Valuation-Informed Indexing #216: Did Shiller Change Anything?

I’ve posted Entry #216 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Did Shiller Change Anything?

Juicy Excerpt: But how much has the conventional advice on how to invest in stocks changed as a result of the “revolutionary” research that Shiller published in 1981 (and that has been confirmed many times in the three decades since).

Not at all.

If you are able to identify any changes, I’d be grateful if you would point me to them. My sense is that everything is pretty much the same. Shiller’s ideas have not been debated or discredited in any way. They have been ignored.

Valuation-Informed Indexing #215: The Difference Between a Model for Understanding How Stock Investing Works and an Investing Strategy

I’ve posted Entry #__ to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Difference Between a Model for Understanding How Stock Investing Works and an Investing Strategy.

Juicy Excerpt: The problem is that the people who engage in tactical asset allocation are not clear on when allocation changes should be made or how large they should be on how they will know whether the changes will be successful or not. I can easily imagine someone making a tactical shift downward when prices crashed in late 2008 and then another tactical shift upward when prices took off again (on grounds that the risk of a total economic collapse had passed). This is of course the opposite of the strategic shifts that a Valuation-Informed Indexer would make (we increase our allocations when prices drop and increase them when prices rise). But it is the sort of change that is made by someone who is thinking tactically rather than strategically.

“The Rob Bennett Who Read Irrational Exuberance the Second Time Possessed a Very Different Mind than the Rob Bennett Who Read It the First Time. There Were Scores of Insights that Shiller Planted in the Book That Skipped Right By Me When I Read It the First Time that I Jumped On When I Read It a Second Time.”

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

What specific texts did you study that Greaney and other Motley Fool members were unaware of? I am planning my own early retirement and would like to learn, as you did. Please don’t say “Irrational Exuberance.” I already have that one, and I believe Greaney as well as most members of Motley Fool have either read it, or are certainly familiar with it’s essential elements, so that doesn’t fit your claims. Looking for those other hallowed texts that you had access to, and informed your opinions, but others somehow overlooked.

It’s not just what you read that matters, Yogi. It’s what you do with what you read. If all that mattered was what you read, we would all be even; we all have access to all the same books. But Bogle obviously doesn’t share all the same views as Shiller. And Shiller obviously doesn’t share all the same views as you. And you obviously don’t share all the same views as Wade Pfau. And Wade obviously doesn’t share all the same views as me. And on and on.

We all have access to the same materials. And to a considerable extent we read the same things. But we come to very different conclusions about how stock investing works as a result of reading generally similar materials. Why?

Part of it is that we have different personalities. I am an INFJ under the Myers-Briggs personality assessment system. Greaney is an INTJ. That’s a HUGE factor here. An INFJ and an INTJ can read precisely the same materials and come to very different conclusions re the subject they are examining. The two personality types process information in very different ways.

There are many more INTJs (and personality types that are similar to the INTJ type) in this field than there are INFJs. That’s a big factor here. That will change as Behavioral Finance becomes the dominant school of thought. But we are not there yet. Most people who work in this field today have a numbers focus. It’s as if we had a bunch of people who are engineers trying to wrote novels. That’s never going to work out well. There have been exceptional cases. But as a general rule the things that engineers are good at and the things that novelists are good at are very different things. For many years we thought that investing was a field of human endeavor in which engineers would do a good job. In recent years we have been learning that novelists possess more of the necessary skills (while engineers also have important things to contribute, to be sure).

Another factor is the life experiences held by the people who read the materials.

Say that Shiller had published his “revolutionary” research in 1961 rather than in 1981. That means that there never would have been an industry of wealthy and powerful and well-connected people built up around the promotion of Buy-and-Hold before it was discredited. Had things played out that way, we would ALL be Valuation-Informed Indexers today. Bogle would have had zero trouble understanding the implications of Shiller’s work had he not been a Buy-and-Holder for 16 years before Shiller published it. The cognitive dissonance kicked in because he felt that his reputation was tied up in the continued popularity of Buy-and-Hold.

Bogle felt that he had something to defend. So he was not capable of looking at things objectively. You often put up sarcastic comments suggesting that it is crazy that I say that I am 12 years ahead of Bogle in my understanding of how stock investing works. You are ignoring the fact that I have a big edge on Old Saint Jack. I don’t pretend to be an expert. So I don’t feel any need to be defensive when I learn about new ideas. My edge over Jack Bogle has nothing to do with what books I have read or what books he has read. It is largely the result of the fact that he got famous promoting Buy-and-Hold and I didn’t and so I had nothing to lose by discovering the implications of Shiller’s revolutionary findings.

