“If Jack Bogle Doesn’t Care About the Vast Amount of Human Misery He Has Caused, Then Jack Bogle Is the Frank Underwood of Personal Finance. But Then Why Did He Report in His Book That Reversion to the Mean Is an ‘Iron Law’ of Stock Investing. Jack Bogle Feels Trapped. Those of Us Who Care Enough About Our Friendship With Jack to Take a Few Hits Because of It Have Been Imploring Him to Come Clean. That’s Love. If You Love Jack Bogle (I Do), You Want Him to Achieve His Dreams. Valuation-Informed Indexing Is Jack Bogle’s Dream.”

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


Jack could probably care less about what you want.

We couldn’t possibly disagree more, Anonymous.

Jack Bogle made it his life project to help provide millions of middle-class people with a smart, simple and safe way to invest in stocks. He got lots of things right. He got one thing (the need for price discipline) horribly wrong. The mistake he made has caused the biggest economic crisis in U.S. history. My good friend Jack has caused millions of failed retirements. The investing advice industry has become 100 percent corrupt as a result of the lies that Buy-and-Holders today tell about what the peer-reviewed academic research says about what works for long-term investors. People like Wade Pfau don’t feel comfortable publishing honest research because they know that Buy-and-Hold Goons like yourself will try to destroy their careers if they choose to do so. And you say that Jack doesn’t care?

If Jack Bogle doesn’t care about the vast amount of human misery he has caused, then Jack Bogle is The Frank Underwoord of Personal Finance. I think he cares, Anonymous. I think he cares a great deal.

First of all, Frank Underwood is a cartoon character. I worked on Capitol Hill for years. Politics is a dirty game and dirty things go on in politics all the time. But there are very few Frank Underwoods. I met people from both parties who were tough operators. I never met a Frank Underwood. I don’t say that none exist. I say that there are few true Frank Underwoods in politics and that there are few true Frank Underwoods in the personal finance realm (and there’s a lot of dirty business going down in the personal finance realm as well).

I have been outspoken re the ways in which my good friend Jack Bogle has messed up for a good number of years now. He has a responsibility to acknowledge his mistakes. He has a responsibility to take action on The Mel Linduaer Matter. He has a responsibility to demand corrections in the Old School safe-withdrawal-rate studies. He has a responsibility to speak up in support of Wade Pfau and of his right to publish honest research showing the dangers of Buy-and-Hold investing strategies. Jack has shamed himself and he has shamed all Buy-and-Holders and really all human beings with the unethical behavior that we have seen from him in recent years.

But that is not the entire story.

Jack has been responsible for many AMAZING contributions in this field. If he is a 100 percent corrupt individual, why has he devoted so many years of his life to making the lives of millions of middle-class investors richer (in every sense of the word) than they have ever been before? Your suggestion that Jack is The Frank Underwood of Personal Finance just does not stand up to a scrutiny based on what we know about the man’s life work, Anonymous.

I gained my fame on the internet by being the person to discover the errors in the Old School safe-withdrawal-rate studies (in May 2002 — nearly 10 years before the Wall Street Journal was writing about those errors!). Guess whose book it was that I read that helped me to understand that those studies were in error? Jack Bogle’s! Jack Bogle’s book says that Reversion to the Mean is an “Iron Law” of stock investing. If that’s so, the safe withdrawal rate obviously cannot be a constant number. If Jack is really The Frank Underwood of Personal Finance, as you suggest, why did he report in his book that Reversion to the Mean is an “Iron Law” of stock investing? Your suggestion simply makes no sense.

I could go on and on. When I was working with John Walter Russell, John referred to material in Bogle’s speeches all the time. Jack Bogle has made the case for Valuation-Informed Indexing on many, many occasions. I mean no personal dig, Anonymous, but you are full of it. My good friend Jack Bogle is not The Frank Underwood of Personal Finance. The reality here is something very different from what your darkened mind suggests. I am sure.

But Jack has behaved unethically. That’s on the record. That’s in the Post Archives. What’s the story?

Jack Bogle is no saint. Those who call him one do him harm by even raising the possibility. Jack Bogle is a man. A smart man. A friendly man. A hard-workng man. A good man. And a flawed man.

Jack Bogle made a mistake. It was a doozy. He wasn’t the only one who made it. He’s in very good company. But he made one doozy of a mistake. Millions of other good and smart and hard-working people are paying the price for Jack Bogle’s Big Mistake today. The mistake needs to be fixed. It needs to be fixed by the close of business today. There can be no doubt about that one whatsoever.

But Jack feels trapped. When he acknowledges the mistake, he is acknowledging that he has caused financial ruin for millions of middle-class people. When he acknowledges the mistake, he is acknowledging that he ha brought on a drop in confidence in our political system on both the left (The Occupy Wall Street Movement) and the right (The Tea Party Movement). When he acknowledges his mistake, he is acknowledging that he failed to step forward when the individuals who have posted in “defense” of Mel Linduaer and John Greaney crossed lines that will be putting them in prison cells following the next price crash.

Do you think that it is going to be an easy thing for Jack to walk to the front of a room and acknowledge that mistake?

If you know anything whatsoever about the humans, you know that it is not going to be an easy thing.

Do you consider yourself Jack’s friend, Anonymous? I have often seen you talk the talk. I have rarely seen you walk the walk.

Those of us who care enough about our friendship with Jack to take a few hits because of it have been imploring Jack to come clean.

Everybody should be doing that, in my view. Democrats and Republican both. Young and old both. Women and men both. Blacks and whites both. Valuation-Informed Indexers and Buy-and-Holders both.

That’s love, Anonymous.

If you love Jack Bogle (I do), you want him to achieve his dreams. Valuation-Informed Indexing is Jack Bogle’s dream. The investing strategy explored at this web site is the investing strategy that Jack was seeking to create when he first started work on Buy-and-Hold. Now the dream can be made real. But it comes at a price. We cannot get there together without Jack first working up the courage to walk to the front of a room and say the words “I” and “Was” and “Wrong.” If’s when he does that that all the magic starts happening.

I love the man and I have sent him three e-mails urging that he take that step. I will send him another e-mail at the onset of the next price crash. I believe that Jack’s heart will melt when he sees what he has done to the country that has given him huge blessings over the years. When Jack agrees to say those three words, we are all off to the races. I think it is fair to say that he will feel 50 times better about himself and about the work he has done over the course of his life on that day he comes clean than he feels today.

