one person works up the courage to violate the Social Taboo, it helps others form the courage needed.

The feeling of tentative courage spreads and spreads and spreads. Then it becomes less and less and less tentative. Then people actually become PROUD to be telling the truth and to be helping people rather than destroying their lives.

Filing a lawsuit is nothing to someone who has lost most of his life savings and who now sees that it is because he was tricked and who has thousands of friends encouraging him to do the right thing. It is hard to get from Point A to Point B. But the hard part is not the filing of the papers. The hard part is the part where the person comes clean WITH HIMSELF. Once we can be honest with ourselves about how we are not nearly as smart as we once pretended we were, all sorts of good things become possible.

Or so Rob Bennett believes, you know?

I believe all these things will happen. But I am not God. I can never be 100 percent sure. We are all just going to have to wait and see how things play out.

I know that I am happy to be on the side that I am on. That’s the one thing that I can say with 100 percent certainty. I love my country. I feel good in a very deep place to know that I am fighting to PROTECT her, not to destroy her.

I hope that all that makes at least a measure of sense to your Goon ears.

My best and warmest wishes to you and yours, my old friend.

Rob

“Following the Next Price Crash, You Will See People Directing Their Mental Energies to Concocting All Sorts of Overly Negative Appraisals of What the Buy-and-Holders Did. In Those Days, People Will Be Saying that Bogle INTENTIONALLY Got It Wrong. Which Is a Take That Is As Emotional As Today’s Popular Take That He Did Not Get It Wrong At All.”

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

Unfortunately, analogies don’t make an invented reality any less invented.

The purpose of the analogy is to help people understand what is going on, Anonymous.

No, the analogy by itself does not make what I am saying true. I certainly agree with that point.

The comment that I was responding to was something to the effect of “if Bogle were behaving in a corrupt manner, it would be easy to get people to pay attention to that.” I can see how someone would think that. I certainly thought it myself prior to May 13, 2002. I believed in Bogle. I believed in Motley Fool. I believed in all of my friends at the Early Retirement Forum. And on and on.

If you had told me at that time that Greaney would be successful in his efforts to get me banned at Motley Fool, I would have said you were nuts. All I would have to do is to contact the site administrator and tell him what Greaney was up to and that would solve the problem. That didn’t work out so well for me, did it?

Bogle is a great person. There is no one alive who believes that more strongly than I do. But he is a human and he is flawed and he makes mistakes and then he is tempted to cover up those mistakes rather than acknowledge them. That’s the reality.

People who love Bogle have a hard time accepting that. That’s why I mentioned Paterno. There are many people who love Paterno as much as the people who love Bogle love Bogle. Paterno’s accomplishments were real. He was also a great person. He was also flawed. When the stuff came out about what happened at Penn State, there were students who protested in support of Paterno. They didn’t care about the facts. They still loved the guy. Like it or not, that’s the way the humans are.

It’s my job to make sense of this for people. You have a hard time accepting that Bogle did anything wrong. So I am offering analogies to help you see that the people taken in by false claims do not appreciate at the time that they are being taken that the claims are false. The people who loved Nixon at the time he was being investigated couldn’t appreciate what the evidence showed because their real love for the man made it impossible for them to do so. The people who loved Paterno at the time things were coming out about Penn State couldn’t appreciate what the evidence showed because their real love for the man made it impossible for them to do so. The people who love Bogle today cannot appreciate what the evidence shows because their real love for the man makes it impossible for them to do so.

People are not rational creatures. That’s the core story here. People are rationaliZING creatures. They make decisions as to what to believe based on emotion. Then they concoct rationalizations to support those emotional choices.

The question is — What happens when the money disappears from their retirement accounts?

The emotions CHANGE. When that happens, you will no longer see investors concocting rationalizations for Buy-and-Hold. You will see the opposite. You will see people directing their mental energies to concocting all sorts of overly negative appraisals of what the Buy-and-Holders did. In those days, people will be saying that Bogle INTENTIONALLY got it wrong. Which is a take that is as emotional as today’s popular take that he did not get it wrong at all.

My job is to help people avoid both extremes. Bogle is a great man who made a mistake. That’s the reality. Both parts of that sentence are true and both parts of that sentence are important realities that need to be known by all investors.