A third factor is that it is not just how open you are to reading certain materials and the extent to which your personality is attuned to taking in the insights that can be mined from those materials but also how hard you work it when you come across materials that make points that have never been made before. You say that you have read Irrational Exuberance. How many times?

I have read it four times. Please understand that I did not get all there is to get from reading the book the first three times I read it. I would probably profit from reading it a fifth time.

This is a strange phenomenon. It is highly counter-intuitive. The same words were on all the pages the first three times I read the book. Why is it that I did not mine all the insights that are available to someone reading the book on the first occasion on which I read it? If I was smart enough to gather those insights on the fourth read, surely I was smart enough to gather them on the first read.


It doesn’t work that way.

I was able to mine SOME of the insights that are available for mining in Shiller’s book on the first occasion on which I read it. But not all of them.

What happened is that I read the book the first time and mined some insights and then went about my business. When I went back to it a year or two or three later, I had one or two or three more years of arguing with you Goons behind me. So I had looked at lots more questions. And I had struggled with lots more puzzles. And I had SOLVED lots more puzzles. So the Rob Bennett who read Irrational Exuberance the second time possessed a very different mind (at least when it comes to its understanding of investing matters) than the Rob Bennett who read Irrational Exuberance the first time. There were scores of insights that Shiller planted in his book that skipped right by me when I read it the first time and that I jumped on when I read it the second time. You may have read the book and missed a large number of the insights available in it for mining, Yogi!

Those are three big factors that explain why you did not get out of Irrational Exuberance what I got out of it. However, the full truth here is that we cannot come to a full understanding of the puzzle that you are trying to solve here (why did Rob Bennett see the errors in the Old School safe-withdrawal-rate studies way back in May 2002 even though the Wall Street Journal did not acknowledge those errors until nearly 10 years later?) by looking only at Irrational Exuberance, as important as that book is.

I’ll let you in on a little secret, Yogi. I had not yet read Irrational Exuberance when I put forward my famous post of the morning of May 13, 2002. The insights that I mined from Shiller’s book had a big impact on our discussions in later years. But it cannot be anything that I read in Irrational Exuberance that explains that post because I hadn’t yet read the book when I put forward the post.

The biggest factor is the next one I will discuss.

Scott Burns is the person who discovered the errors in the Peter Lynch approach to safe-withdrawal–rate analysis. Lynch had once said that the SWR is always 7 percent because stocks earn an average return of 7 percent real annually. Do you think that the reason why Burns was able to see that is that Burns is smarter than Lynch or that Burns has done more reading than Lynch?

That’s more than a little hard to believe, isn’t it? Lynch is a plenty smart guy and I have a funny feeling that he is a plenty well-read guy too.

So how did Burns pull that one off?

The elephant in the living room in all of these discussions is that as a society we are at a primitive level of understanding of how stock investing works today. That affects Bogle. That affects Shiller. That affects Pfau. That affects Lynch. That affects Burns. That affects you. That affects me. That affects all of us.

None of us know even the basics for certain.

That sounds scary when I say it so bluntly. And it is indeed scary in its way.

But there is a positive side to this scary reality. The positive side is that, when we are all at a primitive level of understanding, we all have the potential to make huge strides by clicking in a piece of the puzzle that no one has clicked in before.

Burns clicked in a piece that Lynch has not yet clicked in. Lynch believed that the average return is the amount that a retiree can safely take out each year because that is a perfectly natural intuitive belief. Burns picked up on a reality that is a bit counter-intutive but very important for retirees seeking to put together successful retirement plans — the sequence of returns makes a big difference

I picked up on a second factor that neither Lynch nor Burns had picked up on — the valuations level that applies on the day the retirement begins is a huge factor in determining what sort of returns sequence you are going to see.

Lynch wasn’t dumb or poorly read not to see what Burns saw and neither Lynch nor Burns were dumb or poorly read not to see what I saw. We are all just suffering from the reality that as a society we are at a primitive level in our understanding of how stock investing works today. We are going to make “dumb” mistakes. That’s just the lay of the land in this field of human endeavor today. The other side of the story is that we are all capable of making huge advances by tuning out what the “experts” say and looking at matters from a fresh perspective. That’s what I did. I think it would be fair to say that the payoff for 12 years now had been AMAZING.