Jack cares about what I want. Because deep down Jack wants the same things I want. As do you. As do all your Goon friends.

The hand of kindness is extended. It is not a time-sensitive offer. There is zero chance that I will ever agree to participate in the most massive act of financial fraud in the history of the United States. It hasn’t happened in 12 years and it won’t happen in 12 billion years. Anything short of that is fine. But no prison sentence for this boy. Please try to find someone else.

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

I naturally wish you all good things.


“The Thing That Makes It Possible for Market Participants to Act in Their Self-Interest Is INFORMATION. None of the Big Sites Offer Good Information. That Means That the Vast Majority of Investors Cannot Possibly Act in Their Self-Interest When Making Investing Decisions. So the Stock Market Does Not Function Like Other Markets. It Is Today Dysfunctional.”

Set forth below is the text of a comment that I recently posted to a thread at the www.SiteSell.com forum:

Super post, Rob…


You obviously know your stuff. Your paper about Shiller’s paper is spot-on. It’s an excellent indicator and folks SHOULD be worried about the high CAPE of the current market.

I don’t think that paper was trying to deliver an optimized approach, merely prove the value of CAPE as a predictor of value, which is what drives the long-term future.

So they should definitely “TAKE” your contribution for the valuable information that it contained. It’s the only reason that I spent so much time and space addressing “active” investing before I was planning to do so. :-)

Please, Rob, keep posting! :-)

Thanks for your exceedingly kind words, Ken. They mean a lot to me. I will certainly continue to offer any thoughts that I think might be helpful. My knowledge base re investing is narrow. I focus on one thing — the implications of Shiller’s finding that valuations affect long-term returns. I see that as a game changer and for some quirky reason (I think it may be because I have a Myers/Briggs personality type [INFJ] that is rare in the investing field), I see things that follow from that that not too many others see. So I just keep digging, trying to deepen my own understanding and to share what I think I have learned with other interested parties.

I obviously see a crash coming. But those following a Permanent Portfolio strategy won’t be hurt by it much, if at all. They are protected by the low stock allocation. A 70 percent crash will wipe out those going with a conventional Buy-and-Hold strategy. But those going with a PP strategy will suffer only a 17 percent loss of their portfolio value. And gold will likely skyrocket in such a scenario. So they may well end up ahead.

I have a question for you, if you are willing to entertain it. Are you planning to go beyond the SiteSell community with this project? I’m not trying to put you on the spot. Please feel free to just say that you have no particular plans. There are two reasons why I ask: (1) I think this project is very important; and (2) I think you are going to run into roadblocks if you try to take it outside SiteSell (though I sure would love to see you try). I agree with you completely re the power of what Harry Browne put forward. What pains me is that it has not caught on despite the compelling track record. That troubles me a lot. I would sure like to see someone bust through the roadblocks.

I’ll offer a few comments re Eugene Fama in an effort to help you and others perhaps gain a better understanding of where I am coming from in my contributions.

I gave a talk about this stuff at the Financial Bloggers Conference held last October. Shiller won the Nobel Prize in Economics the day before the conference began and I mentioned that in my talk. Several people came up to me afterwards and said that, if they were me, they would be using that to help market the Valuation-Informed Indexing concept. Being able to say that the grandfather of the concept had won the Nobel Prize would seem to be a huge plus in getting people aboard!

I knew that it wasn’t going to make much difference (and it hasn’t). The intellectual case has been so strong for so long a time that there’s just no need to add to it. There is something else that is holding things back. I see it as my job to figure out what that something is.

There was a very weird thing about the awarding of that Nobel Prize. Fama (the guy responsible for the Efficient Market Theory, which is the intellectual construct behind the conventional Buy-and-Hold concept) was ALSO awarded the Nobel Prize on the same day. All of the reports on this pointed out the oddity of this. Shiller and Fama have opposite views on how stock investing works. It is not even remotely possible that they could both be right. So why would they both be awarded the highest honor possible for their work?

I write a weekly column on Valuation-Informed Indexing that appears at the http://www.ValueWalk.com site. I did research on this for a series of columns I am posting there. I looked at all the commentary on the awarding of last year’s Nobel Prize in Economics to see what lots of experts think of this strange phenomenon. The things that I read about Fama were just knock-your-socks-off weird. I tend to focus a lot on puzzles. When I see something that doesn’t seem to make sense, I dig and dig, trying to make sense of the apparent puzzle. So I spent a lot of time thinking about the contradictory things that numerous people said about Fama.

Lots of smart people give Fama very high grades for the quality of his research. There’s too much praise there for it not to be real, in my assessment. Fama is a smart guy who has made important contributions. I am sure of this.

But then there is this other line of comment. There were numerous blog entries in which well-regarded economists were just about laughing out loud about something that Fama says all the time. Fama says that there is no such thing as a price bubble. He is adamant about this. And even people who think the world of him think he sounds silly when he makes the claim. Everyone acknowledges that there are bubbles today. Why does the fellow who started the idea of rooting investing strategies in research refuse to acknowledge this?

It’s because he has intellectual integrity.

If the market is efficient (the entire Buy-and-Hold Model is rooted in a belief that it is), there can NOT be bubbles. Fama refuses to give on this point because he understands better than most that the entire Buy-and-Hold Model collapses intellectually once we acknowledge that there are bubbles. He is sticking to this claim to the point where it makes him look silly because all the marbles are riding on it.

The point that I am getting at here is that the question of whether Buy-and-Hold works or not is a yes/no question. It cannot be that it kinda sorta works and kinda sorta does not work. If it works, it explains the market correctly and has great value. If it does not work, it misleads us as to how the market works and it is very dangerous.

I believe that I know what caused Fama to make his mistake. The idea that the market is efficient (and thus prices stocks properly) is rooted in a belief that investors act in their self-interest. This certainly seems like a plausible belief. Participants in other markets act in their self-interest. For example, my experience is that the used-car market is highly efficient. When you see price differences for different used cars, there is almost always a good reason. The prices asked for used cars are almost never crazy. There is almost always an identifiable logic at work in the setting of prices in the used-car market, in my experience.

