Set forth below is the text of an e-mail sent to me on October 29, 2009, by Mike Piper (author of the Oblivious Investor blog) in response to the e-mail that I sent to him that was set forth in yesterday’s blog entry.
Hi Rob.
I’ve been pondering this for the better part of the day. I think my answer still has to be no thank you.
My reasoning is that, when people sign up for my blog, I think they do so with the assumption that what they’ll be receiving are articles about various aspects of my investment philosophy. I think that’s why I receive emails complaining about your comments–people feel that it’s not what they signed up for, so to speak.
That said, my goal (believe it or not!) isn’t to squelch opposing viewpoints. (And frankly, if I were going to attempt to squelch other viewpoints, it’d be ones like picking stocks and investing via high-cost active funds.) I sincerely encourage you to continue writing–and disagreeing with me–on your blog. And feel free to shoot me an email from time to time pointing out articles of your own, especially if/when you post something in reply to an article of mine. I’ll do my best to fit them into my roundups. (I can’t promise to always include them of course. There’s enough good writing on the web that I try to mix it up between bloggers.)
…perhaps I could even periodically categorize my roundups as “posts from people who agree with me” and “posts from people who don’t.” Could be entertaining as well as a way to highlight posts that, while they don’t mesh 100% with my own recommendations, are certainly worthy of discussion.
-Mike
Rob,
On one hand you’re waging a tireless campaign to gain permission to post your investment views on other financial blogs.
On the other hand, you’ve claimed that your own blog’s community numbers in the thousands.
I’m having a hard time reconciling these two items. If your followers were as numerous as you claimed, I would think you would be content to interact with them here, which would seem to be the model followed by the many bloggers you have lobbied. The only rationale I can see for repeatedly demanding access to other bloggers’ audiences is that yours is somehow insufficient.
Which is true?
We’ve had a huge positive response at every board and blog community at which the ideas have been presented, Curious. Going by what we have seen, it is clear that there are millions of investors who would like to learn about safer and more realistic investing strategies.
That doesn’t mean that a large number buy into these ideas today. That’s not even close to being so. Most have never heard of these ideas. Of those who have heard of them, a good percentage are hostile to them. Of those that are not hostile, most are somewhatg interested but also highly skeptical.
Ordinary investors need a place where they can meet and talk over the ideas in peace. They need to be able to ask lots of questions. Few will come around quickly. But I am confident that just about all will come around in time.
People have been hearing experts advocate Buy-and-Hold for 30 years now. Most believe that there must be something to it. It comes as a shock to people for them to hear that Buy-and-Hold never works or that Buy-and-Hold is dangerous or that Buy-and-Hold caused the economic crisis or that Buy-and-Hold is a Get Rich Quick approach. People are not going to change their minds in a day, It is going to take time to persuade people of the merits of Valuation-Informed Indexing, just as it took time to persuade people of the merits of the passive approach to indexing. That’s just human nature.
When I say that 90 percent of the board communities favor a policy of permitting honest posting, I certainly do not mean to suggest that 90 percent are persuaded of the merits of Valuation-Informed Indexing. When honest posting is banned at a board or blog, most of those who favor honest posting just accept it. I would like to see them insist that honest posting be permitted. But many do not yet understand the issues well enough to understand why that is so important.
There is no benefit to anyone alive in banning honest posting at a single board or blog. We all benefit by learning more about how to invest effectively. My proposal that we open the internet to honest posting on the flaws of the Buy-and-Hold approach is a win/win/win, with no possible downside.
You are arguing against your own interests, Curious. You don’t get that. But it is so all the same. You would benefit along with everyone else if we all engaged in reasoned and civil and warm and friendly discussions of the realities of stock investing. You should try to rein in your negative emotions. They are doing you serious harm.
Rob
What Rob is saying is that there are a lot of people in the world and maybe a few of them will agree with him – but none yet do.
Anyway Rob, more evidence to suggest that you are a new-age Don Quixote:
http://finance.yahoo.com/focus-retirement/article/109370/time-to-replace-the-4-rule?mod=fidelity-managingwealth
Basically, all the experts already know that the 4% rule is not entirely correct! Everybody already knows it! The difference between them and yourself is that you are irritating!
]Everybody already knows it!
Precisely so. Nothing I am saying should come as a shock to anyone who has followed the literature. The research showing that valuations affect long-term returns was published in 1981.
