Question Asked at the Quora Forum: “Why Is Rob Bennett Opposed to the Buy-and-Hold Strategy for Investing in Equities?”

Set forth below is the text of the response that I offered at the Quora forum to the question “Why Is Rob Bennett Opposed to the Buy-and-Hold Strategy for Investing in Equities?”:

Finally a question re which I can feel confident that I possess the expertise needed to rise to the task of venturing forward with a response!

The backstory here is that I was a Buy-and-Holder myself until the evening of August 27, 2002. The Buy-and-Holders did something very important that had never been done before — they developed a long-term investing strategy suitable for use by ordinary people (non-experts) that was rooted in the peer-reviewed academic research in this field. The idea of doing that was a hugely liberating idea for all of us. We all owe the Buy-and-Holders a huge debt of gratitude.

I came into the story on the morning of May 13, 2002. I had been posting on saving strategies at the Motley Fool site for several years and had become the most popular poster at the site as a result of those posts. I posted at a board at which a fellow who had published a retirement study also posted. I noticed that his study did not include an adjustment for the valuation level that applied on the day the retirement begins. There was at that time 20 years of peer-reviewed research showing that such an adjustment is needed. I put up a post pointing out that there appeared to be some problems with the study.

The discussion that followed has over the years become the most controversial debate on a personal finance topic ever held on the internet. There have been MILLIONS of posts advanced on both sides. If Nobel Prize Winner Robert Shiller is right that valuations affect long-term returns, just about everything we hear about how stock investing works on the internet and in books and in speeches and in calculators is wrong. Shiller’s breakthrough findings turn the world of investing analysis on its head. On the other hand, if Nobel Prize Winner Eugene Fama is right, then Buy-and-Hold is the ideal strategy and there is no problem. But which is it?

We saw scores and scores of amazing threads back at the old Motley Fool board. It was the greatest learning experience that any of us at that board had ever enjoyed. At some point, the Buy-and-Hold camp decided that they couldn’t bear being challenged any more. On the night of August 27, 2002, the author of the study that I questioned threatened to kill my wife and children if I continued to “cross” him by posting about the Shiller research. 200 community members (people who had been friends of mine) endorsed his post. I found this very, very, very, sad. I concluded on that night that Buy-and-Hold is the most emotional investing strategy ever concocted by the human mind (unintentionally so, but still….).

I believe that Shiller is right. I believe that investors need to take valuations into consideration in every strategic choice they make. I don’t believe that it is possible to invest effectively in the long term if you don’t do this. I am now the co-author of peer-reviewed research showing this to be so in a most compelling way. Wade Pfau (Wade has a Ph.D. in Economics from Princeton) and I spent 16 months together developing research showing that investors who are willing to take valuations into consideration when setting their stock allocations are thereby able to reduce the risk of stock investing by nearly 70 percent while also dramatically increasing returns. That’s the fountain of youth for stock investors! That’s investor heaven!

A good percentage of the Buy-and-Holders who see that research end up converting to Valuation-Informed Indexing as a result. The abusive Buy-and-Holders were so upset by how people reacted to it that they threatened to send defamatory e-mails to Wade’s employer in an effort to get him fired from his job. Wade agreed to stop promoting the research in an effort to appease these people.

All bull markets are the result of investor emotion. People naturally want to see their portfolio values rise and so most applaud during times of rapidly rising prices. But the entire 140 years of stock market history shows that we always pay back any gains experienced beyond those justified by the economic realities (the economic realities support a gain of 6.5 percent real per year). So all that we are doing in bull markets is borrowing from our future selves.

When we borrow too much from our future selves, we bring on an economic crisis by putting such a payback burden on our future selves. There has never been a single exception in the 140-year history of the U.S. market. In 2000, stocks were overpriced by $12 trillion. As that money disappeared from our portfolios (it usually takes about 10 years for this process to complete itself), we became less and less able to spend on goods and services and thousands of businesses failed and millions of workers lost their jobs. Bull-market fantasies hurt lots of people in very, very serious ways.

Lots of people know this, at least in part. Shiller was awarded the Nobel Prize in Economics for his work. But most people who have tried to tell the story have found that the Buy-and-Holders become very, very upset to hear what the last 33 years of peer-reviewed research says. So most tell the story in tentative ways that don’t persuade too many people. We need to make those who believe in Shiller’s version of the story to feel every bit as comfortable expressing their sincere views as we make those who believe in Fama’s version of the story.

It is fair to characterize me as the most severe critic of Buy-and-Hold alive on Planet Earth today. But the totally fair way to tell the story is to say that the reason why I am so opposed to the version of Buy-and-Hold promoted today is that it conflicts so sharply with the original aim of the Buy-and-Hold Project. The initial idea was to root one’s strategies in the peer-reviewed research. When the research findings changed, the strategy should have been updated to reflect the new findings. John Bogle still recommends the same strategies he recommended in 1980, the year before Shiller published his “revolutionary” (Shiller’s word) research.

I oppose Buy-and-Hold as it is promoted today because Buy-and-Hold as it is promoted today is anti-research. Valuation-Informed Indexing incorporates every aspect of the Buy-ad-Hold strategy but one, the one that has now been discredited by 33 years of peer-reviewed research. I promote Valuation-Informed Indexing, the NEW Buy-and-Hold, Buy-and-Hold 2.0.