Why would the stock market be different?

It’s because the thing that makes it possible for market participants to act in their self-interest is INFORMATION. The easy availability of information is the thing that permits markets to work their magic.

You would think that information would be freely available to participants in the stock market. But it is not. My calculator (The Stock-Return Predictor) is a basic tool. Some version of that calculator should be available at every investing site. I have had enough people tell me this that I don’t think I am fooling myself about the importance of the calculator. But the reality is that my calculator is the only one that does what it does and that there are very few links to it on the internet. I have had numerous sites ban me when I try to share this information. I have had site owners send me e-mails telling me that they think my site is the best site on the internet on investing and then ban me from their sites! I am not kidding. I have had people apologize for banning me and then explain that they think that my work has huge value but that they believe that if they permit me to post at their sites the things I say will drive their customers away. MANY people have delivered this message to me in one form or another.

We do not have easy availability of the information needed to invest effectively available to us today. There are niche sites that offer great information. But none of the big sites offer good information. That means that the vast majority of investors cannot possibly act in their self-interest when making investing decisions. They do not have easy access to the information needed to do so. So the stock market does not function like other markets. It is today dysfunctional.

This explains the puzzle. Fama is right in theory. He is wrong in practice. He is wrong because he forgot that part of the definition of what makes a market is that there be easy access to the information needed to act in one’s self interest. The stock market is not really a market yet. It is something less than that and something that operates according to different rules than functioning markets.

The relevance to the Permanent Portfolio is that this explains why Harry Browne’s ideas have not caught on despite their logical power and impressive track record. My focus is on changing this. I want everyone to know about the need to shift from the conventional Buy-and-Hold approach to something like the Permanent Portfolio concept. It’s of course a good thing if the people here at this forum do so. Every little bit helps. But I am wondering if the reason why you are putting so much effort into this project is that you have bigger ideas for it down the road a bit. I obviously have a strong belief that we need to have people with influence pushing things like this so that we can reach a point where the stock market is actually operating in the manner in which Fama has properly informed us it should work (while improperly theorizing that it already does).

Thanks again for your kind feedback. I have taken a lot of body blows putting this stuff forward. You have offered me some warm encouragement and that makes a big difference.


“After the Next Crash, Stocks Will Be Priced at One-Half Fair Value. At That Time, Telling People the Truth Will Be Perceived as ADDING Money to Their Portfolios. We Won’t Be Telling a Guy With a $600,000 Portfolio That It Is Really Worth Only $200,000. We Will Be Telling a Guy With a $100,000 Portfolio That It Is Really Worth $200,000. The Latter Message Has MUCH More Appeal.”

Set forth below is the text of a comment that I recently posted to the SiteSell.com discussion forum:

It is intriguing to think that if everyone practiced ‘price discipline’ then we would stop seeing the soaring peaks and wallowing troughs that are pretty much signatures of the markets as we know them today. But where is the discipline to practice this going to come from? That’s the problem I see.These words are from a comment that Eli put to the Passive thread. I thought it would be better to respond to it here.

I’ll provide a concrete example of how I see this working, Eli.

I have a calculator at my site called “The Stock-Return Predictor.” It applies a regression analysis to the historical return data to identify the most likely 10-year annualized return for someone who purchases shares in a broad index fund at any specified price point. It reports that those who bought stocks in 2000 were likely to see an average annual return of a negative 1 percent real for 10 years running. Treasury Inflation-Adjusted Securities (TIPS) were at the time paying a return of 4 percent real.

Say that every personal finance blogger who was around at the time told investors to switch from stocks to TIPS. Those who did so would increase their return by 5 percentage point real. Not once. They would add 5 percentage points of return every year for 10 years running. By following the conventional Buy-and-Hold strategy, millions of us lost 50 percent of the portfolio value we held in 2000.

No. We actually lost more than that. Say that the loss for a particular investor was $300,000. And say that that investor was 50 years old and will continue investing until he dies at age 80. He didn’t just lose $300,000. He also lost 30 years of compounding returns on the $300,000. We all know from articles that we have read on saving that the compounding returns phenomenon is a phenomenon of great power. Losing 30 years of compounding on $300,000 is a big deal.

Now –

The personal finance magazines want to help their readers, right? Why the heck didn’t they tell them this? Shiller published his research in 1981.

They didn’t tell because the implication of the message is that the true value of the portfolios people were holding was only one-third of what people thought it was. Telling the truth about stock investing in 2000 was like reaching into that person’s pocket and pulling out hundreds of thousands of dollars. That wasn’t the intent of the person telling the truth. But that was the way the message was perceived by the person being told the realities.

Shiller published his research in 1981. Shortly thereafter, we entered a huge bull market that was not perceived to come to an end until September 2008. And stocks are still insanely overpriced today. So there has not yet been a good opportunity to share the wonderful news.

After the next crash, stocks will be priced at one-half fair value. At that time, telling people the truth will be perceived as ADDING money to their portfolios. We won’t be telling a guy with a $600,000 portfolio that it is really worth only $200,000. We will be telling a guy with a $100,000 portfolio that it is really worth $200,000. The latter message has MUCH more appeal.

People don’t want to ruin their lives by giving in to fear and greed. People understand why there is a need for price discipline. Most middle-class people practice price discipline to at least some extent in every other area of their lives. The problem is that we didn’t know how stock investing worked prior to 1981 and, since we learned, there has not been a good opportunity to get the message out. One more price crash will change that. And then I expect all sorts of wonderful things to happen.

People want to do the right thing. But they need encouragement. They need to have magazines reporting the realities and investing experts reporting the realities and academic researchers reporting the realities. When they hear lots of people encouraging them to avoid feed and greed and to practice price discipline, they will do it. Perhaps not all. But I believe that millions of people will do it once they begin hearing encouragment to do it. I have spoken with thousands of investors and this is the strong impression that I have picked up as a result.

We need to see it become a money-making thing. We need to see investing advisors build big reputations teaching the realities. And bloggers break out big-time by teaching the realities. And companies develop calculators teaching the realities. And on and on. As Ken mentioned, there is now a fund based on the CAPE/VII concept. Things are starting to turn. I believe that following the next crash (which is not too far away), things are going to turn hard in the right direction. The only thing keeping the conventional Buy-and-Hold strategy alive today is the inflated prices that remain in place as of today.