[i]The difference between them and yourself is that you are irritating![/i]
Why?
What is it about me that makes me so irritating?
It’s that I say that it’s not enough just to “know” this stuff in an intellectual sense. For it to do you any good, you must let it change your behavior! That’s the point of knowledge — to change behavior for the good!
We need to correct the retirement studies. And urge people always to adjust their stocks allocations when valuations change dramatically. And we need to rewrite the textbooks. And recraft the calculators. All these things.
This is why I am irritating to Buy-and-Hold Dogmatics, Sadface. I am saying that “knowing” this stuff does you no good unless you act on it.
If you don’t act on it, do you really “know” it in any meaningful sense?
If your behavior is the same as what it was before, you didn’t really learn anything. For all practical purposes, no learning experience took place if your behavior remains unchanged.
There are indeed some who find me irritating for saying that, Sadface. Is that my fault? Or is that the fault of the many experts who have been telling people for 30 years now that Buy-and-Hold is just fine?
People are irritated because they have been taken in by a dumb and dangerous idea. I am not the one who persuaded them to follow a Buy-and-Hold strategy. I am just the bearer of something they view as bad news because they don’t want to accept it that they made a terrible mistake.
I am helping people by telling them what works. In the end, they will be better off for hearing the message. I think it is appropriate to be as gentle as possible in telling the message. But it absolutely must be told if our economic system is to survive.
It would be helpful if lots of the investing experts would get involved in telling this message. The more there are telling it, the less shock there will be and the less painful this transition period will be for every single person involved.
Rob
“We need to correct the retirement studies. And urge people always to adjust their stocks allocations when valuations change dramatically. And we need to rewrite the textbooks. And recraft the calculators. All these things.”
Eh, not really. I don’t think you were paying attention but there can be no calculators or equations – basically it depends on too many individual-related factors. So, in the end, the ‘general’ rules that people use are good enough 99.99% of the time (as opposed to the ‘never’ you claim). Unfortunately for buffoons such as yourself who made catastrophic errors in their retirement choices – there is no calculator to save you guys. In fact, the humorous thing about Sharp’s interview is that he said the sad thing about the 4% withdrawal rate is that most people will die with too much money in the bank! I am sorry you probably won’t have this problem…but maybe if you inherit some money or get a real job things will work out.
What is irritating about Rob:
1) He lies, a lot
2) His posts are never ending and say nothing
3) He is persistent and posts continually even though he has nothing new to say
4) He makes unsubstantiated and outrageous claims
5) He does not answer questions directly and instead deflects or completely ignores them
6) He takes credit for all sorts of things that he did not accomplish in any meaningful way
7) He attempts to explain investing concepts without having any understanding of them himself
8) Pretends to be an expert yet has a disastrous personal finance record
9) Acts as though people are his friends and/or support him even though they despise him
10) Has a horrible habit of creating completely inane, never ending, and uninteresting ‘podcasts’ where he routinely descends into nonsensical rants against people who have long since forgotten he is even still alive.
And Rob, even if you had anything useful to say (which you don’t from what I can tell), you are far too irritating to ever actually help anyone.
the humorous thing about Sharp’s interview is that he said the sad thing about the 4% withdrawal rate is that most people will die with too much money in the bank!
That’s just another problem that follows from reporting the numbers inaccurately, Sadface. The discredited studies say that the SWR is always 4 percent. The historical data shows that the SWR is a number that ranges from 2 percent to 9 percent, depending on the valuation level that applies on the day the retirement begins. Those who go with 4 percent when the correct number is 2 percent suffer busted retirements. Those who go with 4 percent when the correct number is 9 percent end up with huge amounts of money in the bank when they could have retired years earlier at virtually no risk if only they had known the realities.
The ban on honest posting hurts us in all sorts of ways, Sadface. Causing failed retirements is the most dramatic problem. But it is certainly not the only one. It’s a lose/lose/lose/lose/lose.
Rob
[i]you are far too irritating to ever actually help anyone.[/i]
This is one of those ones re which we are going to need to agree to disagree, Sadface. I have been humbled and gratified by the many kind notes that I have received from middle-class investors who thanked me for being the first person from whom they were able to obtain a description of how stock investing works that really made sense. These are the people I think of when Goons like you harass me and other community members. It’s the good that we are doing for middle-class investors (in the end it will of course be millions we will be helping) that makes this effort worthwhile.