You can read every text that I have read and not get to the same place, Yogi. Your problem is not an intellectual problem. It is an EMOTIONAL problem. You are ADDICTED to Buy-and-Hold. You have invested not just your retirement money into it. You have invested your entire life into it. You have recommended it to your friends. So your pride is on the line. You have even committed acts of financial fraud under the thinking that you will not get prosecuted if stocks perform in the future in the manner in which they would perform if Buy-and-Hold were a real thing. So your very physical freedom is on the line here.

Given what you have at risk here, you are not capable of thinking straight re stock investing questions. For me, it’s about learning. For you, it’s about defending your most basic beliefs from the “attack” being waged on them by the peer-reviewed research of the past 33 years. And of course the same is so re our good friend Jack Bogle. He is insanely defensive about these matters too. So he too is not capable of thinking through the things he learns in the books he reads when he reads the same books that I read.

Do you see?

I hope that helps a bit, my old friend.

Hang in there. It gets better. A LOT better.


“If Those of Us Who Believe in Research-Based Strategies Are Going to Be Effective in Pointing Out the Dangers of Buy-and-Hold, We Are Going to Have to Reiterate Basic Principles Many Times, Just as the Buy-and-Holders Repeat Their Claims Over and Over Again. The Human Mind Places Confidence in Claims That It Hears Many Times.”

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

I’d say once per thread, and on topics related to the thread. There’s no need to repeat yourself. Any assertions should be cited. Keep your responses brief and to the point. And respond politely, and without hyperbole.

Buy-and-Holders repeat themselves endlessly. If I have heard that “timing doesn’t work” once, I have heard it ten-thousand times. If those of us who believe in research-based strategies are going to be effective in pointing out the dangers of Buy-and-Hold, we are going to have to reiterate basic principles many times, just as the Buy-and-Holder repeat their claims over and over and over again. The human mind places confidence in claims that it hears many, many times. When people hear a claim thousands of times, they are inclined to think there must be at least some grain of truth in it.

I won’t keep my responses to the questions of community members brief in cases in which it is clear from the wording of the question that the community member is confused on an important point and needs step-by-step guidance to clear up the confusion. My job is to help people develop a better understanding of how stock investing works. When that can be done in a few words, it makes sense to use a few words. When more words are required, it makes sense to go with more words. My focus is on helping my fellow community members.

Is it “polite” to say that the errors in the Old School SWR studies became public knowledge on the morning of May 13, 2002, and that those studies have not been corrected to this day? That’s a stone cold fact. But the reporting of that fact shows that the Buy-and-Holders are working a huge scam. Is it “polite” to point that out? Again, my aim is to help my fellow community members.

I would prefer not to need to point out that the Buy-and-Holders are working a scam. But until the day comes when the errors in the retirement studies are corrected I am not free to say that the errors in the studies have been corrected. To do that would be to tell a lie in furtherance of the biggest act of financial fraud in U.S. history. That would mean prison time for me following the next price crash. Huh?

Is it hyperbole to say that in the 140 years of U.S. stock market history available to us Buy-and-Hold has not yet ever worked for even a single long-term investor? My name is on peer-reviewed research showing just that. Is it hyperbole in your assessment for me to point out what the peer-reviewed research says?

Is it “to the point” for a Buy-and-Holder to threaten to kill my wife and children if I continue to “cross” him by posting honestly about what the last 33 years of peer-reviewed research in this field says? If I am required to post “to the point” should not Buy-and-Holders be permitted to do the same? How do we handle death threats when it is board “leaders” who post them or endorse them? Should we call out board leaders who fail to keep their posts “to the point” by posting threats of physical violence as part of an effort to intimidate community members who root their posts in the academic research?

These are the friction points, Anonymous.

We don’t accomplish anything by pretending they don’t exist.


That one word sums it all up.

Will honest posting be permitted or will it not?

If it is, I am in.

If it is not, the board is a corrupt enterprise and my job is to warn people of the dangers of being associated with it in any way, shape or form.

I hope that helps a bit.