It’s not possible to believe in both the old Buy-and-Hold and the new Buy-and-Hold because they are opposites. Whether you take valuations into consideration when setting your stock allocation or not makes a HUGE difference. Sticking with the strategies that have now been discredited by 33 years of peer-reviewed research will cause you to delay your retirement by many years while taking on far more risk than is necessary, according to the peer-reviewed research of the past 33 years.

I of course believe that we all should feel gratitude to our Buy-and-Hold friends for the many wonderful insights they have developed and shared with us. But I very strongly believe that we need to move forward. I believe that deep in their hearts that’s what our Buy-and-Hold friends want us to do. I believe that it was a belief that the peer-reviewed research can help us that got them started on their journey. So I believe that moving forward by correcting the perfectly understandable errors that were made in earlier days helps us all.

Rob

Owner of Joe Taxpayer Blog: “It Takes Decades for Rob’s Thesis to Be Proven Correct (I Don’t Mean the Analysis, But the Actual Results). He Is Correct That the Assumptions Most Planners Use Are In Fact Dangerous.”

Set forth below is the text of a comment that I recently posted to the Joe Taxpayer blog:

Rob is passionate on his beliefs. The market is very strange, and it takes decades for Rob’s thesis to be proven correct. (I don’t mean the analysis, but the actual results.) He is correct that the assumptions most planners use are in fact, dangerous.

Lots of people say this and I suppose that it is generally true. But there is one way in which it is not 100 percent true and I always feel that I should try to help people understand that so that they have the full story.

I don’t think of myself as a passionate person. I just think of myself as me. But enough people have used this word to describe me that I have come to accept that it applies. There once was a girl whom I had a crush on for years and we were friends and I couldn’t understand why she wouldn’t go on a romantic date with me. It drove me crazy! Finally she broke down and told me that I was too “intense.” This explanation of the problem had never crossed my mind! Other people pick up on this but for me it is just what I am so I don’t really see it.

But I am not particularly passionate about investing or about Shiller. I think Shiller is right. I think Valuation-Informed Indexing is the future. But by itself that is not a big deal for me. I started posting at Motley Fool in May 1999 and I never even mentioned Valuation-Informed Indexing until May 2002. For three years I wrote only about saving stuff. Investing is way down the list of topics re which I care about.

However, I AM passionate about the people in the internet communities to which I have posted. The thing that makes me feel intense feelings is people and their stories. When you post at a board regularly, you get to know people as people. From that point forward, you cannot not care. At least I don’t see how that could be possible.

There was a strange set of circumstances that caused me to become known as the lead proponent of Valuation-Informed Indexing on the internet. The truth that few newcomers know is that I dropped out of the debate on Day Five because of the abusiveness of the Goons. But after I left, hundreds of my fellow community members at Motley Fool picked up the ball and started talking about all the wonderful insights we had developed together in just those five days. That pulled me back in. At that point, I would have felt like a creep not to get involved just because of a few nasty personal attacks.

Then it just grew and grew. The mountain of evidence supporting Valuation-Informed Indexing got higher and higher and the Goons got more and more desperate in their tactics. I have ALWAYS said that we should have shut them down when Greaney advanced his first death threat. All that we have done is hurt them by failing to take effective action. Greaney and I had a lot of good times together and it causes me great pain to see what he has done to himself. I HATE it that as a community we have let these terrible events transpire. But I don’t control it and I have to accept the realities whether I like them or not.

The two things that I am passionate about are our country’s economic system and our country’s political system. It is a core principle that we permit both sides to speak and that we even encourage the expression of different ideas and new ideas. My cause is to make that general rule applicable in the field of investing analysis just as it is in every other field of human endeavor in our society. I couldn’t possibly feel stronger re that one. Please feel free to label me as “intense” and “passionate” re that one all over the internet.

If we permit people to post their sincere beliefs, I am confident that things will work out well. I don’t have any worries once we pull together to open the internet to honest posting in the investing realm.

I DO believe that people will go to prison over this. I of course HATE that reality and I of course acknowledge that it is a 100 percent crazy reality. But I have seen how people react when they learn that they have been lied to and have suffered huge financial losses as a result. It’s not a pretty scene to behold. Today we see all this emotion on the side of Buy-and-Hold. When things flip (I believe this will happen following the next crash), I believe that all that emotion is going to be on the other side. I will then be the guy saying “Hey, the Buy-and-Holders are good and smart people, let’s not get carried away here.” I LOVE the Buy-and-Holders. I only wish they loved themselves as much as I love them.

Anyway, the point here is that I fight for Valuation-Informed Indexing more because I want to see the boards and blogs run honestly than because I care so much about stock investing. Perhaps that’s part of the reason why I see things from a different perspective than most. The more intense you are about investing, the less able you are to acknowledge the evidence showing that you have been following long- discredited ideas. I don’t have that hang-up. I am able to just look at what the research shows because none of the investing stuff is a big huge deal to me. I am not personally invested in it. Whichever way it goes is okay by me. If the Buy-and-Holders are proven right in the end, that’s fine by me, so long as it happens as part of an honest process in which all “sides” feel free to express their sincere views.