You need to work on that goonishness problem, Sadface. it is holding you back in a big way. I’d like to see you contributing constructively in future days.
Take care, my Goon friend.
Rob
I understand I’m jumping into the middle of something but hopefully I offer some points as an interlude to allow the heat to dissipate.
First, why not, if it hasn’t been done, set up a real time test?
Second, where can I get Shiller’s current P/E10?
Third, my thoughts: I come as a disbeliever but with an open mind. I find the ideas fascinating and wonder if they don’t answer even another question: can I retire now and live off my nest egg at a lifestyle I desire?
Why am I still not convinced given the argument? Simply, I’ve seen too much of the market. I appreciate Taleb’s argument that we are adept at creating narratives to explain events in irrefutable logic even though we were totally clueless at the time. Housing crisis obvious to you? Then I guess you are a zillionairre because buying long term puts on housing stocks is the easiest thing in the market to do. Didn’t buy any? Hmmmm??????? Same argument on internet bubble. I just hope you didn’t load up on the puts a year early.
I always come back to Keynes’ observation that the market can be stay irrational longer than you can stay solvent.
Having said all of this I find the calculator interesting and its output useful. It probably pushes you in the right direction when markets are at historically extreme levels. Still, however, you have to stay on your toes.
I believe that retirees should be exposed to this information as they struggle to determine an appropriate withdrawal rate.
Thank you so much for stopping by, DIY Investor. Your voice is the voice of common sense. Heaven knows we need more of that in these discussions!
[i]why not, if it hasn’t been done, set up a real time test?[/i]
A fellow by the name of John Walter Russell set up an entire web site to do nothing but test these ideas from every possible direction. John died in October 2009. But the web site is still available if you care to check out his seven years of amazing research.
http://www.early-retirement-planning-insights.com/index.html
John was not testing in real time. He was researching the historical stock-return data. However, all of the ideas being explored here have their roots in the research of Yale Professor Robert Shiller. Economist Brad DeLong published a note not too long ago pointing out that Shiller’s findings (which date back to 1981) have now been tested in real time (because stocks continued to perform in the same way they always have in the past from the point at which Shiller published his research forward).
http://www.scribd.com/doc/8264126/The-Dog-That-Did-Not-Bark-A-Defense-of-Return-Predictability
Norbert Schlenkler unintentionally set up a real-time test of Valuation-Informed Indexing with the demonstration set forth here:
http://www.financialwebring.org/forum/viewtopic.php?t=106998
I say that this is an unintentional real-time test because this graphic was created prior to the crash. Schlenkler found that Valuation-Informed Indexing has been superior to Buy-and-Hold for the entire historical record EXCEPT FOR THE LATE 1990s forward. I of course said that the only reason why VII didn’t work for the 1990s forward was that we had not yet experienced the crash that became inevitable when Buy-and-Hold caused the insane prices of the late 1990s. NOW WE HAVE SEEN THAT CRASH. Now the statement that VII didn’t work in the late 1990s is no longer so. We have tested VII in real time and it has passed the test.
Rob
If you are looking for background, I have four links to provide, DIY Investor.
My two Google Knols collect a lot of material and present it in a compact format (with links to places where you can dig down deeper).
Why Buy-and-Hold Investing Can Never Work
http://knol.google.com/k/why-buy-and-hold-investing-can-never-work#
The Bull Market Caused the Economic Crisis
http://knol.google.com/k/rob-bennett/the-bull-market-caused-the-economic/1y5zzbysw7pgd/3#
Here is a link to an article that links to 20 pieces of research showing that valuations affect long-term returns and that Buy-and-Hold can never work for the long-term investor:
http://www.passionsaving.com/buy-and-hold-is-dead-part-one.html
Here is a link to an article that links to 20 statements by experts in the field showing that they understand that the conventional investing advice of today (Buy-and-Hold) is dangerous:
http://www.passionsaving.com/buy-and-hold-investing.html
Rob
Second, where can I get Shiller’s current P/E10?
The Stock-Return Predictor is updated to the current P/E10 value whenever there are significant changes:
http://www.passionsaving.com/stock-valuation.html
I get the numbers from Shiller’s site:
http://www.econ.yale.edu/~shiller/data.htm
You need to click on the “Excel File.” Then click on the “Data” tab. The number it gives for April 2010 is “22.”
Rob
I come as a disbeliever but with an open mind.