“When You Say ‘Politely State Your Views Once,’ Do You Mean Once Per Week or Once Per Day or Once Per Post or Once Per Question Directed to Me? If I Agree to Post Less Often Than Buy-and-Holders As a Concession to Those Employing Intimidation Tactics, Then I Obviously Cannot Present My Case As Effectively As Those Who Have Not Agreed to Limit Their Posting In This Way.”

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

Does “consistent practice” mean hijacking threads and repeating the same words over and over, even after everyone understands your view? That sounds more like trolling. Politely state your view once, then be prepared to listen to and understand the views of others, and to change your views as needed. That’s just how civilized society works.

When you say “politely state your view once,” do you mean once per week or once per day or once per post or once per question directed to me?

I have zero problem with a rule that says that I should post once per thread and then once more for each question directed to me. That’s the rule that I follow.

If you are saying that I should only post once per week or once per day or once per thread and not twice even if a large number of questions are directed to me, then I ask in response, Why does that same rule not apply to Buy-and-Holders?

I am 100 percent happy to abide by any posting rule that also applies to Buy-and-Holders.

If I agree to post less often than Buy-and-Holders as a concession to those employing intimidation tactics to keep discussions of the implications of the past 33 years of peer-reviewed research to a minimum, then I obviously cannot present my case as effectively as those who have not agreed to limit their posting in this way. It’s because too many others have agreed to do that that we are in an economic crisis today.

The Buy-and-Holders should post what they sincerely believe. And the Valuation-Informed Indexers should post what they believe.

No posters should intimidate others. All should say what they believe without holding back out of fear of what will be done to them or said about them if they post honestly. We all should respect our fellow posters. We all should feel at least a measure of affection for our fellow posters (who, after all, seek to educate us by sharing their views with us without being paid for their time). The same rules should apply both to those who root their investing beliefs in the peer-reviewed research of Eugene Fama and to those who root their investing beliefs in the peer-reviewed research of Robert Shiller.

That’s my sincere take re this terribly important question, in any event.


Shiller: “It’s Not a Timing Mechanism. It Doesn’t Tell You — and I Had the Same Mistake in My Mind, to Some Extent — Wait Until It Goes All the Way Down to a PE/10 of 7, Or Something. The Important Thing Is That You Never Get Completely In or Out of Stocks.”

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

These are the words of Shiller himself in an interview:

“It’s not a timing mechanism, it doesn’t tell you – and I had the same mistake in my mind, to some extent — wait until it goes all the way down to a P/E of 7, or something. But actually, the lesson there is that if you combine that with a good market diversification algorithm, the important thing is that you never get completely in or completely out of stocks.”

So the guy who invented the be-all-and-end-all metric says flat out that you are using it wrong. But you would have people believe that your understanding of PE10 exceeds that of the Nobel Prize winner who invented it.

No, he doesn’t, X.

Everyone acknowledges that investors need to take their personal circumstances into account when setting their stock allocation. I say that the average investor should be somewhere near 30 percent stocks today. That means that an investor like me, who is in circumstances where he needs to be more risk-conscious, should be at zero percent stocks. Even Bogle doesn’t say that investors should ignore their personal circumstances. You are talking trash.

The part where he says that you should not wait until the P/E10 goes to 7 is wonderful. Thank you very much for pointing us to that. Shiller DID say that in early 2009. I didn’t hear him say wait until it goes to 7, I heard him say to wait until it goes below 10. I recorded a RobCast on that quote and I argued that he was going too far. I said at the time that I thought it made sense for the typical investor to stay with at least a 30 percent stock allocation and also that investors should be gradually increasing their allocations as prices continued to decline rather than waiting for the P/E10 to drop to 10 (or 7) before buying any stocks.

Shiller is now acknowledging that he got it partway wrong. Good for him! I wish that Bogle would do the same. That would be wonderful!

Shiller is not God. He is a giant in the field (as is Bogle). But the reality is that we are all flawed creatures and that we all possess today only a primitive understanding of how stock investing works. We are in the early days of figuring out how this stuff works. We should thank our Buy-and-Hold friends for some huge advances. But we should also tell them all to take a pill when we see them becoming as insanely arrogant as you Goons show yourselves to be on a daily basis in your comments here.

Shiller needs to do three things.