If you had told me on the evening of May 12, 2002, that I would spend the next 12 years of my life leading the most controversial debate on stock investing ever held on the internet, I would have told you that you were out of your mind. I would have put the odds at zero. But here we are. Life has a way of playing funny tricks on all of us. You either develop a sense of humor or you don’t last long in this valley of tears. That’s been my experience, in any event.

It’s always nice to hear your voice up close and personal, Joe. Keep fighting re that fees things. When people become passionate about something, there is a reason for it, even if some others cannot see it immediately.

Hang in there, man.

Rob

Goon Poster to Rob: “Rob, Does Anyone Read This Blog Beside the Goons Who Like to Poke Fun at You? I’ve Never Seen a Comment by Anyone Else.”

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

Rob, does anyone read this blog besides the goons who like to poke fun at you? I’ve never seen a comment by anyone else.

Comments by non-Goons are rare, Anonymous. There have been some here and there. But we often go a long time before seeing a fresh one.

That’s evidence of the core problem, no?

LOTS of people engage me in discussion when I post at a large board or blog. So many that you Goons complain that to let me post at a large board or blog is to create a “Rob Bennett Show.” When I posted at Bogleheads, my posts where the star attraction nearly every day for months on end. There were times when there were four or five separate ongoing threads relating to the Valuation-Informed Indexing concept.

You would think that some of the people who are so interested in the concept would follow me to my own site and ask their questions there, would you not? But they don’t. Huh? How come?

Humans are social creatures, Anonymous. That’s the thing that the Buy-and-Holders missed. It’s a very, very, very big deal. People do not like to engage in taboo conversations. Posting at a board owned by a fellow that has been banned from 15 different sites is engaging in taboo conversation. People don’t feel comfortable with it.

People’s minds tell them that there must be something wrong with the message of a fellow who has been banned at 15 different sites. Perhaps it is not clear what is wrong , perhaps people cannot put their finger on the problem. But there is something within them that tells them that they don’t want to be involved with the taboo. And being banned at 15 different boards is a signal of taboo behavior. Saying that the Old School SWR studies get the numbers wildly wrong is taboo. Saying that Buy-and-Hold caused the economic crisis is taboo. Saying that Jack Bogle is at risk of going to prison for financial fraud is taboo.

The fear of the taboo is the driver of all this. At the heart of our economic system is a belief that humans are rational actors. It’s not Jack Bogle who came up with that one. It’s freakin’ Adam Smith! That one has been around a long time. And that one is the one that was disproved by freakin’ Robert Shiller, Nobel Prize Winner.

Shiller changed everything. And it’s a very, very, very good thing that he did so. Our children and their children will live far richer lives than we lived because of the blessings that will be bestowed on us as a result of Shiller’s “revolutionary” (his word) findings. It’s good stuff piled on top of good stuff piled on top of good stuff piled on top of good stuff. It never ends (as least not as far as today’s eye can see). So lucky us!

But when we achieve that big an advance, there are a lot of people who get their feathers ruffled. All of the people who believed in Jack Bogle get their feathers ruffled. Heck, all the people who believed in Adam Smith get their feathers ruffled a bit! When you improve everything, you change everything. When you change everything, you ruffle a lot of feathers.

We have taboos against doing that sort of thing. Big Shots don’t like having their feathers ruffled. So they fight and they fight and they fight and they fight.

To no purpose. We HAVE to ruffle their feathers because our economy is bigger today than it was the last three times that Buy-and-Hold caused an economic crisis and so this economic crisis is likely going to be a lot worse than any of those before it is over unless we work up the courage to ruffle a few feathers. And one of those three put us in a Great Depression! So the cost of avoiding feather ruffling is getting pretty darn high.

Still, the humans are social creatures and the humans don’t like violating taboos and telling the truth about what the last 33 years of peer-reviewed research tells us about how stock investing works is the biggest taboo of all. So I am doomed, right?

I don’t think so, Anonymous.

I think we are as a society going to work up the courage to violate that taboo following the next price crash. Then I don’t just get average traffic here. I get off-the-wall insane traffic, traffic big enough to make me one of the richest men in the United States. Why? Because I have no competition! Everyone else is playing it the other way. Everyone else is saying “Why fight the taboo?” I violated the taboo 12 years ago and have been fighting it harder and harder every day since. On the day the taboo comes crashing down, I have a 12-year (or bigger) edge on everyone else.

I want the traffic. I want it bad. But I am not intimidated by anything you do to limit my traffic or to point out to me how small my traffic is. I am writing for the post-taboo days. They are not here yet, but they are getting close. I’d say that we are one price crash away. That’s the path I chose on the morning of May 13, 2002, and that’s the path I intend to stay on for at least another 12 billion years. Just so you know.

I get precious little non-Goon traffic here. I don’t dispute what you are saying.

I am going to continue posting honestly re SWRs and scores of other critically important investment-related topics all the same. I am never even going to flinch.

I think it’s the right thing to do. And I think it will make me very rich and very famous to take this path.

So the intimidation tactics don’t work on me. They hurt. I am not saying different re that. I am saying that they do not achieve their aim, getting me to stop violating the taboo. I think this taboo has caused huge human misery for millions of middle-class people and I want to see it torn down and I am proud of the efforts that I have put forward to tear it down and humbled that I was chosen by God or Evolution or the Fates or Whatever to be the one to bury it 30 feet in the ground, where it can do no further harm to humans and other living things.