The analogies do not make what I say so. The purpose of the analogies is to take the discussion out of the investing realm, where people’s emotional biases control them, and to show how the same basic dynamics have played out in other areas of human endeavor. People behave emotionally in ALL endeavors. Including investing. If you want to understand how investing works, you need to gain an appreciation of how things go down in other areas of human endeavor. Because it is the same humans who make decisions in both non-investing contexts and in investing contexts.

I hope that helps a bit.

Rob

Goon Poster to Rob: “Wow. You’re Claiming that Bogle Was Involved in the Threats to Get Someone Fired Unless They Wrote Fraudulent Research. That’s a Fairly Strong Accusation. Seems Like Something That Would Be Easy to Get Attention For, If True.”

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

Wow. You’re claiming that Bogle “was involved in the threats” to get someone fired unless they wrote fraudulent research.

That’s a fairly strong accusation. Seems like something that would be easy to get attention for, if true. If it’s not, of course, it seems to be rather reckless.

You were there when it happened, Curious. And you were of course involved.

Was it easy to get Nixon removed from office? There was LOTS of evidence of funny business for a LONG time before he was removed from office. Was it easy to get him removed?

Was it easy to get Joe Paterno removed?

Was it easy to get that bicycle racing guy removed?

It is HARD to get powerful people prosecuted for corruption, Curious.

It is VERY hard.

It’s hard enough that I would prefer that someone else do the job.

Guess what? No one else has stepped forward. Lots of people don’t think that it is as easy as you say.

Still, it has to be done.

And I do believe that I will pull it off.

People are going to be upset following the next price crash. Everything is documented. 100 times over.

There are thousands of people in this field who would like to come clean. Coming clean means telling the truth about Bogle. So I believe it is going to happen.

Truth be told, even Bogle has shown signs of wanting to come clean. It would not surprise me if I had his help. I believe his heart is going to melt following the next price crash.

We’ll see, you know?

You will play your cards and I will play my cards and Bogle will play his cards and we’ll see how it all turns out.

Can we at least agree re that much?

I am going to do everything in my power to expose every crime that has been committed. I will do it will love. But I will not back down. Zero chance.

Fair enough?

Rob

Goon Poster to Rob: “Not Considering a Variable in a Study Is Not Fraud and Doesn’t Require an Immediate or Any Update. If I Publish a Study Showing a Link Between Smoking and Cancer But Fail to Account for Family History, It May Be a Less-Than-Perfect Study But I Am in No Way Required to Amend That Study.”

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

Rob,

Not considering a variable in a study is not fraud and doesn’t require an immediate or any update.

If I publish a study showing a link between smoking and cancer but fail to account for family history it may be a less than perfect study but I am in no way required to amend that study.

You are welcome to post your own finding and highlight how the current study is insufficient. It seems like you have already done this Rob and now people are free to review everything available. That is how it works old studies aren’t updated new research is done on top of previous research and if it hold enough merit it just usurps the old as the gold standard. Maybe people aren’t willing to accept they need to consider Rob Bennett’s way of valuing stock and only Rob’s valuation when deciding on a safe withdrawal rate. Not including this very esoteric valuation metric from an internet troll into your study is not fraud.

If Greaney didn’t think it was fraud to lie about the numbers that people use to plan their retirements, he never would have threatened to kill my wife and children if I didn’t agree to stop reporting the accurate numbers. Give me a friggin’ break.

And if Bogle didn’t think it was fraud to continue telling people that the peer-reviewed research supports Buy-and-Hold 33 years after the research that once was thought to do that was discredited, he never would have gotten involved in the threats to get Academic Researcher Wade Pfau fired from his job unless he agreed to stop publishing honest research. Again, give me a friggin’ break.

I’m telling, Anonymous.

That’s the bottom line.

I’m telling the millions of people who will see a large portion of their retirement money disappear following the next price crash who did it to them. And I am going to help them organize and file lawsuits and get prosecutors to file criminal cases and all the rest.

That’s how our system works. There are always going to be some low-lifes who are going to be tempted to exploit human weaknesses for their personal profit. Fortunately, we were smart enough as a society to enact laws making financial fraud a felony. The announcement of your prison sentence will go viral. From that day forward, the rest of us will be learning about the first true research-based strategy, the strategy that lets us all reduce the risk of stock investing by 70 percent.