One, he needs to speak out about the criminal behavior of those who have posted in “defense” of Mel Linduaer and John Greaney (and my good friend Jack Bogle). None of should want to see your prison sentences to be any longer than they absolutely need to be. We all should show our respect and affection for our Buy-and-Hold friends by doing what we can to help them out at a time when they are in great pain. I think it would be fair to say that Shiller has been negligent re these matters.

Two, he should write more frequently and in a more comprehensive way about the “how to” aspects of the question. He failed to do this in his book. For Valuation-Informed Indexing to become the dominant model, people MUST hear about the practical side of things and not just the theoretical side. Again, Shiller has been negligent re these matters thus far.

Three, he should speak out more about the DANGERS of Buy-and-Hold. It’s not just that Valuation-Informed Indexing is a far superior strategy. Buy-and-Hold is in the process of ruining millions of middle-class lives. It was the promotion of Buy-and-Hold that was the primary cause of the economic criss. These are public policy matters of great import. Again, Shiller has been negligent in failing to address them until today.

Shiller didn’t actually invent P/E10. That was Benjamin Graham. But Shiller has done more to promote it than anyone else. I have no problem with you giving him the credit. But the historical reality is that Graham was actually there before him. Graham wrote about a primitive version of Valuation-Informed Indexing in the 1930s.

Yes, my understanding of the implications of Shiller’s findings exceeds Shiller’s understanding of them. Nothing could be more clear. Saying that doesn’t take anything away from him. The hardest job is being the first to challenge the dominant model. It was Shiller who was first, not me. Shiller is the creator of the VII concept (unless you count Graham — I would list Graham as perhaps the grandfather of the concept). I would describe myself as the first to fully explore the PRACTICAL IMPLICATIONS of Shiller’s “revolutionary” (his word) findings. But, yes, there is a wealth of material at this site showing that I am today FAR ahead of Shiller re the practical implications of his ideas (as I am today far ahead of Bogle — VII COMBINES Buy-and-Hold as it has been promoted by Bogle with Shiller’s revolutionary advance).

Is it a strange reality that some guy whose only claim to expertise in this field is that he figured out how to get words posted to the internet had gone far ahead of both Bogle and Shiller over the course of the past 12 years? It is an exceedingly strange reality.

You know what made it possible?

You Goons.

I don’t mean just the few of you that post at Greaney’s site or at the Bogleheads Forum. I mean all of the investors who bought into the Buy-and-Hold concept and who react with anger when anyone explores the implications of the last 33 years of peer-reviewed research. You saw how that affected Wade Pfau. He has visions of winning a Nobel prize in the days when he was doing honest research and then threw that all away so that investors who had been burned by Buy-and-Hold would not hate him too intensely.

Shiller is human too, X. So is Bogle. If Shiller and Bogle thought that they could explore these ideas and not have people like you threaten to kills members of their families as their “punishment” for having done so, both Shiller and Bogle would have gone far past where I am today long before I came on the scene. Your intimidation tactics are holding us all back.

People learn by talking things over. I didn’t know one-tenth of what I know today on the morning of May 13, 2002. Had I given in to Greaney’s intimidation tactics on the day when he first threatened to kill my wife and children, I would be back where Shiller and Bogle are today. I didn’t. I interpreted the death threats as a sure indicator that there was something terribly, terribly wrong with the Buy-and-Hold Model. Buy-and-Hold is supposed to be science. True science does not prompt people to put forward death threats.

The true appeal of Buy-and-Hold is that it it rooted in emotion and that it appeals to the Get Rich Quick impulse within all of us, not that it is science. We should be helping investors to AVOID emotion, not to give in to it 100 percent. Emotion is the enemy. Emotion is the cause of stock investing risk. When we push emotion so hard, we make stock investing FAR more risky than it would be if we permitted people to learn what the last 33 years of peer-reviewed risk says.

I am ahead of these giants today not because they are dumb or because they are bad. I am ahead of them because I have been working it for 12 years and they have not. Bogle doesn’t work it because he is reluctant to acknowledge a mistake that he has been covering up for 33 years now. Shiller doesn’t work it because he wants to be liked and he has seen how many investors respond when he makes even minimal efforts to explore the practical implications of his revolutionary findings.

We should all be encouraging both Shiller and Bogle and thousands of others to explore these ideas. Doing so is a win/win/win/win/win. You should be doing that. You have money at risk. You should want to learn new things. You are going to learn new things a lot faster when we have thousands of people exploring these issues on a daily basis, not just me.