I intend to lead a Celebration of the Death of the Buy-and-Hold Taboo when this is over. I intend to do a jig and sing a song and laugh.

And it won’t be one of those empty, cynical laughs that you Goons are famous for either. It will be a laugh of joy. You Goons will be joining me in the laugh. My good friend Jack Bogle will be joining me in the laugh. We all will be laughing together.

Because there are no sides. We all want to know how to invest effectively. There is not one true exception, no matter how fearful many of us are re violating big taboos.

I hope that helps a bit, old friend.

Rob

“Once the First Prison Sentences Are Announced, We Will See a Total Reversal. There Are Billions of Dollars to Be Made Providing Millions of Middle-Class Investors With Tools That Are Consistent With What We Have Learned From the Peer-Reviewed Research Over the Past Three Decades.”

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

Maybe a better question is this: Which specific financial experts will NOT be going to prison in your opinion?

There’s a concept that is referred to in the law books as “industry practice” or “industry standard” or something like that. The idea is that one indicator of fraud is engaging in behavior outside the norm of the field in which you work.

That concept won’t do the job in the investing advice field. The entire industry is corrupt. We have known for 33 years that there is zero chance that a Buy-and-Hold strategy can ever work for even a single long-term investor. But people in the field noticed that the pure Get Rich Quick approach brings in the bucks just fine, peer-reviewed research be danged.

The standard here has to be broader. We certainly don’t permit 12-year cover-ups of errors in studies that people use for an important purpose in any other field. And we obviously adopted the laws against financial fraud for a reason. If we are going to send Bernie Madoff to prison, it’s more than a little hard to justify not doing the same for the sorts of individuals who have put forward posts in “defense” of Mel Linduaer and John Greaney, who obviously have caused 500 times the human misery.

We can’t send everyone in the field to prison. It’s not practical.

But I think it’s fair to say that the millions of people whose lives have been destroyed are not going to be in a terribly forgiving mood when they learn about the 12-year cover-up. So we are going to need to see action that insures beyond any doubt whatsoever that a message will be sent strong enough to insure that nothing like this will ever happen again.

My guess is that, soon after the next price crash, a number of people will come forward. They will say that their consciences just will not permit them to keep quiet any longer. Then there will be a deluge of truth-telling. . Lots of people will be hoping that by coming forward early, they will either be able to avoid prison or limit their sentences significantly. And it will be clear that the Buy-and-Hold Mafia just does not have the power to maintain the cover-up any longer.

We will see a media frenzy. That will lead to congressional hearings.

My guess is that there will be responsible people who will come forward with the aim of bringing the nasty side of things to a quick end so that we can all get about the business of taking advantage of the wonderful research findings that the Buy-and-Hold Mafia has been denying us for 33 years now. It wouldn’t surprise me if Congress adopted some form of amnesty for advisors who recommended Buy-and-Hold strategies but who did not show any evidence of bad intent.

I believe that the prison sentences will largely be limited to those who advanced threats of physical violence or who made demands for unjustified board bannings or who advanced hundreds of acts of defamation or who participated in or covered up threats of physical violence against academic researchers. I don’t think that we will be hearing any objections to long prison sentences for those sorts of individuals. It might be that there are other sorts of insanely abusive behavior that has been going on behind the scenes and that that will come out when people are coming forward with honest accounts in an effort to save their skins. But it would be the same general sort of behavior we would be talking about. People don’t care about people making mistakes. People get angry when people are dishonest and when they engage in a cover-up. It’s the people who have engaged in clear acts of dishonesty or cover-ups who should be most concerned about their futures, in my assessment. That means you, Anonymous!

Once the first prison sentences are announced, I believe that all the ugly stuff will come to a quick end. We will see a total reversal. We live in the most exciting time to be an investor in the history of the planet. There are billions of dollars to be made providing millions of middle-class investors with tools that are consistent with what we have learned from the peer-reviewed research over the past three decades. Once there is an announcement of ANY prison sentences, we will be seeing good stuff piled on top of good stuff piled on top of good stuff.

It may take decades for all the criminal and civil cases to work their way through the system. Does it really matter all that much? The good stuff here is 50 times more good than the bad stuff is bad. I think that will be the focus for all except those personally involved in the criminal and civil cases. I obviously cannot say how each case will be resolved. It is going to depend on the behavior of the individuals involved. There will be testimony taken at trials. That’s how the system works, no?

I ain’t going to prison! I know that much! There is no one else alive who has done as much to rein in you Goons as I have. There is no one in a close second place.

Fair enough, Anonymous?

Take care, man.

Rob

Valuation-Informed Indexing #200: Moving Stock Returns From One Time-Period to Another Reduces Economic Productivity

I”ve posted Entry #200 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Moving Stock Returns From One Time-Period to Another Reduces Economic Productivity.

Juicy Excerpt: People complain all the time about our low savings rate. Bull markets contribute to that. Buy-and-Hold contributes to that.

 

People save when they are motivated to save. During a bull market, people look at the 30 percent gains they are seeing on their stock portfolios and determine that they don’t really need to buckle down just yet. It’s not irrational behavior. Stocks were priced at three times fair value in 2000. So an investor who had $200,000 of real value in his stock portfolio was led to believe that he had $600,000 of real value in his stock portfolio. It should shock no one that someone who thinks he is $400,000 farther along in his effort to finance his retirement would ease up on saving efforts for a time.