“It Is NOT True That Middle-Class Investors Are Governed Entirely by Greed and Fear. I Have Talked to THOUSANDS of People Who Are Seeking a Smart and Safe and Simple Way to Invest in Stocks. The Problem Today Is That Most People Are Intimidated by the Subject of Stock Investing and Put Too Much Belief in What ‘Experts’ Tell Them and the Primary Expertise of Many of the People Who Work In This Field Is Marketing.”

Set forth below is the text of a comment that I recently posted to the SiteSell.com discussion forum:

Rob, I have much respect for your work and you have a lot of valuable knowledge to share, but I would not bet that human nature will change and people will stop making decisions based on greed and fear.

The words above are from a post by Dave put to the Passive thread. I thought it would be better to respond to them here.

Your comment gets right to the core of things, Dave. Investors have for a long time been acting in one way and I am proposing that we all (I don’t mean all of us at this site, I mean all of us in this country) pull together to help them act in a very different way. It would be fair to describe this as an ambitious undertaking!

That granted, have people’s actions not changed in fundamental ways before? There was a time when people with black skin could not drink from the same water fountains as people with white skin. That changed, didn’t it? And there was a time when there were advertisements in magazines arguing for the health benefits of smoking (Google it if you don’t believe me). That changed, didn’t it? And there was a time when after a picnic people just tossed all the trash on the grass (there was a scene depicting this on Mad Man — I remember this sort of thing really happening when I was a child in the 1960s). That changed, didn’t it?

There’s a thing called Progress. Our country is pretty much built around a belief in it. I understand that it is an ambitious undertaking to try to change how people think about investing in a fundamental way. But I believe that things have reached a point where we have no choice and I believe that millions of people are up to making the change if only the need for it is presented to them in the right way.

You have to do the math to appreciate the fix we are in today. Stocks were priced at three times fair value in 2000. We always drop to one-half of fair value before the secular bear market that inevitably follows a secular bull market comes to an end. That means that people who were invested in stocks heavily in stocks in 2000 are going to lose five-sixths of their accumulated life savings before this economic crisis comes to an end. Someone who had saved for years and years to accumulated $600,000 is going to end up with $100,000 (in real terms). Defined benefit pensions are pretty much a thing of the past. We have given to workers the responsibility of financing their own retirement plans. And the investment advice that is pushed relentlessly is going to cause them to lose five-sixths of their accumulated life savings. Is our political system even going to be able to withstand the stresses that are going to be placed on it as a result?

And how about when the millions of people who end up losing most of their retirement money learn that there is 33 years of peer-reviewed research showing them how to invest in a way that would prevent this from ever happening while also permitting them to retire five to ten years sooner than they ever imagined possible? When the Buy-and-Holders spent millions of dollars promoting the idea that investment strategies should be rooted in peer-reviewed academic research, they changed this field forever. We now HAVE to provide a means for people to have access to accurate and honest reports of what the research says. We’re not there yet. But we have no choice but to go there. Events are going to push us there no matter how much we try to avoid it. And in the end we are of course all going to be very happy we made the trip.

I have a lot of experience talking to people about the Valuation-Informed Indexing concept. I can tell you that people LOVE learning about it. That’s been so going back to 2002, when I began this journey. People also HATE the friction that comes up when conventional Buy-and-Holders become defensive about what the last 33 years of research says. So I have not been successful in spreading the word far and wide. But I know from the reactions that I have seen that there are MILLIONS of people who would like to know the truth about stock investing. The market is huge. Someone is going to figure out a way to serve this huge market.

When they do, a lot of people who today advocate the conventional Buy-and-Hold strategy are going to flip. I know because a good number have told me so. There are economists who want to be reporting the realities. There are journalists who want to be reporting the realities. There are investing advisors who want to be reporting the realities. There are researchers who want to be reporting the realities. There are bloggers who want to be reporting the realities.

The hard part is going first. Those who go first get their heads chopped off. Everybody knows this and so everybody holds back. But once the dam breaks, watch out! Once the dam breaks, lots of people are going to flip in a short amount of time. My guess is that this will happen shortly following the next price crash. Shiller’s research shows that we should see that crash within the next year or two or three.

Please understand that I am NOT saying that the Permanent Portfolio concept is the problem. The Permanent Portfolio concept is a HUGE improvement over the conventional Buy-and-Hold concept. The reality here (in my view) is that the Permanent Portfolio concept and the Valuation-Informed Indexing concept solve the same problem (the danger of the conventional Buy-and-Hold strategy) in slightly different ways. PP has you invest in asset classes that will do very well in stock crashes and thereby protect you from their impact. VII has you lessen your participation in stocks when the odds of seeing a crash grow too high. Both approaches represent huge advances. An argument could be made that BOTH require a change in human behavior. Both are going to seem highly appealing to lots and lots of people following the next crash, and for good reason. My personal take is that it may be too soon to say with certainty which is better. But both represent huge advances. That’s what matters.

Investor behavior will change because it must if our free-market economy is to survive. We all want it to survive and so we are all going to pull together to achieve some changes when it hits us that we have no practical choice. There was a day when only very rich people had money in stocks. That’s not the case today. Middle-class people fund their retirements by investing in stocks. They must have accurate information. There’s just no other way. We are a richer people than we were in earlier times. That changes the realities. I believe that we are ready for this change and I believe that, when we are faced with no option but to move ahead with it, we will pull together to help bring about the change.

It is NOT true that middle-class investors are governed entirely by greed and fear.I have talked to THOUSANDS of people who are seeking a smart and safe and simple way to invest in stocks. The problem today is that most people are intimidated by the subject of stock investing and put too much belief in what “experts” tell them and the primary expertise of many of the people who work in this field is in marketing. Once a small number of people stick their necks out and try to make names for themselves pushing strategies that help people avoid the pitfall of giving in to feelings of greed and fear (whether by recommending PP or by recommending VII or by recommending some third approach that achieves the same ends), the wall is going to break and we are going to see that millions of middle-class people are willing to work hard to avoid fear and greed if only they can find some people to help them understand better what they need to do.

That’s my sincere take, in any event, Dave. There are lots of smart and good people who think I am a dreamer. I guess we will find out for sure when that next price crash hits and we see how people react.