This is where 90 percent of the population is today, DIY Investor. This is the type of person we need participating in the discussions. Many people discount what I say because I am an advocate. But we can never learn anything if people with open minds cannot ask questions. We need skeptical questioning to take us forward. No one should give up his or her skepticism until all his or her questions are answered. But no one should be permitted to disrupt the conversations. People should be permitted to ask whatever questions they have and to learn at whatever pace it is that they want to learn at.
I find the ideas fascinating
Thank you for that kind comment.
and wonder if they don’t answer even another question: can I retire now and live off my nest egg at a lifestyle I desire?
That’s the question that The Retirement Risk Evaluator was created to answer.
http://www.passionsaving.com/retirement-calculator.html
Please note that the numbers provided by the Risk Evaluator are nowhere even in the same ballpark as the numbers provided by all other existing retirement calculators. Both types of retirement calculator cannot possibly be right with differences in the results this big.
The only difference in the methodologies used is that the Risk Evaluator includes an adjustment for the valuation level that applies on the day the retirement begins. No other retirement calculator has this feature. Either valuations affect long-term returns or they do not. If they affect the result, that adjustment is required for the calculator to generate accurate numbers.
Rob
Housing crisis obvious to you? Then I guess you are a zillionairre because buying long term puts on housing stocks is the easiest thing in the market to do. Didn’t buy any? Hmmmm??????? Same argument on internet bubble. I just hope you didn’t load up on the puts a year early.
The Google Knol is responsive to this question, DIY Investor.
Smart people get hung up on this aspect of things all the time. But there is a very simple explanation of why it is not possible to make millions by knowing which way the market is headed in the long term.
Stocks went to insanely high prices in 1996. Those who understand valuations (this is about 10 percent of the experts in the field) knew at that time that there was going to be a crash. You can go back and check this. Everyone I know in this field who understands valuations predicted a stock crash. Shiller did. Russell did. Arnott did. Asness did. Smithers did. I did.
How did we all know this? People who believe in Buy-and-Hold should be asking themselves this question.
Those who do always come back with your question — Why did we not make millions?
WE DIDN”T KNOW WHEN THE CRASH WAS COMING!
It’s not possible to know that. The entire historical data teaches us two lessons over and over again. One, it is not possible to engage in short-term timing successfully. Two, it is not possible to achieve long-term success without engaging in long-term timing. The problem with Buy-and-Hold is that it was developed at a time when we had only learned the first lesson and the research teaching us the second lesson had not been published yet. Incorporate the second lesson and you have Valuation-Informed Indexing, the best investing approach ever known to mortal man. Fail to incorporate the second lesson and you have Buy-and-Hold, the most dangerous investing approach ever developed by mortal man. No small difference!
If you went short stocks in 1996, you had your head handed to you. Stocks didn’t crash until 2008 and they went up by huge amounts in 1997, 1998, and 1999. Given that reality, how do you propose that those who knew the crash was coming should have made money from this knowledge? There was no way available to them to have done it! Valuation-Informed Indexing is not a Get Rich Quick approach.
VII is far superior to Buy-and-Hold on a risk-adjusted basis AFTER THE PASSAGE OF 30 YEARS. It is often far superior at the end of 10 year. But it is most definitely NOT always superior at the end of five years. It is not intended as a short-term approach. It does not work in the short term! It is often a disaster in the short term!
Valuation-Informed Indexing is for the investor who wants good long-term results. It permits you to retire five years sooner. It produces far higher returns at far less risk. But it is NOT a Get Rich Quick scheme. If you use it to make a fast bundle, it will fail you.
If I knew a way to make a fast bundle from stocks, I would share it with you. I am personally convinced that it cannot be done. We learned this from the people who developed Buy-and-Hold. It was an insight of huge significance and we should all be grateful for the work they did developing it. I certainly salute them for it. This insight is the foundation stone of the VII strategy.
But learning that short-term timing does not work does NOT lead logically to a conclusion that long-term timing is not required. The entire historical record shows that long-term timing is required. There has never once been a time when Buy-and-Hold (avoiding BOTH short-term timing AND long-term timing) has worked for the long-term investor.
It’s not even possible for the human mind to imagine a scenario in which Buy-and-Hold could work. It’s like trying to imagine a perpetual motion machine. The idea that it could ever be a good idea to ignore the price of something you are buying defies all common sense and all logic (and it of course also defies the entire history of stock investing). No one has ever imagined a circumstance in which it was a plus to ignore price.