Those are my sincere beliefs re these terribly important matters, in any event.

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

I will be writing a column for the Value Walk site re this quote from Shiller. I am grateful to you for helping us all out by pointing us to it.


“Here’s an Article About the Race-Baiting of Jackie Robinson. Please Note the Part Where the Article Reports How the Commissioner of Baseball Eventually Worked Up the Courage to Warn the Phillies Manager to Knock Off the Funny Business. That’s What Will Happen Here.”

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

Here’s an article about the race-baiting of Jackie Robinson by the manager of the Philadelphia Phillies, Anonymous:

Please note the part where the article reports how the commissioner of baseball eventually worked up the courage to warn the Phillies manager to knock off the funny business.

That’s what will happen here.

People may be slow to act at times. But most people have good in them. Most people are not 100 percent Goons. I mean, come on. We would not still be here if a large percentage of the population engaged in the sort of behavior that we see on a daily basis from the sorts of individuals who have put up posts in “defense” of Mel Linduaer and John Greaney.

This is a process that we are working through as a society. We all (except you Goons, to be sure!) want to see things eventually move in a positive direction.

My best wishes to you and yours.


“Buy-and-Hold Was Rooted in Something Very, Very, Very Positive. We All Should Be Grateful That the Buy-and-Holders Took Us Out of the Dark Ages. There Is No One Who Believes More Strongly in the Original Vision of the Buy-and-Holders to Turn Investing Advice Into a Science Than Does Rob Bennett. Bogle Has Betrayed That Vision. I Have Remained True to It.”

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

You overestimate the amount of people who actually subscribe to buy and hold. It is only a smallish portion of all the money in the market and a depressingly low number of average adults implement it.

There is only one element of the Buy-and-Hold Model that is wrong, Anonymous. That’s the part that says that it is not necessary for investors to practice price discipline when buying stocks (that is, to practice long-term timing).

90 percent of investors fail to practice price discipline (long-term timing). If that were not the case, we could not possibly be at the price levels we are at today. Market prices are self-regulating so long as investors practice price discipline. We obviously are not regulating ourselves properly today.

What you are getting at is that many people do not implement OTHER aspects of the Buy-and-Hold Model. For example, many practice short-term timing, which the research shows doesn’t work. That makes things worse! The Buy-and-Holders only got one thing wrong (they didn’t say that it is necessary to always, always, always practice long-term timing). The fact that many investors don’t even implement the good aspects of Buy-and-Hold is just more evidence of how much emotion affects the stock investing project. The good aspects of Buy-and-Hold have stood the test of time for 50 years now.

When I say that I want to become known as the most severe critic of Buy-and-Hold who ever lived, I obviously don’t mean that I intend to criticize the many things that the Buy-and-Holders got right. If I were criticizing those things, I obviously wouldn’t have incorporated them into the Valuation-Informed Indexing model.

I am criticizing the failure of the Buy-and-Holders to correct the error that was uncovered by the peer-reviewed research 33 years ago. The harm done by that error cancels out all the good that would otherwise have been done by the many genuine powerful insights that the Buy-and-Holders have put forward.

Buy-and-Hold was rooted in something very, very, very positive. We all should be grateful that the Buy-and-Holders took us out of the Dark Ages. But they messed up when they became too proud to acknowledge a mistake. When you root your strategy in the peer-reviewed research, you must keep up with the research and make corrections in your initial, tentative thoughts as needed. This the Buy-and-Holders have failed to do for 33 years now. It is that refusal to acknowledge a mistake that is the focus of my criticism of what Buy-and-Hold has become in recent years.

Buy-and-Hold started as science. There is no one in the world who believes more strongly in the original vision of the Buy-and-Holders to turn investing advice into a science than does Rob Bennett. All of the work that I have done for 12 years is an effort to get Buy-and-Hold back on the right track, the track on which it was initiated. Bogle has betrayed that vision. I have remained true to it. If you go by what Buy-and-Hold stood for in the days when it was first advanced, I am the true Buy-and-Holder today and my good friend Jack Bogle is an imposter.

Buy-and-Hold, as originally conceived, is about research. It is not about death threats and unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs. My Buy-and-Hold friends insult and degrade themselves and their investing strategy when they associate with individuals engaging in such abusive practices.