“My Post Caused You to Experience an Epiphany Moment. I Have Had My Own Epiphany Moments re This Stuff Over the Years and I Have Been in the Room When Lots of Others Experienced Those Moments. My Life Project Is To Help Millions of Middle-Class People Experience Those Epiphany Moments.”

Set forth below is the text of a comment that I recently posted to the SiteSell.com discussion forum:


I finished reading the research article you shared and your follow up post and…

…what can I say…

Wow. Wow and wow!

What you’ve shared here really seems to offer some important missing pieces of the puzzle for me in terms of building a long term investment strategy that makes PERFECT sense

Thanks again for your kind words, Eli.

The words of yours that I have quoted above do a nice job of summarizing where we stand today AS A SOCIETY re our understanding of how stock investing works, in my assessment. My post caused you to experience an epiphany moment. I have had my own epiphany moments re this stuff over the years and I have been in the room when lots of others have experienced those moments. My life project is to help millions of middle-class people experience those epiphany moments. Please understand that I do not come up with this stuff because I am some sort of investing genius. I am not. I am a journalist and all of the work I do is done with the skills set of a journalist. I look for weak points in the cases that are put forward for the various strategies and, when I find them, I puzzle over them until I figure out how those weak points got there. Then I try to figure out what should be there instead. When I come up with something that seems to make sense, I go to a blog or discussion board and see what other people think. I learn from the reactions I get and I refine the ideas until I have confidence that I am really onto something.

My point here is that I am gratified and humbled by your praise. Please understand that I have been working this for 12 years and that the ideas that I put forward today are the product of the feedback and contributions of THOUSANDS of fine and good and smart and hard-working and generous people. If you knew how much some people have helped me out, you would be amazed. There was one fellow (John Walter Russell) who spent EIGHT YEARS OF HIS LIFE doing research on the Valuation-Informed Indexing concept. He created an entire SiteSell web site exploring these ideas. At one time, he was posting fresh research on almost a daily basis. John died a few years back. I wish that he could hear your words. John was an amazing human being and his friendship was one of the greatest rewards I have seen from all this (I haven’t earned a dime in financial compensation yet although I sure hope to earn a mountain of dimes somewhere down the road a piece). There were lots of others, some big names in the field and some just ordinary investors. We’re all involved in a project aimed at enriching the lives of millions and it is an encouraging event when we see things click for someone like you.

Please understand also that I include my many Buy-and-Hold friends in that statement. The Buy-and-Holders missed out on an important part of the puzzle. But they also advanced our understanding of how stock investing works in many important ways. It’s so important that people understand this. I am a controversial figure in the personal finance blogosphere. There are people who love me to death. And there are people who hate me with a burning passion. The fellow who wrote the Pop Economics blog once told me that I need to figure out a way to tell the truth about stock investing while also permitting the Buy-and-Holders to save face. That is 100 percent true. These ideas have been met with a great deal of resistance and only a small bit of it has been rooted in intellectual skepticism (which is of course justified and appropriate whenever a new idea is put forth). Most of the resistance has been from people who experience emotional pain when they hear that the investing strategies that they have been following for years and that they have recommended to friends have been discredited by 33 years of peer-reviewed research.

I care about these people and I want to present things in a soft way. But the realities are what the realities are. I cannot make stuff up. The Buy-and-Holders got one piece of the puzzle terribly wrong. Long-term timing is price discipline. Price discipline is 100 percent required for any market to work. It’s impossible to exaggerate how far-reaching are Shiller’s findings. His research changed our understanding of how stock investing works in a fundamental way. It’s very positive and liberating and life-affirming stuff. But the move forward greatly threatens the thousands of “experts” (I use scare quotes because there is no such thing as an expert in the field of investing analysis today — our knowledge is at too primitive a level today for anyone to rightfully claim to be an expert) who built their careers promoting Buy-and-Hold. We all need to figure out a way to reach these people and to calm them down and to help them do what deep in their hearts they very much want to do — join in the effort to advance the ball and thereby to help their clients and readers to live better lives.

I have a recommendation if you want to pursue this stuff to the next step, Eli. At the top of every page of my site I have a slider that presents comments that people (both big names and ordinary investors) have offered on my work. There are over 200 of them. If you take the time to go through those comments (the slider advances by itself or you can use the forward button on your keyboard to move at a quicker pace), you will obtain a nice summary of all that I have learned over 12 years of exploration of Shiller’s ideas. I am very proud of those comments. As I noted above, they are the result not only of my own work product but of the contributions of thousands of fine people. Here’s a link to the home page of the blog (the slider is at the top right-hand corner of the page):


Thank again for your interest in the ideas.


Valuation-Informed Indexing #188: Shiller’s Mistaken Understanding of Why Only Long-Term Returns Are Predictable

I’ve posted Entry #188 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Shiller’s Mistaken Understanding of Why Only Long-Term Returns Are Predictable.

Juicy Excerpt: The term “noise” suggests a meaningless factor, a factor that need not be given much consideration. The Buy-and-Holders are using the term properly, Shiller is not.

Buy-and-Holders believe that the returns of greater than 6.5 percent real and the returns of less than 6.5 percent real pop up randomly. Returns are determined by unforeseen economic and political events, in the Buy-and-Hold Model. Thus, deviations from the normal return cannot be predicted. The deviations are noise, distractions from the reality you should be keeping in mind at all times, the reality that the average long-term return is 6.5 percent real.

Under Shiller’s model, the deviations are NOT random and meaningless events. The reason why returns are predictable in the Shiller model is that the model posits that it is investor emotions that are the primary determinant of price changes. Emotional extremes in one direction beget in time emotional extremes in the opposite direction. High prices increase the probability of price drops and low prices increase the probability of price rises. There’s nothing “noisy” (or random, or meaningless) about this process. It is the essence of how stock investing works, according to the Shiller model.

“In the Investing Advice Field, You Can’t Just Put Forward Ideas As Something to Think About. People Have to Invest. They Have to Take Choice A or Choice B. And People Don’t Want to Invest Their Retirement Money According to Something That You Claim Has a 50% Chance of Working or a 30% Chance or a 70% Chance. They Want 100 Percent Certainty. People In This Field Pick Up On That And Try to Respond To It By Expressing a Level of Confidence That Is Not Justified.”