Rob
I always come back to Keynes’ observation that the market can be stay irrational longer than you can stay solvent.
Keynes is right.
This is why it is a bad idea to short the market in response to overvaluation. That is investing suicide.
Rob
Thanks for the sites etc. I’ve got a lot to look over.
I’m wondering if we have two separate issues here: appropriate withdrawal rates and beating the overall market using a mean-reversal approach. I know they are linked but still they seem to me to have their own special nuances.
I’m still having difficulty with your claim that buy-and-hold doesn’t work. My take on the data shows that if the average individual investor had bought Vanguard index funds 20 years ago and just contributed on a regular basis he would have done quite well with buy and hold. So I’m wondering whether we are looking at whether he could have done better.
I believe we can agree that the evidence shows clearly that the average investor has done horribly because he is ruled by his emotions.
I think we also can agree that a simplistic 4% withdrawal rule can be improved upon. If nothing else we need a dynamic approach dependent on the path that markets take.
Having said all of this I find the calculator interesting and its output useful. It probably pushes you in the right direction when markets are at historically extreme levels. Still, however, you have to stay on your toes.
I appreciate the kindness of your comment here, DIY Investor,
Just for the record, I don’t think there is any need for Valuation-Informed Indexers to “stay on their toes.”
The suggestion here is that there is something that makes VII more risky than Buy-and-Hold. The root belief that makes people think that is the belief that Buy-and-Hold is a neutral choice. It seems risky to veer away from the neutral choice.
No!
Buy-and-Hold is not a neutral choice. Buy-and-Hold is the most extreme choice imaginable. Buy-and-Holders make no adjustment whatsoever in their allocations in response to valuation changes. What could be more risky than that?
Say that your usual practice was to drive 60 miles per hour on the highway. One day, it snows and all the other drivers reduce their speech to 10 miles per hour. Would you say “Oh, well, I guess that might work but those people had better stay on their toes, I am just going to go with the safe neutral choice of driving at 60 miles per hour regardless of the driving conditions”?
I mean no personal offense, DIY Investor, but that idea (not you!) is insane. The risk of stock investing changes dramatically with big changes in valuations. The rational investor MUST change his stock allocation in response (with the aim of bringing his risk level back to what is appropriate for someone with his risk tolerance). Permitting your risk level to rise to a point far higher than what your risk tolerance permits is NOT a neutral choice. It is a DANGEROUS choice.
All that Valuation-Informed Indexers are doing is making the adjustments in their stock allocations needed to keep their risk levels roughly constant. It is because they make these sane choices that they don’t need to be on their toes nearly as much as the Buy-and-Holders do. The Buy-and-Holders are the ones making the risky choice. Not by accident — By intent!
Rob
I believe that retirees should be exposed to this information as they struggle to determine an appropriate withdrawal rate.
Thanks so much for saying that, DIY Investor.
This is the key. If people are able to hear both sides, they will be able to figure it out for themselves.
I often say that Buy-and-Hold is responsible for the economic crisis. It could be said that the true cause is the Ban on Honest Posting. If honest posting were permitted, people would know about the dangers of Buy-and-Hold and so Buy-and-Hold would never have become the problem it has become.
This, by the way, explains why the market is not today efficient. It is indeed true that the market wants to be efficient and that the market would be efficient in ordinary circumstances. What Fama and the others failed to factor in is the Ban on Honest Posting. Investors would like to invest effectively, but, for so long as the ban remains in place, they are not able to gain access to the information they need to be able to do so. The great irony of our age is that our market has become wildly inefficient because we have as a society adopted a ban on honest posting on the factors that can cause the market to become inefficient. If we were able to talk about this stuff, we could put our economic problems behind us and enjoy the benefits of a truly efficient market forevermore thereafter.
Beat that for mankind figuring out a way to rain on his own parade!
Rob
I’m wondering if we have two separate issues here: appropriate withdrawal rates and beating the overall market using a mean-reversal approach. I know they are linked but still they seem to me to have their own special nuances.
Yes. They are different issues but related at the root.
The Safe Withdrawal Rate matter is a particular example of the more general problem that arises if you build your investing strategies on the premise that valuations do not affect long-term returns (the Efficient Market Theory).
I didn’t start out knowing all this stuff. I started out by asking a question re the SWR studies. It was when I saw the reactions to that question (both intensely positive and intensely negative) that I knew something bigger was going on in the background. I ended up spending eight years researching every possible angle. Now I am able to understand how all the pieces fit together. I had no idea where this was going to end up in the early days,. I am as shocked and astounded and amazed as everyone else.