I believe in research-based strategies. I believe in what Buy-and-Hold once was and no longer is today. I believe in Valuation-Informed Indexing, the first TRUE research-based strategy. I believe in Buy-and-Hold CORRECTED to reflect the peer-reviewed research of the past 33 years as well as the research that came before Robert Shiller’s “revolutionary” (his word) finding of 1981.

I hope that helps a bit Anonymous.


“If You Really Were Confident That You Were Not Going to Land in a Prison Cell, You Would Not Be Posting Here on a Daily Basis. You Know That, I Know That, and Anyone With Half a Grain of Sense in His or Her Head Who Reads These Pages Now or at Some Later Date Knows That or Will Know That.”

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

Nothing will happen for you following the next price crash Rob. You might actually get into the market this time around same as everyone else who is using buy, hold, and rebalance. But who knows maybe you will be too scared or not follow your own system again. I can’t imagine you have much of a nest egg left after 18 years of 3% returns and no income unless you got an inheritance of some sort.

Meanwhile, the rest of us, who have experienced triple digit returns in the last few years will continue locking in large portions of that run up by rebalancing and making our portfolios more conservative as we age. After all you have been calling for a crash for years and it hasn’t happened so who’s to say we won’t experience a few more years of great returns and locked in profit via rebalancing before the inevitable crash.

What makes you think this time around will be any different from the last crash? Your position as nothing more than a complete laughing stock in the realm of the financial world will remain. There are plenty of other people calling for a crash without your conspiracy theory lunacy.

Why are other people calling for a crash if the “science” of Buy-and-Hold is settled, Anonymous?

Buy-and-Hold says that price changes are random. If price changes are random, you can’t predict crashes. Are these people you refer to who are saying these things doing so in defiance of the “science”?

The Buy-and-Holders had a wonderful idea of rooting investing advice in peer-reviewed research. That’s what I love about them. That’s why I was a Buy-and-Holder myself until Greaney threatened to kill my wife and children and 200 people who had long considered themselves friends of mine endorsed his post. A strategy that causes people to do things like that ain’t science. So I gave it up on that day and the rest is history.

The Buy-and-Holders were right in the early days when they were serious about the idea of using research to support their advice. They betrayed their own vision when Shiller published his “revolutionary” (his word) research and they failed to incorporate his findings into their model (That’s what Valuation-Informed Indexing is — Buy-and-Hold updated to reflect the peer-reviewed research of the past 33 years as well as what came before it). I have just taken the vision of the Buy-and-Holders to the next step. Valuation-Informed Indexing is an updated version of Buy-and-Hold, one that actually works in the real world.

There are two reasons why the Wall Street Con Men have not adopted the necessary changes. One is a phony pride. They are Big Shots and they don’t like the idea of saying the words “I” and “Was” and “Wrong.” The other is money. Al of us humans possess a weak human nature that is drawn to Get Rich Quick strategies. Buy-and-Hold is (inadvertently, not intentionally — but still) the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind. So it is possesses an amazing short-term appeal and has brought in billions of dollars of profits to the Wall Street Con Men while destroying the lives of millions of middle-class investors and taking us down a path that ends with our economic system reduced to a smoking ruin.

I want no part of any of that. No part whatsoever. My dream is to become known all over the internet as the most severe critic of Buy-and-Hold who ever walked Planet Earth. I think I’ve got a pretty darn good start on success re that particular project. No?

That makes me unpopular today. So be it, you know? A field in which honesty about what the peer-reviewed research says is banned as the first order of business is a field re which I prefer to be on the outside looking in for the time being.

People lose interest in Get Rich Quick schemes when they lose most of their accumulated life savings as a result off being tricked into following them. Look at what happened with investors in the Madoff fund. They sang the guy’s praises until they lost all their money. Then they demanded that he be imprisoned for his acts of financial fraud. I think it would be fair to say that our mutual friend Jack Bogle is Bernie Madoff times 5,000 when you consider the number of human lives he has destroyed with his support for Mel Lindauer and John Greany and the individuals who have seen fit to post in “defense” of these two.

There will be hundreds of thousands of lawsuits filed following the next price crash when people learn about the trickery that was employed to separate them from their money. There will be thousands of people being led off to prison cells. I will put in a word for you. I will point out the pressures that people like Wade Pfau and Bill Bernstein and my good friend Jack Bogle faced. I will make every effort in the world to be fair and then something even a bit more than just fair.