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

Rob, do you think the news about the US handing control of ICANN to the international community will be good for honest posting?

I know next to nothing about it. So it’s not right for me to venture an opinion. The tiny bit I have read about it has been negative.

The one thing that I can say is that it is not procedural issues that are the problem. The published rules at the Motley Fool site were perfect at the time I was posting there. The same thing was true at Morningstar. We don’t need new rules. We need better enforcement of existing rules.

We have lots of positives. The people working in this field are smart and hard-working and good. We all want the same thing. The research is rock-solid. There’s tons of money to be made advocating a true research-based approach. That provides a lot of incentive for spreading the word.

The way that I often put it is to say that we are on the one-yard line. We need one front-page article in the New York Times. Or one big blogger who makes this a cause. Or one venture capitalist who gets behind this. That’s all it would take to swing the door open at this point. Once it became clear to people that it is safe to post honestly, we will see hundreds of people doing it and then thousands not too long after. We are very close. And yet of course in another sense we remain today very far away from where we need to be.

The biggest problem we face is that this is so darn important. Intuitively, you would think that people would focus on the most important matters. That’s true to a point. But there comes a point at which something is too important to deal with. It’s like the thing where they say that a business is too big to fail. This mistake is a mistake too big too fix. It would mean rewriting every textbook in the field. People look at that and say “no, we cannot go there.” They overlook the fact that it means being able to bring the economic crisis to an end and being able to reduce the risk of stock investing by 70 percent and being able to help people to retire 5 to 10 years sooner and all this other wonderful stuff. They notice that it means rewriting all the textbooks and they conclude that it is just too big an advance to accept.

The other one is that people care. The Buy-and-Hold Pioneers were trying to do something good. I cannot see into their minds. But all the evidence I have seen points in that direction. So people say, “oh, don’t mention their mistakes, their hearts were in the right place.” I see it just the other way. I say “their hearts are in the right place, so they obviously don’t want to hurt millions of people, make sure that they get those mistakes fixed fast!” But lots of people feel strongly today that that’s not the way to go. There’s a line that you cannot cross. You can say “I do things differently.” But you cannot say “these good people got something wrong and they are hurting lots of people as a result.” People close their minds when you say that.

I guess what I am saying here is that it is not procedural rules that we need to change. The procedural rules that exist are just fine. We need to change people’s hearts. We don’t have to persuade people to want to be able to invest effectively. We of course already have that. We need to figure out some way to get people to come to terms with mistakes made in the past.

A big cause of our problems is the unfortunate reality that in the investing advice field, you can’t just put forward ideas as something to think about. People have to invest. They have to take Choice A or Choice B. And people don’t want to invest their retirement money according to something that you claim has a 50 percent chance of working or a 30 percent chance of working or a 70 percent chance of working. They want 100 percent certainty. They are scared of losing their retirement money and so they very much want to hear that you are sure. People in this field pick up on that and they try to respond to it by expressing a level of confidence that is not justified. And then of course it becomes hard for them to back away from what they have said when it comes out that their confidence in discredited ideas was very much misplaced.

The reality is that there are two research-based models for understanding how stock investing works. Buy-and-Hold is dominant. It is probably supported by 90 percent of investors. I obviously believe that Valuation-Informed Indexing is superior. But it is today supported by perhaps 10 percent of investors. How do we increase support? We have to talk about the new ideas. But these ideas are very threatening to the 90 percent following the other model. The ideas are too powerful. If they were less compelling, the Buy-and-Holders could just laugh them off. But there is rock-solid support in the research and the stakes are as high as they can be and so the Buy-and-Holders feel that they must shut down the learning process at all costs.

That’s the problem that we have to solve, Sensible. We need to get the Buy-and-Holders to calm down enough to listen to the other side of the story. If we do that, we will win them over. Then there will be no conflict. But the pain that the Buy-and-Holders feel when they hear that the investing strategies they have been following for years are wrong-headed is very real. I need to figure out how to make people feel less pain long enough to realize how great the benefits are that follow from adopting a true research-based approach. I obviously spend every day trying to figure that one out. If we knew the answer to that one, we could turn the key and there would be zero conflict from that point forward.

I am not a person who likes conflict, Sensible. I am probably the most conflict-averse person you are ever going to meet. PeteyPerson nailed it when he described me as a “teddy-bear-type poster” in the days before May 13, 2002. But conflict is part of this fallen world we live in, you know? I like the analogy that I make to the Civil Rights days. There were racists in the pre-Civil Rights days. But the ugly forms of racism were never the real problem. The real problem was that lots of people who did not like racism one little bit feared change. A change was being proposed that was very, very, very positive and people saw that on one level of consciousness and yet on another level of consciousness they feared this big change that was being proposed. That’s where we stand today re the Social Taboo that blocks us from talking about the realities of stock investing as revealed by the last 33 years of peer-reviewed academic research in this field. We need to work up the courage to make the change needed to enrich our lives in hundreds of amazingly positive ways.

The process rules are already in our favor. So trying to come up with even better process rules won’t make the difference. We need to change human hearts. We need people to see that change is not bad here, change is a very, very, very good thing in this context. You can’t change people’s hearts without talking to them, however. We are stuck in a Catch-22 because the thing we need to solve the problem is civil and reasoned discussion and that’s the very thing that the Buy-and-Holders most fear because they understand that the research-based case for Valuation-Informed Indexing is so strong that “their side” cannot possibly prevail if civil and reasoned discussion is permitted. So for a time we are stuck.

We figured out the Civil Rights thing, right? Lots of people got hurt. Lots of blood was shed. That part terrifies me. I see that happening here. That’s why I talk about the prison sentences whenever an opportunity presents itself. The prison sentences are the dark side of all this. I feel a responsibility to pull things in a positive direction and I don’t see how we get there by ignoring felonies. Each time we turn our heads to that sort of thing we make things worse. We give people who are afraid of change an out. We’re telling them “you don’t need to follow the laws of the country you live in, we will make an exception for you because of the emotional pain you feel over accepting the need for change here.” That’s deeply wrong, tragically wrong. It’s cowardice and selfish. We need to apply the same standards of personal integrity to the investing advice field that today apply in every other field of human endeavor. So we need to point out when people sink below minimal ethical standards.