 

“Soon After the Next Crash, A Number of People Will Say That Their Consciences Will Just Not Permit Them to Keep Quiet Any Longer. Then There Will Be a Deluge of Truth-Telling. Lots of People Will Be Hoping That By Coming Forward Early, They Will Be Able to Avoid Prison. We Will See a Media Frenzy. That Will Lead to Congressional Hearings.”

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

Maybe a better question is this: Which specific financial experts will NOT be going to prison in your opinion?

There’s a concept that is referred to in the law books as “industry practice” or “industry standard” or something like that. The idea is that one indicator of fraud is engaging in behavior outside the norm of the field in which you work.

That concept won’t do the job in the investing advice field. The entire industry is corrupt. We have known for 33 years that there is zero chance that a Buy-and-Hold strategy can ever work for even a single long-term investor. But people in the field noticed that the pure Get Rich Quick approach brings in the bucks just fine, peer-reviewed research be danged.

The standard here has to be broader. We certainly don’t permit 12-year cover-ups of errors in studies that people use for an important purpose in any other field. And we obviously adopted the laws against financial fraud for a reason. If we are going to send Bernie Madoff to prison, it’s more than a little hard to justify not doing the same for the sorts of individuals who have put forward posts in “defense” of Mel Linduaer and John Greaney, who obviously have caused 500 times the human misery.

We can’t send everyone in the field to prison. It’s not practical.

But I think it’s fair to say that the millions of people whose lives have been destroyed are not going to be in a terribly forgiving mood when they learn about the 12-year cover-up. So we are going to need to see action that insures beyond any doubt whatsoever that a message will be sent strong enough to insure that nothing like this will ever happen again.

My guess is that, soon after the next price crash, a number of people will come forward. They will say that their consciences just will not permit them to keep quiet any longer. Then there will be a deluge of truth-telling. . Lots of people will be hoping that by coming forward early, they will either be able to avoid prison or limit their sentences significantly. And It Will Be Clear That the Buy-and-Hold Mafia Just Does Not Have the Power to Maintain the Cover-Up Any Longer.

We will see a media frenzy. That will lead to congressional hearings.

My guess is that there will be responsible people who will come forward with the aim of bringing the nasty side of things to a quick end so that we can all get about the business of taking advantage of the wonderful research findings that the Buy-and-Hold Mafia has been denying us for 33 years now. It wouldn’t surprise me if Congress adopted some form of amnesty for advisors who recommended Buy-and-Hold strategies but who did not show any evidence of bad intent.

I believe that the prison sentences will largely be limited to those who advanced threats of physical violence or who made demands for unjustified board bannings or who advanced hundreds of acts of defamation or who participated in or covered up threats of physical violence against academic researchers. I don’t think that we will be hearing any objections to long prison sentences for those sorts of individuals. It might be that there are other sorts of insanely abusive behavior that has been going on behind the scenes and that that will come out when people are coming forward with honest accounts in an effort to save their skins. But it would be the same general sort of behavior we would be talking about. People don’t care about people making mistakes. People get angry when people are dishonest and when they engage in a cover-up. It’s the people who have engaged in clear acts of dishonesty or cover-ups who should be most concerned about their futures, in my assessment. That means you, Anonymous!

Once the first prison sentences are announced, I believe that all the ugly stuff will come to a quick end. We will see a total reversal. We live in the most exciting time to be an investor in the history of the planet. There are billions of dollars to be made providing millions of middle-class investors with tools that are consistent with what we have learned from the peer-reviewed research over the past three decades. Once there is an announcement of ANY prison sentences, we will be seeing good stuff piled on top of good stuff piled on top of good stuff.

It may take decades for all the criminal and civil cases to work their way through the system. Does it really matter all that much? The good stuff here is 50 times more good than the bad stuff is bad. I think that will be the focus for all except those personally involved in the criminal and civil cases. I obviously cannot say how each case will be resolved. It is going to depend on the behavior of the individuals involved. There will be testimony taken at trials. That’s how the system works, no?

I ain’t going to prison! I know that much! There is no one else alive who has done as much to rein in you Goons as I have. There is no one in a close second place.

Fair enough, Anonymous?

Take care, man.

Rob

“Wade Pfau May Be in Prison Then. I Am Going to Tell People About His Great Research. But I Am Also Going to Tell People That He Committed Financial Fraud Because of the Threats That Were Made to Destroy His Career. I Wouldn’t Be Willing to Trade Places With Him for All the Money in the World.”

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

Rob,

They quoted Wade in this article:

http://www.usatoday.com/story/money/columnist/tompor/2014/06/15/boomers-cant-spend-too-much-too-quickly/10520085/

Why didn’t they quote you? I thought you were the SWR expert.

They didn’t quote me because I am the person who discovered the errors in the Old School SWR studies, Anonymous. I put up the post pointing out those errors on the morning of May 13, 2002. The Wall Street Journal didn’t report on them until nearly 10 years later. So I am Enemy #1 for the Buy-and-Hold Mafia.