If you don’t think it is fraud to lie about the numbers that people use to plan their retirements, tell it to the jury, my old friend. It’s your jury that holds your fate in their hands. It’s your jury that you need to convince.

I want nothing to do with felonies and juries and prison sentences. It is my intent to continue to post honestly re safe withdrawal rates and scores of other critically important investment-related topics.

We’ll meet on the other side of the river following the next price crash and compare notes as to who has fell and as to who has been left behind. Fair enough, my long-time abusive posting friend?

Rob

“There Are Thousands of Researchers Who Would Love to Be Doing Honest Research Today. But, Like Wade, Many of Them Have Families and, Thus, Do Not Dare to ‘Cross’ My Good Friend Jack Bogle and the Other Wall Street Con Men Trying to Keep the Buy-and-Hold Fantasy Alive Another Week, Another Month, Another Year.”

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

who exactly is in the buy and hold mafia and how did they get so much power? do you have any real names of people who wield this type of influence over the universe?

Jack Bogle.

Bill Bernstein.

Larry Swedroe.

Scott Burns.

The owners of the Motley Fool site.

The owners of the Index Universe site.

The owners of the Morningstar.com site.

The owners of the Bogleheads.com site.

And on and on and on and on.

They got their power legitimately. There really was peer-reviewed research published in 1965 that appeared to many good and smart people to support the Buy-and-Hold concept. That wasn’t fraud. That was good stuff. I can go a step farther than that. I can say that that was heroic stuff. The Buy-and-Hold Pioneers took us out of the dark ages re our understanding of how stock investing works. Their huge insight — that short-term timing never works — is the second most powerful insight ever developed in the history of investing analysis. We all owe a great debt of gratitude to the Buy-and-Hold Pioneers.

It became fraud sometime between 1981, when Yale Economics Professor Robert Shiller published his “revolutionary” (his word) research showing that, while it is indeed so that short-term timing never works, long-term timing (price discipline) ALWAYS works and is ALWAYS 100 percent required for investors hoping to have any realistic hope of long-term success, and the morning of May 13, 2002. On the morning of my famous post pointing out the errors in the Old School SWR studies, the Buy-and-Holders responded with an insane level of defensiveness. So they obviously were aware on at least one level of consciousness that the research showed that Buy-and-Hold could never work. I have seen no evidence that they were aware of that in 1981. It appears to me that their confidence that Buy-and-Hold could be defended in civil and reasonable debate gradually declined over those 21 years until things got to the point where they stood on the morning of May 13, 2002. I can obviously only give personal testimony as to events that took place after that date.

They keep their power through the use of brutal intimidation tactics. The most obvious case is where they threatened to get Academic Researcher Wade Pfau fired from his job if he continued to publish and promote honest research. There are thousands of researchers who would love to be doing honest research today. But, like Wade, many of them have families and, thus, do not dare to “cross” my good friend Jack Bogle and the other Wall Street Con Men trying to keep the Buy-and-Hold fantasy alive another week, another month, another year.

The con men want to come clean. It was an honest passage in Bogle’s book that taught me that the Old School SWR studies were in error. Bernstein gave a partly honest response when one of you Goons sent him an e-mail asking if the methodology used in the Old School studies is analytically invalid. Swedroe stood up to Linduaer once and got himself banned from the Bogleheads Forum. Pfau wrote to the authors of the Trinity study and asked them to correct the errors in their study. And on and on and on.

The problem is that the Wall Street Con Men know that, if they come clean, they go to prison. Bogle should have acknowledged his mistake when Shiller first published the research discrediting the Buy-and-Hold Model. He rationalized not doing so. I presume that he told himself that it would all somehow work out. And now that 33 years has passed, it is 1,000 times harder for Old Saint Jack to work up the courage to say the Three Magic Words.

Everybody who works in this field knows that his career will be destroyed if he tells the full truth re these matters. So everyone keeps it zipped.