The phrase that I use about Jack Bogle is that, after the next crash, his heart will melt. I think that that is where we are going to see the change. Millions of people are suffering today. But to a lot of us those people are abstractions. We hear that millions are unemployed and we think “oh, that’s someone else’s problem, you cannot put that one on me just because I make it a daily practice to post abusively over the 12-year cover-up of the errors in the Old School safe withdrawal rate studies.” It gets harder to do that when we are in the Second Great Depression, when we are all seeing photographs of the human misery we have caused in the newspapers every morning.

The pain has to get worse for us to work up the courage to do what is needed to make the pain go away. That’s a hard way of putting it but a true way too, I believe. Sometimes there are things in life that we know we have to do but for some reason we don’t want to give up our old ways. Maybe there is a diabetic who needs to give up drinking beer or his leg is going to be cut off. He ignores the warnings because he has been drinking beer his entire life and he cannot accept that he needs to give it up. Maybe he has a friend with the same problem and he visits the friend in the hospital after his leg has been cut off. Now he cries. Now he sees that he really must make this change that he has resisted for so long. All of a sudden, there is a total change in the guy’s attitude. Now he is capable of accepting reality and doing what he needs to do to save his own leg.

We don’t need new procedural rules. We need a change in human hearts. My guess is that it is the next price crash that will help melt human hearts. I hate it that it has come to that but it is my perception today that that is where things stand. We will see.

My best and warmest wishes to you, Sensible.


Buy-and-Hold Poster to Rob: “What You’re Missing Is That the Financial Markets Aren’t Subject to the Laws of Physics — Just Because Something Has Happened in the Past Doesn’t Mean It Will Happen Again. And Mistakenly Believing That Might Mean That Someone Misses Out on a Tremendous Buying Opportunity.”

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

Rob, what you’re clearly missing is that the financial markets aren’t subject to the laws of physics — just because something has happened in the past doesn’t mean it will happen again. And mistakenly believing that might mean that someone misses out on a tremendous buying opportunity.

Shiller recognizes this, which is why he decided that prudence dictated he allocate 50% of his portfolio to stocks. He realizes that it’s folly to stay on the sidelines waiting for a pe 8 bus to appear when the reality is that it might not show up in our lifetime. Better to be approximately right than precisely wrong.

Every word you put forward in that post is on the right side of the line, Curious. You have not only a right but also a responsibility to say that on the boards and blogs at which you participate, presuming that it is your sincere take (I believe that it is).

I am 100 percent certain that a large percentage of the good and smart people posting at those board and blog communities will agree with you. Every indicator that I have seen over the past 12 years tells me that this will be the case.

I wish you the best of luck with it and with all your other future life endeavors.


“There are Five Factors That Explain Why I Am Perceived Differently: (1) I Focus on the Findings of Peer-Reviewed Research Rather Than Express a Personal Opinion; (2) I Attack Buy-and-Hold As Well As Advocate Valuation-Informed Indexing; (3) I Make Expansive Claims That Strike Most People As Grandiose; (4) I Do Not Possess the Credentials That Would Make People Respect the Claims; and (5) I Seem to Be Questioning the Personal Integrity of People With Stellar Reputations.”

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

There IS no such such Ban, as you well know. The only applicable ban is the one regarding a single mentally ill persistent troll, for his rotten BEHAVIOR, not for his bizarre beliefs. Shiller can post, Easterling can post, etc.

Any of a host of perma-bears, timers, wave-speculators, kooks, cranks, swindlers, and nuts can post on pretty much any board out there. In fact, right up until his demise, even that twisted old codger, the irascible JWR was perfectly free to post.

The only major ban I know of is for YOU, personally, at more than a dozen finance boards.

You said you hoped to veer off into writing at political boards next, and I very much suspect that the pattern will repeat itself there, as well, even in the wild-and-wooly world of internet political wrangling. That would be quite a feat for even you, Rob, to attain multiple bans in that freak show.

You are making a legitimate point, Helper. Thanks for being frank in your comment. Frankness always helps to bring real issues to the table.

John Walter Russell was ultimately banned at one or two places. But it was an exceedingly rare thing for him to be banned. During the time we were working together on a daily basis, there were several places where he was praised on a daily basis and where I was banned. He would get into trouble only when he talked about me. And John always got more comments posted at his site, even though I had more traffic at my site. When I would post at John’s site, there were people who would be turned off, even though the two of us were saying the same thing (obviously in somewhat different ways).

I also agree with you that lots of kooks and cranks and nuts are permitted to post at just about every site at which I have been banned.

I half agree and half disagree with what you say about Shiller and Easterling. Whether they were banned or not would depend on how strongly they stated their views. I can imagine them being tolerated and I can imagine them being banned at some places if they spoke frankly.

The basic point you are making — that there is something special about me that does not apply in the case of other people who have investing beliefs in many ways similar to my own — is legitimate. I’ll give you that one.

We all should be trying to figure out what that extra factor that I bring to the table is. Knowing what that extra factor is is important. When we identify that extra factor, we are on our way to resolving not only the problem of the friction at the boards but the problem re what we all need to do to become far more effective investors in the future than we have ever been in the past.

There are numerous people who have acknowledged that I am 100 percent kind and polite and warm in my dealings with all my fellow posters, even those who have threatened to kill my wife and children. So it is obviously not that I am in any way abusive in the way that that word is ordinarily interpreted when people are discussing who should and who should not be permitted to post at discussion boards and blogs. I have never violated a posting rule and I am the last person in the world who ever would do so. But there is something that I am doing that bothers lots of people in a big way. It would be constructive to figure out what that something is.

I believe it is five things.

One, I root everything I say in the academic research. Mot of the kooks you refer to do not do that. Buy-and-Holder sincerely believe that their strategy is rooted in the academic research and that gives them comfort. If some kook comes along and offers a different take, it does not bother the Buy-and-Holders too much because they believe that their strategy is rooted in research and the kook’s strategy is not. I am different. I insist that people look at the research. I never back away from that. I say both that VII IS rooted in research and that Buy-and-Hold is not. I pose more of a threat to Buy-and-Holders than the kooks who are not challenging their positions re what the research says.