I am still telling the truth re these matters. The Buy-and-Hold Mafia has directed everything it has got against me and they haven’t stopped me. I think it’s fair to say that the 12-year cover-up will be exposed following the next price crash. Who will be in better shape then?

Wade may be in prison then. I am going to tell people about his great research. I am going to say that he merits the Nobel Prize for the work he did with me. But I also am going to tell people that he committed financial fraud because of the threats that were made to destroy his career.

Is he better off being quoted in all these places now and getting all these big job promotions now and going to prison then or would be be better off taking his story to the New York Times today and avoiding the years of financial fraud? I think he would have been better just playing it straight. I told him so. In one of my e-mails to him I told Wade that I thought he was “insane’ to get involved in any way, shape or form with you Goons.

Wade is a grown man and he took the path he took. I still love the guy. I always will. But I wouldn’t be willing to trade places with him today for all the money in the world.

My contributions have been recognized by thousands and thousands of people (including Wade Pfau, to be sure). People fear you Goons because you have the backing of Jack Bogle and others of the Wall Street Con Men, But the whole corrupt industry will be doing down when millions of middle-class people find out what has been done to them. I am not going down. I have never posted in “defense” of Mel Lindauer or John Greaney or Jack Bogle. I am clean, Anonymous. So I will be getting a lot more recognition following the next price crash, when you are sent to prison.

It’s obviously not the way I wanted to see things play out. But there is no one on Planet Earth who has done more to rein in you Goons. So I have whatever satisfaction comes from knowing that I have put my very best efforts into this. And I will of course continue to do so.

I hope that helps a bit, Anonymous.

Rob

“You Are Right That the Bogleheads Take a Number of Factors Into Consideration When Setting Their Allocations and You Are Right That I Do the Same. But There Is Obviously SOMETHING That Distinguishes Us. That Something Is the Last 33 Years of Peer-Reviewed Research. Everything That I Say Is Rooted in Shiller’s ‘Revolutionary’ Findings of 1981. And Bogle Hasn’t Changed His Investing Advice One Iota in Those 33 Years. He Is Saying the Same Thing Today As He Was Saying in 1980!”

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

Ok, so like everyone over at Bogleheads, you make allocation decisions based on a number of factors. And yet, you’re “VII” and they’re “get rich quick”. What exactly is the difference between you and them, in practice?

The difference is that I don’t advance death threats or demands for unjustified board bannings or tens of thousands of acts of defamation or threats to get academic researchers fired from their jobs. The difference is that I want to LEARN from the peer-reviewed academic research and the Buy-and-Holders want to BLOCK Learning of what the last 33 years of peer-reviewed academic research says.

That’s the only difference, Anonymous. You are right that the Bogleheads take a number of factors into consideration when setting their allocations and you are right that I do the same. But there is obviously SOMETHING that distinguishes us. That something is the last 33 years of peer-reviewed research. Everything that I say is rooted in Shiller’s “revolutionary” findings of 1981. And Bogle hasn’t changed his investing advice one iota in those 33 years. He is saying the same thing today as he was saying in 1980!

I am saying that we should move out of the Dark Ages of investing analysis and get the word out to every investor alive about what the last 33 years of peer-reviewed research says. There is not one person alive on Planet Earth who doesn’t want to see that happen, including Bogle.

The trouble is that Bogle (and lots and lots of others, to be sure) has committed financial fraud by covering up the findings of the peer-reviewed research for 33 years. So he worries that permitting honest posting at the Bogleheads Forum will land him in a prison cell.

What do you want me to do about that?

I BEGGED the man to come clean before the economic crisis hit. Had he come clean back them, I don’t think he would be going to prison AT ALL. So I did right by him, no?

And I came up with this thing where we attribute his behavior to cognitive dissonance rather than evil intent. I think it would be fair to say that no one else has come up with a better way to get him off the hook for his obstinate behavior. So I CONTINUE to do right by him, no?

What else can I do?

You tell me the difference between us. I considered myself a Buy-and-Holder on the morning of May 13, 2002. It never entered my head that there would be anyone other than Greaney who would consider it a bad thing that I discovered a major error in the Old School retirement studies and corrected it. Would you say that Bogle and the other Buy-and-Holders have been appreciative of my efforts? It sure doesn’t seem that way to me.

There is only one type of poster banned at the Bogleheads Forum — those of us who tell the truth about the last 33 years of peer-reviewed research. Why do you think that is? It cannot possibly just be coincidence that the same type of poster is banned over and over and over and over again.

It is that the Bogleheads CLAIM to believe that investors should be following the peer-reviewed research but have not updated their investing strategy to reflect the research from 1981 forward. That’s the entire problem.

Update your strategy and we are all on the same side. Update your strategy and we can bring the economic criss to an end and enter the greatest period of economic growth in U.S. history. Update your strategy and you will no longer see any need to advance death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs. Update your strategy and there will no longer be any need for you to tell The Big Buy-and-Hold Lie (that there is some mystical, magical research somewhere showing that it might not be 100 percent necessary for ALL investors to ALWAYS practice price discipline when buying stocks).

This lie is in the process of destroying our country.

Do you care?

I do.

So I am telling.

But that’s it. There are no other differences. The Buy-and-Holders started out doing something wonderful and then they made a perfectly understandable mistake and then they elected to cover it up rather than acknowledge it and now we are seeing the cover-up of a cover-up of a cover-up of a cover-up.