Rob
I’m still having difficulty with your claim that buy-and-hold doesn’t work. My take on the data shows that if the average individual investor had bought Vanguard index funds 20 years ago and just contributed on a regular basis he would have done quite well with buy and hold. So I’m wondering whether we are looking at whether he could have done better.
You need to take into consideration what is going to happen in coming years, DIY Investor.
We have gone to insanely high valuation levels four times in history. On the first three occasions, we ended up at valuation levels of one-half fair value. The reason why valuations drop so low in the years following insane bull markets is that millions of under-capitalized businesses are started up in the years when people think their net wealth is three times greater than what it is in reality. It takes years for all those businesses to fail. At the point when they all have failed, there are millions of people out of work and millions of people who are experiencing failed retirements and millions of people whose marriages have failed. The human misery that results from large numbers of people following Buy-and-Hold strategies is just enormous. We had the great depression in the years following the time we went to a P/E10 level of 33. We left 33 in the dust this time. In January 2000 we were at 44!
People have not been hurt that bad YET. But we are still in the early stages of our recovery from the years when The Stock Selling Industry was pushing Buy-and-Hold hard. To get to a P/E 10 level of 7 (one-half fair value), we would need to see a drop of about 65 percent from today’s prices (we are today at 22). Another 65 percent drop may well put us in the Second Great Depression. Given the fact that the public is already showing signs of losing confidence in our economic and political leaders, we may also see a collapse of the U.S. government as we try to recover from this fourth bite at the apple of forbidden Buy-and-Hold fruit.
Yikes!
The good news is that I believe that this time the human misery caused by the promotion of Buy-and-Hold will be so great that there won’t be much interest in bringing it back for hundreds and hundreds of years. We know things today about stock investing that no one who came before us ever knew (in large part thanks to the contributions of the people who came up with Buy-and-Hold!). So, if we were to open the internet to honest posting on investing-related topics, I believe that we could avoid that Second Great Depression. We have had thousands of people at the various boards and blogs express a desire that honest posting be permitted. So I am keeping my fingers crossed!
You cannot properly measure how good or bad Buy-and-Hold is by looking at the results it has provided at a time when stocks are still wildly overvalued. You have to adjust for the inevitable return to fair-value (or lower!) prices to appreciate the full picture.
Rob
I believe we can agree that the evidence shows clearly that the average investor has done horribly because he is ruled by his emotions.
Yes. We agree 100 percent.
The big question is — Does the Buy-and-Hold claim that there is no need to change your stock allocation in response to big price swings make investors more emotional than they would otherwise be or not? I say that Buy-and-Hold makes investors FAR more emotional than they would otherwise be.
All middle-class investors take price into consideration when buying houses and cars and comic book and bananas. It is only when buying stock they they leave their rationality behind and elect to ignore price entirely. Why?
The evidence that I have gathered from interaction with tens of thousand of middle-class investors is that the biggest cause of the insanity is that most people put their faith in the “experts.” I have had numerous investors tell me that everything that I say about investing makes perfect sense to them but that it is the opposite of what all the big names in The Stock Selling Industry are saying and so they just feel that the need to put their confidence in the “experts.”
Investing according to what someone in The Stock Selling Industry tells you is like deciding on how much to spend based on “advice” from someone employed by the credit card industry. People who make millions of dollars selling stocks think Buy-and-Hold is the cat’s pajamas. Why shouldn’t they? Can you think of any industry that wouldn’t like to be able to persuade people that their product is worth buying AT ANY PRICE WHATSOEVER? I mean, come on. They are “experts” all right. They are expert SALESMEN.
That’s my take in any event, DIY Investor. Please don’t think that I don’t have the greatest respect and affection for all the people in The Stock Selling Industry from whom I have learned important things (and that’s a lot of them!). I am grateful for the insights. But I don’t think that we do these people any kindness when we pretend that the hundreds of millions of dollars that Buy-and-Hold brought in to them did not influence their decision as to whether it would be okay to let middle-class investors learn what the academic research has been saying for 30 years now. Would you not be influenced by millions of dollars? I think all of us would be influenced to some extent.