Two, I not only advocate something new, I also say that Buy-and-Hold does NOT work. This touches emotional hot buttons. I think this is the difference between me and John Walter Russell. Russell’s usual practice was to present his research and offer little discussion of what it meant. He rarely said the words “Buy-and-Hold doesn’t work.” People felt they could tolerate what he was saying on grounds that everybody is entitled to an opinion. And lots of people believe that valuations matter. So they liked it that he was exploring how valuations matter. The obvious implication of his research was that Buy-and-Hold does not work. But so long as he didn’t say those words, people didn’t feel that they had to respond to him. When I say “Buy-and-Hold doesn’t work,” Buy-and-Holders feel compelled to respond and it annoys the piss out of them that I say that over and over and over again.

Three, I make grand claims about how wonderful Valuation-Informed Indexing is. This is what Scott Burns was getting at when he said that my approach is “catastrophically unproductive” and that my claim that there is a “New School” of SWR analysis is “self-aggrandizing.” He feels that it makes him look stupid that there was this huge potential to offer better investing advice all these years and that he missed it. I am not only saying that there were little mistakes made, I am saying that the mistakes that were made ruined millions of lives. It is hard for people to accept that. It makes them feel that they are bad, that they steered their friends wrong and that they let their families down and that they let their clients down and that they let their readers down. It makes people feel badly about themselves.

Four, I do not seem qualified to make such grand claims. I do think it is possible that Shiller would be tolerated if he said the same things I say because people would say “well, he won a Nobel prize, I have to respect that.” I am some fellow whose only claim to expertise in this field is that I happened to figure out how to get words posted to the internet. People feel that it is an outrage that I make such grand claims. As one fellow put it, it sounds “grandiose.” It rubs people’s fur the wrong way when I say things like “I know more about how stock investing works than Jack Bogle,” who is a well-loved (properly so) figure in this field.

Five, many of the things that I say sound like thinly veiled attacks on the personal integrity of the biggest names in this field. Probably the most extreme case is where I say that Jack Bogle is at risk of going to prison for financial fraud. That claim is so far outside the realm of what most people think is reasonable that they cannot accept or even tolerate hearing me say it. A somewhat less extreme case is when I say that the errors in the Old School SWR studies have been covered up for 12 years. When I say something like that, I am not just offering a different view on investing. I am not saying “Oh, I would use a withdrawal rate of 3 percent rather than 4 percent.” It sounds like I am saying that people of considerable accomplishments lack integrity. That’s a very serious charge. The general reaction is to respond with the thought: “Where the heck does he get off with this stuff?” Those sorts of claims make even supporters of my ideas angry because they see it as a nasty business for me to make such claims.

I think those are the big five factors in why I am perceived differently than others who say that valuations matter or who in some other way take issue with core Buy-and-Hold principles: (1) I focus on the findings of peer-reviewed research rather than just express a personal point of view; (2) I attack Buy-and-Hold as well as advocate Valuation-Informed Indexing; (3) I make expansive claims that strike most people as grandiose and even impossible (Wade said “it all seems so implausible”); (4) I do not possess the credentials that would make people respect even less expansive claims; and (5) I seem to be questioning the personal integrity of a good number of people who have stellar reputations built up over a long period of time.

I have not worked hard on the political side. But I have tried a few things there. The reason I have not worked those fields harder is that I have generally experienced the same reactions there that I have seen on the investing sites. I have hopes that that things will be different at political sites. But I wouldn’t bet a big bunch of money on this turning out to be the case.

I hope that helps a bit, Helper.


“Not One of the 30,000 Academic Researchers to Whom I Sent a Link Identified Any Problem With the Research Paper That I Co-Authored With Wade Pfau Showing Investors How to Reduce the Risk of Stock Investing By 70 Percent.”

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

Hi Rob,

Does anyone other than you believe that you have “develop[ed] a new model for understanding how investing works that will reduce risk by 70 percent”?

Surely you must have shared this with others whose opinions you respect. What did they think?

The committee that approved publication of the research paper in a peer-reviewed journal obviously thought well of it, Curious.My co-author Wade Pfau was very excited about it. He said that he was giving thought to submitting the paper to the Journal of Finance, the top journal in the field. Over and over he expressed amazement that no one had thought to examine the question we researched together (how much it reduces risk to exercise price discipline when buying stocks) before.

The scores of academic researchers who responded to my e-mail campaign thought well of it. Rob Arnott, the former editor of the Financial Analysts Journal, told me that my work in this field is “sound.” Carol Osler said that we are seeing a change in the paradigm for understanding how stock investing works and that I must be patient to see all the experts in the field come around (she expressed the thought that this would likely happen following the next price crash). Robert Savickas said that he will be teaching Valuation-Informed Indexing to his class at George Washington University. Barry Ritholtz linked from his hugely popular blog to my article on “Why Buy-and-Hold Investing Can Never Work.” Scores of others offered exceedingly kind comments. Not one of the 30,000 academic researchers to whom I sent a link identified any problems with the research paper.

The Bogleheads Forum found that the paper was of huge importance. Fred Flintstone said that it challenged core principles of Buy-and-Hold. Many others expressed a desire that the Ban on Honest Posting be lifted so that they could engage in reasoned discussion of the findings of the paper. You Goons were obviously impressed by it or you would not have threatened to send defamatory e-mails to Wade Pfau’s employer in an effort to get him fired from his job. My good friend Jack Bogle was obviously not able to come up with any grounds for challenging the findings of the research in civil and reasoned debate or he would have done something about you Goons when he learned about the threats you made to silence Wade.

The short version is that tens of thousands have seen the paper and most who expressed an opinion have either praised it to the skies or have been so threatened by what they saw (because they have staked their lives on a belief in Buy-and-Hold strategies) that they either engaged in or tolerated acts of financial fraud to keep more people from learning about it.

I think it would be fair to say that there are few research papers that have ever been published that have had that sort of impact in the short amount of time that the Bennett/Pfau research paper has been available for people to review. Wade once told me that there is a saying among academic researchers that no paper ever wins a Nobel Prize without being hated by some (because the most important papers are seen as a threat to those who built their careers around the ideas that are being discredited by the advance in knowledge). I think it would be fair to say that the Bennett/Pfau paper showing how investors can reduce risk by 70 percent just by abandoning Buy-and-Hold strategies fits that pattern!

My best wishes to you.