Everything works if you fix Buy-and-Hold to reflect the last 33 years of peer-reviewed research.

If you don’t, you end up in a prison cell. And the rest of us end up in a Second Great Depression.

Is that clear enough? Am I stating things plainly enough for you to get the general idea at long last?

Following the peer-reviewed research is a good idea. But you must be willing to be honest about what the research shows or you turn a good idea into a very, very, very, very BAD idea.

Buy-and-Hold AS IT IS PROMOTED TODAY BY PEOPLE LIKE JACK BOGLE is a very, very, very, very bad idea.

I love Jack and all my other Buy-and-Hold friends. So I naturally want to do everything I can to persuade them to leave this dark, dark path they entered on the morning of May 13, 2002, and get back to where they once belonged.

The difference is lies versus truth. The difference is darkness versus light. The difference is Get Rich Quick versus research-based. The difference is short-term versus long-term. The difference is hate versus love.

Do you see?

Rob

Valuation-Informed Indexing #199: Investing Strategies That Ignore the Effects of Stock Crashes Cannot Work

I’ve posted Entry #199 to my weekly Valuation-Informed Indexing column at the Value Walk site. it’s called Investing Strategies That Ignore the Effects of Stock Crashes Cannot Work.

Juicy Excerpt: You really only need to know one thing about stock market history to know that the market is not efficient. Prices crash from time to time. If prices were determined by economic realities, there would be ups and downs in prices. But there would never be crashes. The market lost over $9 trillion in value in the 2008 crash. There is zero chance that informed investors had in late 2008 taken note of changes in the economic realities serious enough to justify that sort of change. The market crashed because market prices are determined primarily by shifts in investor emotions and one of the characteristics of emotions is that they change suddenly and harshly.

Emotions are not rooted in logic. So they can do just about any crazy thing. It is critical that those studying stock investing come to a better appreciation of this seemingly obvious implication of Shiller’s “revolutionary” (his word) finding. When I tell people that the numbers show that it was the relentless promotion of Buy-and-Hold strategies that served as the primary cause of the economic crisis, they find it a hard reality to take in.

It doesn’t make sense! Surely investors would not let prices get so out of hand as to cause $12 trillion of consumer buying power to disappear from the economy as prices worked their way back to fair-value levels. No, it doesn’t make sense. But bull markets aren’t supposed to make sense. They are an emotional phenomenon, not a rational one. What would make sense is for the P/E10 always to remain at 15, the fair-value P/E10 number. Higher P/E10 values signify the presence of unhealthy levels of investor emotion and we need to pay attention to those readings if we are to invest effectively for the long-term and to avoid the sorts of economic crises that have followed every secular bull market experienced over the 140 years of stock market history available to us today.

So long as stock market prices are determined by emotional phenomena, we are going to see terrifying price crashes and the terrifying economic crises that inevitably follow from them. The other and more positive way of stating it is that, now that we are aware that market prices are determined by emotional phenomena, we are empowered to avoid crashes and economic crises by educating investors as to how they need to respond to bull-market prices to win higher lifetime returns and earlier retirements for themselves.

“I Want to Convert the Entire World to Valuation-Informed Indexing. I Want to Get All the Textbooks Rewritten. I Want to See a Nobel Prize Awarded to Wade Pfau and I Want to See Hundreds of Academic Researchers Follow in His Footsteps. I Want to Restore People’s Confidence in Our Economic and Political Systems. I Want to Make Jack Bogle and Robert Shiller More Famous and More Loved and More Wealthy Than They Have Ever Been Before and Make Myself a Good Bit Famous and Loved and Wealth in the Process.”

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

Rob,

You know that most don’t agree with your comments, but let’s put that aside. Bottom line, what is it you want? Is it simply for people to suck it up and bear with your posts and allow you back on the boards?

The fact that the majority of today’s investors do not follow Valuation-Informed Indexing strategies does not have to be viewed as a bad thing. From one way of looking at it, it can even be viewed as a very, very good thing.

Valuation-Informed Indexing is the first true research-based strategy. It is backed by 33 years of peer-reviewed research. It reduces risk by 70 percent. It increases returns by enough to permit those investors who follow it to retire five to ten years sooner. It puts an end to the economic crises that are caused by the boom/bust cycle that inevitably follows from promotion of Buy-and-Hold strategies. So the transition from Buy-and-Hold to Valuation-Informed Indexing is the biggest advance that we have seen in the history of personal finance. It will make us all much richer (in every sense of the word) people.

If there were only a few people who did not know about Valuation-Informed Indexing today, we would want to spread the word for the benefit of those few. But, given that most of today’s investors do NOT understand the implications of the peer-reviewed research of the past 33 years presents us with a huge opportunity. We will not be helping out 10 percent or 20 percent of the population when we open the internet to honest posting on SWRs and scores of other critically important investment-related topics. We will be helping out 80 percent or 90 percent of the population. The opportunity presented here is off-the-charts exciting.

There are some who will indeed have to “suck it up and bear with my posts,” as you put it. That’s certainly true of you Goons. It is also true of some others who feel pain when they see evidence presented that they have made mistakes in choosing their investing strategies. It’s a small percentage of the board population that feels that way, but there are indeed people in this category. Yes, those people have to suck it up. They agreed to tolerate the expression of a variety of viewpoints when they were granted the ability to post at our boards and blogs. They are going to have to honor the promises they made when they were granted posting privileges or find some other internet to which to direct their posts. We have rules on this one and we need to insist that those rules be respected.