We need the insights of the experts in The Stock Selling Industry. But we also need to learn to CHALLENGE them when it appears that they are blowing smoke. The financial journalism industry won no awards during the Buy-and-Hold Era. Neither did the Personal Finance Blogosphere. Neither did the millions of middle-class investors who bought into what they were being told without first asking the hard questions that common sense should have told them needed to be asked.
This economic crisis was a community effort, in my assessment. The Stock Selling Industry led the charge. But just about all of us went along with the fantasyland stuff to some extent. Stocks could never have gone to the prices we saw in the bull market without millions of us going along with a lot of nonsense rationalizations.
Rob
I think we also can agree that a simplistic 4% withdrawal rule can be improved upon.
I certainly agree, DIY Investor.
I also agree with the suggestion implicit in your comment that studying the SWR matter is a good way to begin a possible exploration of the larger matter. It helps to have something specific to work with. The large questions leave some people cold because they are at times theoretical in nature. There’s nothing theoretical about setting up a retirement plan. That’s a numbers exercise. So looking at SWRs is a good way to approach the bigger questions without jumping feet first into a full examination of them.
Rob
Thanks for the sites etc. I’ve got a lot to look over.
Please ask any question at any time and in any format you prefer, DIY Investor.
I have made it my life’s work to get the internet opened to discussion of these critically important questions. It took years for some of them to click with me. And of course there are millions of smart and good people who believe strongly in Buy-and-Hold today, including lots of extremely well-informed experts. So you are very much in good company re your skepticism re the new ideas.
I would like to see some responsible people step forward and suggest that we all work together to discuss these matters in a civil and warm and friendly way. If we do that, I don’t think we can lose. We might learn that the new ideas are better than the old ideas. Or we might learn that the old ideas are better than the new ideas. Either way we end up winners by learning something important.
I will always stand ready to do anything I can to move things in a positive direction. I obviously have to express my honest views on questions that are put to me. But I hope that I always evidence a desire to debate the questions in a fair and friendly way. I don’t agree with those who advocate Buy-and-Hold. But I respect them. And I like them. I think it will be a wonderful day when a few of them will be able to send the same message back to those of us on “the other side” and all the boards and blogs on the internet will be able to hold civil discussions of these most interesting and important of all investment-related topics.
Thanks again for stopping by. Your visit cheered my Saturday morning!
Rob
“It’s not even possible for the human mind to imagine a scenario in which Buy-and-Hold could work.”
Well, from looking at Norbert’s graphs, then this means that the “VII” approach can never work either since the empirical difference between them is very small statistical noise.
Norbert also had this interesting titbit to say about Rob’s hilarious ‘calculators’:
“The Scenario Surfer’s results are based on completely fabricated return sequences concocted from thin air by hocus based on what he believes should happen given valuations, not what does happen. I know this because the primary developer (the “John” hocus refers to) has admitted that it’s based on a spreadsheet which he made available to the public.
Unfortunately, insufficient cleanup prior to publication revealed something very telling. When I examined the contents of that spreadsheet, I found, after much misdirection within the sheet itself, the return time series along with a comment saying they were based on Rob’s imagination. “
this means that the “VII” approach can never work either since the empirical difference between them is very small statistical noise.
There are two people who each earn $50,000 per year. The first person spends $60,000 per year. The second spends $40,000 per year. The only difference is that one spends $10,000 more than he earns every year and the other spends $10,000 less than he earns every year. You would call $10,000 in spending one way or the other “small statistical noise.” Yet the long-term difference between these two money management “strategies” (the first is not really a “strategy,” it is the product of an illusion, like Buy-and-Hold) is huge.
When you do the wrong thing over and over and over, it adds up over time, Sadface. What might be “small statistical noise” over the course of a single year ends up being the difference between going bust and becoming very wealthy indeed after the passage of 30 years.
There have been many times when ignoring the price of stocks has not destroyed investors for one or two or three or four years. There has never been a time when ignoring the price of stocks has not eventually destroyed investors. The investors who followed a Buy-and-Hold approach in the 1920s thought they were geniuses. They didn’t think they were such geniuses when their decision to ignore price caused prices to go so high that they experienced an 80 percent price crash. Had they all been following a Valuation-Informed approach, that price crash would never have happened. They all would have been better off. They all could have retired years earlier.
The difference between Buy-and-Hold and Valuation-Informed Indexing is indeed small in the short run. But you aren’t going to be investing only for a day or a week or a month or a year, Sadface. If you take a vow to do the wrong thing and to do it over and over and over again over the course of an investing lifetime, that vow is going to exact a price from you sooner or later. It’s just a question of time re when the Reality Principle catches up with you.