But keeping it zipped re financial fraud only causes the financial fraud to spread. Financial fraud is a cancer. The longer it continues, the more lives are ruined. The more lives that are ruined, the longer are the prison sentences that are ultimately assigned to those participating in the massive act of fraud.

My job is to bring it to an end and get us back to the original Buy-and-Hold idea — rooting one’s strategies in the peer-reviewed research.

I hope that helps a bit, Laugh.

Rob

“I Don’t Say That the Past Is Bound to Repeat. I Say That It Very Well Might and That Every Person Working in This Field Has a Responsibility to Let Millions of Middle-Class People Know What Will Happen to Their Retirement Money If That Turns Out to Be the Case.”

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

Hi Rob,

What would you do if you found someone operating a blog preaching an approach to investing with obvious flaws; who incorrectly confused correlation with causation; and who improperly believed that the past was bound to repeat itself?

Would you reach out to that person, try to engage them in a discusion of their beliefs in an attempt to illuminate them? Or would you just chalk it up to yet another kook with a website and move on?

What if, as a result of those conversations, that person said you were a goon who deserved jail time for their approach to investing?

What would you do — as a friend?

Ryan Howard plays first base for the Phillies. He was a great player at one time and was signed to a very big long-term contract. He is a horrible player today. But when people talk about trades the team may make, his name never comes up. People are embarrassed to talk about the subject because Howard is a nice guy who once was a great player and because there are no teams interested in taking him today.

Today the front office began to lower the boom. They brought up a possible replacement. And there there were several interviews in which the idea was put forward that they will be releasing before the beginning of next season. Now everything has changed. Now it is considered fair game to mention the realities concerning Ryan Howard.

That’s what is going to happen re Buy-and-Hold following the next price crash.

People are afraid to talk today because the Buy-and-Hold Mafia is powerful and there are still people holding out hope that we will not see another crash. But following the next crash someone big will say things out loud that lots of people have been thinking for many years now. And then everything will open up. People will be rushing for the exits.

Once the taboo is broken, things are never again the same.

When it turns, it turns fast.

Where will you be then?

I am the best friend you have in this world, Curious.

That’s the real deal.

I can help. But only if I get cooperation.

You do deserve jail time. Put yourself in the shoes of the millions of people in the process of suffering failed retirements. Or in the shoes of the millions of people who lost their jobs in the economic crisis.

I have the credibility on this issue to help you get your jail time reduced. And that’s obviously all that I have. I cannot put you in jail and I cannot keep you out of jail. I have no such powers. I can try to help, I can try to put things in the light most positive for you. That’s all I can do.

I haven’t confused correlation with causation. I have explained WHY valuations affect long-term returns. The new model is based on a new understanding of how the market sets prices. The new model is consistent with the data. The old model is not.

I don’t say that the past is bound to repeat. I say that it very well might and that every person working in this field has a responsibility to let millions of middle-class people know what will happen to their retirement money if that turns out to be the case. If you tell the truth while still promoting Buy-and-Hold, you are in good shape if we have a crash and in good shape if we do not have a crash. That’s where you should want to be. That’s sane. Because you don’t know for sure what is going to happen.

I don’t know with certainty what is going to happen either. I have my strong beliefs, just as you have your strong beliefs. The difference is that I have never blocked anyone from hearing the Buy-and-Hold story. Everyone knows the Buy-and-Hold story. You have blocked people from hearing the Valuation-Informed Indexing story. That puts you on the hook for losses if things don’t go as you expect.

The jury wil hear testimony re whether I am just a kook with a web site. Wade Pfau will be testifying. And so will lots and lots of others. And the testimony will be given FOLLOWING the next crash. At that time it won’t be just me saying it might happen. It will be a present-day reality. It will be in all the papers.

I love my country and I will continue to fight to protect her from you, Curious. That’ the bottom line here. I have a funny feeling that love of one’s country is a virtue that is going to be coming into style following the next price crash and that turning a quick buck may be viewed as less of a sign of the ultimate “success” in those days. We will see.

I naturally wish you the best of luck in all your future endeavors regardless of what investing strategies you elect to pursue.

When lots of others are saying that Old Saint Jack cannot get around on a fast ball anymore, I will still be singing his praises. I will be recalling to people the day when he really was something special. The word “friendship” means something to me, old friend.

Rob