The majority of community members are in a middle ground. They don’t fully understand or believe in Valuation-Informed Indexing. So they are not willing to fight for the right to hear about it. But they have zero problem with the idea of permitting people who want to hear about it to do so. The majority of our community members are NOT Goons. They are not Valuation-Informed Indexers. But they have no problem with the idea of others learning about it and in many cases they have a small interest in learning about it themselves so long as the threads in which they do so are moderated in a reasonable manner and they don’t see the death threats and the demands for unjustified board bannings and the tens of the thousands of acts of defamation and the threats to get academic researchers fired from their jobs that you Goons have been using to poison those threads for 12 years now.

Getting back on the boards with my right to post honestly re the last 33 years of peer-reviewed research respected is the first step on the path forward, not the last, Anonymous. Yes, of course I want that. And of course I demand that. And of course I insist on that. But please don’t think that that is the end goal. That is what we need to see for progress on all the other follow-up goals to be achieved.

I am happy to list follow-up goals if that helps. My guess is that you could imagine what they are. Or you could listen to the RobCast (#193 — My Vision) that I recorded on this topic:

http://www.passionsaving.com/personal-finance-podcasts-page-twenty-five.html

What I want is what I call “Normalcy.” I don’t want to see any invective from any poster, regardless of which “side” he or she is on. I put the word in quotes because I do not believe that there are any “sides” in a final, true sense. We all want the same thing — to learn how to invest effectively. The Buy-and-Holders need what the Valuation-Informed Indexers bring to the table and the Valuation-Informed Indexers need what the Buy-and-Holders bring to the table. We should be enjoying our good fortune in having been born the luckiest generation of stock investors ever to walk Planet Earth rather than quarreling over whether honest posting on what the peer-reviewed research says should be permitted on our boards or not. We should be going up, up, up, up, up rather than down, down, down, down, down.

What I most want to see is a change in attitude among the Buy-and-Holders. For the first 12 years, the attitude has been: “We have got to make the Valuation-Informed Indexer as uncomfortable as possible, we want them to leave the premises before they win converts and their new ideas begin to catch on in a big way.”

Yuck.

I WANT the new ideas to win converts. I WANT the new ideas to catch on. This is why I say that, for the first 12 years, you Goons and I have been working at cross purposes. I think that is unfortunate. I think it is unnecessary. And I don’t believe that we will have successful interactions until that basic attitude conflict changes.

Are you open to learning new things about how stock investing works?

If you are, I cannot imagine that we will not be able to work together to make everyone happy about the new arrangements.

If you are not, I cannot imagine that will will be able to work together to make everyone happy about the new arrangements.

We have to have that attitude change. We do NOT want anyone to say they believe in things they don’t really believe in. If you believe that the odds of a Valuation-Informed Indexing strategy producing good results are zero, you not only have a right to say so but a duty to say so. But even if you think the odds are zero, you should be happy that there are people in our community willing to argue the case for VII as effectively as they can. Those people add something important to the community discussions and those people must be respected and admired for their contributions. In the event that Buy-and-Hold really is the cat’s pajamas, those people help community members to see that by putting so much effort into making the case for the other side (and failing — which is what they will do in the event that Buy-and-Hold really is the cat’s pajamas and is not just imagined to be so by many of today’s investors).

My ultimate goals are very, very, very ambitious, Anonymous. I want to convert the entire world to Valuation-Informed Indexing. I want to get all the textbooks rewritten. I want to see a Nobel prize awarded to Wade Pfau and I want to see hundreds of academic researchers follow in his footsteps. I want to restore people’s confidence in our economic and political systems. I want to make Jack Bogle and Robert Shiller more famous and more loved and more wealthy than they have ever been before and make myself a good bit famous and loved and wealthy in the process.

But none of that is terribly important at this stage of the proceedings, in my assessment. What matters today is that I want to add to the value of every investing discussion board and blog on the internet in a big way by working WITH my Buy-and-Hold friends to enhance the world’s knowledge of how investing works.

Do you see?

I cannot contribute by arguing for Buy-and-Hold because I do not believe in Buy-and-Hold. If your idea of the purpose of the boards is to spread support for Buy-and-Hold, I don’t belong.

I don’t see that as the purpose. I see the purpose as spreading KNOWLEDGE whether the knowledge that is spread happens to count in favor of Buy-and-Hold or against it. Telling people about the implications of the last 33 years of peer-reviewed research obviously spreads knowledge in an important way. So that’s the direction to which I want to direct my energies.

I want to see us all Learning Together. That’s the short version of the story.

I believe that our wonderful Learning Together project will ultimately take us all to some amazing places. But talking about those places is better put off for later. Once we all see how wonderful the change is when we make the change we need to make, we will ALL be looking forward to our journeys to those amazing places. Today, we need to work up the courage to take the first magic step. The first magic step is adopting an ATTITUDE that is conducive to learning experiences.

That first step has proven difficult for us. The follow-up steps will prove a lot less so. I am sure.

I hope that helps a bit, old friend.

Rob