I prefer to have the Reality Principle working on my side rather than working against me. Call me madcap.
Rob
the return time series along with a comment saying they were based on Rob’s imagination. “
Um — that makes sense, Sadface.
Thanks for sharing.
Rob
First, thanks for the advice about reining in my negative emotions, Rob. I’m fine, emotionally and otherwise, but appreciate your counsel. But if you’d like to play “let’s speculate,” I might note that it’s ironic that after my query about the size of your audience here, a seemingly-curious commentor appeared.
Regardless, my question remains unanswered. In response to my question you wrote (in part): “Ordinary investors need a place where they can meet and talk over the ideas in peace. They need to be able to ask lots of questions.”
Accepting that at face value: Why can’t you content yourself with using your site for such a purpose? Why pester other blog owners with requests for them to host your campaign? Build your site, form your arguments, grow your audience here.
If the owner of a 9/11 conspiracy theory blog wrote you email after email requesting the opportunity to present his theories on your blog on a regular basis, wouldn’t you suggest that his own site would be a more appropriate forum for those views?
Why can’t you content yourself with using your site for such a purpose?
Because this matter affects every investor and indeed every citizen of our country, curious. The promotion of Buy-and-Hold for 30 years after the academic research showed that there is precisely zero chance of it ever working for the long-term investor has caused an economic crisis, which has done serious damage to the functioning of the political system. All of us who care about the future of the free market and about the future of our way of life should be working together to solve these problems.
And of course there have been thousands in the Retire Early and Indexing discussion-board communities who have expressed a desire to learn what they need to learn to do that. The only rub is the Buy-and-Hold Dogmatics. Yet the Buy-and-Hold Dogmatics made promises when they were granted posting privileges to honor the community norms! Had they been required by the site administrators to honor those promises, there never would have been a single problem or a single abusive post. I feel strongly that they should be required to honor those promises.
You know what, Curious? The Goons (you!) feel that way too. If they didn’t feel that they had done wrong by destroying our boards, they wouldn’t be so upset about the idea of people finding out about it today. We let the Goons down when we failed to hold them to reasonable standards of behavior. The Goons are humans too in an ultimate sense and it hurts them for us to permit them to do such damage. One of the jobs of a community is to rein in the negative emotions of the weaker among us when we see them engage in such behavior. We have failed to honor our responsibilities in this regard and we have caused millions of people huge amounts of human misery by doing so.
We should stop! We should get back to where we once belonged. We should open all of the boards and blogs to honest posting on safe withdrawal rates and all other important investment-related topics.
My sincere take.
Rob
Why pester other blog owners with requests for them to host your campaign?
Look at the verb you use, Curious. It’s not “pestering” someone to explain to them the realities of stock investing. Knowing the realities permits you to invest with far less risk and to obtain far higher returns while doing so. If that’s “pestering.” please may I be pestered and pestered and pestered unto the end of my days!
You view it as “pestering” because you have not yet worked up the courage to say out loud The Three Hardest Words to Pronounce in the Entire English Language. You learn how to pronounce those three magic words, and you will be like all the people who put forward the comments at the “People Are Talking” section of the site (to the left of this page). You’ll be LOVING the idea of knowing for the first time in your life how to invest effectively. You’ll be laughing at the idea that you once viewed the act of posting accurately on what the academic research has been saying for 30 years as “pestering.”
Give yourself a break, Curious. There is a part of you that LOVES the idea of investing rationally. That’s why you are so upset. Let that part out and the emotional pain you now suffer re this matter comes to an end. I’m sure of it!
Rob
Build your site, form your arguments, grow your audience here.
I have a funny feeling that the site would grow a lot larger a lot faster if honest posting on safe withdrawal rates and other important investment-related matters were permitted on all the discussion boards and blogs on the internet, Curious.
Just a hunch.
Rob
If the owner of a 9/11 conspiracy theory blog wrote you email after email requesting the opportunity to present his theories on your blog on a regular basis, wouldn’t you suggest that his own site would be a more appropriate forum for those views?
No.
I wouldn’t permit him to post about his theories at my blog because my blog is a personal finance blog. But I wouldn’t suggest that he post only at his own blog. I would suggest that he post at 911 sites or conspiracy sites or political sites. Those are appropriate places for such a discussion.
Rob