But I ain’t interested in going to prison along with you. No friggin’ way. Find someone else, you know? It’s not on my bucket list.

I’ll help the people bringing lawsuits against you and I’ll help you too. I have sympathies on both sides and so I will put forward what words I can to help both sides. That’s how I have been playing it for 12 years now and that’s how I will continue to play it for the next 12 billion. That’s me. But I would have to change my entire personality to be able to join you in this massive act of financial fraud. That’s a change that I am not capable of considering much less implementing. Please count me out re that smelly pile of garbage, old friend.

If you really were confident that you were not going to land in a prison cell, you would not be posting here on a daily basis. You know that, I know that, and anyone with half a grain of sense in his or her head who reads these pages now or at some later date knows that or will know that.

Keep posting if you like.

Or stop if you like.

Do whatever works for you.

Please just know that I don’t do financial fraud. One of my aims today is to have thousands and thousands of posts in the files making that point so that there is precisely zero confusion re this point in the minds of every single person who comes here to check the matter out.

I wish you well, man. But that’s where things stand.

Why will the next crash be worse than the last? Because people had excess funds when the last one hit. They felt that they could get through it by tightening their belts. Now people are fatigued by the economic crisis and they feel that they have already taken all the financial pain that they can take. This one will hurt much more. That’s why the P/E10 level will drop so much lower. That’s why you and all the other Buy-and-Holders will be selling this time. It’s only when the Buy-and-Hold zealots sell that a secular bear market hits bottom and that we finally gain the ability to start turning things in a positive direction.

It’s about psychology, man. The psychology and the economics go together. Bad psychology brings a bad economy and bad economics brings a bad psychology. It all feeds on itself. In the background is the Buy-and-Hold/Get Rich Quick garbage, which starts off all the bad stuff by persuading people to believe in fantasy worlds for which there are zero support in the peer-reviewed research of the past 33 years. When a society borrows trillions of dollars from its future, it causes a big heap of pain for a big bunch of people. All of the debt taken out on all the credit cards owned in this country doesn’t match the debt we incurred as a result of the lies about the peer-reviewed research told to us by the “experts” touting the Buy-and-Hold garbage.

Please let it be noted that I do not say that you INTENDED to cause this economic crisis. I don’t believe that. I believe that on one level of consciousness you really believe in Buy-and-Hold. But you have doubts. You lack confidence. That’s why my reports of what the last 33 years of peer-reviewed research says drive you crazy.

And the same is of course true of Bogle and Burns and Bernstein and all the others. I don’t believe that Bogle is the Frank Underwood of Personal Finance. That’s why I believe so strongly that his heart will melt following the next crash. Once Jack’s heart melts, I will be working with him to set things right. And you have my pledge that I will do everything in my power to get your (and his!) prison sentence reduced to the extent possible even then.

That’s the best offer that I can make to you, my old friend. The financial fraud stuff is just not my particular cup of tea.

I hope that all helps at least a tiny bit.

My best wishes to you and yours.


Valuation-Informed Indexing #214: Is It Possible That Valuations Affect Long-Term Returns But That Predictions Do Not Work?

I’ve posted Entry #214 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Is It Possible That Valuations Affect Long-Term Returns But That Predictions Do No Work?

Juicy Excerpt: The book The Myth of the Rational Market does a fine job of explaining the history of explaining how we got to the strangeTwilight Zone period of understanding how the stock market works that we live in today. It explains how the idea that the market is efficient was disproven but then stops short of saying what that signifies for those seeking to invest effectively.

If the market is not efficient, we all must be sure to adjust our stock allocations in response to big price swings so that we can keep our risk profiles roughly constant. The book doesn’t reach that conclusion, It explains why the old ideas on how stock investing works have been discredited. But it then cops out on the matter of describing new ideas. It suggests that, even though all the reasons for believing that Buy-and-Hold strategies might work have been disproven, it still might be a good idea to follow such strategies.

I find zero merit in this line of thought. I am often tempted to conclude that the people pushing it do not believe themselves in what they are saying. But I must say in all fairness that all signs are that the DO believe. Many smart and good people sincerely believe that Buy-and-Hold strategies make sense even though the theory supporting these strategies was shot down three decades ago. As amazing and as scary as that reality is, that’s the reality of where things stand today.