Set forth below is the text of a comment I put to the thread associated with my recent Guest Blog Entry titled What Bogle Says About Valuation-Informed Indexing:
To me, Bogle’s remarks are cryptic and vague. It does him injustice to speculate what he is really thinking. Would he not be interested to explain these remarks more fully if asked?
This is the best we are going to get out of Bogle for the time-being, Jon. I have written him three e-mails asking for clearer statements and not received a response. I also offered to make a presentation to one of the annual Bogleheads meetings at which Bogle appears and have Bogle respond to the points made. The leaders of the group responded to that one by shutting down the board and moving it to a new place where they could control who was permitted to speak and then banning me.
Bogle says opposite things on valuations in almost every speech he gives. He always says that valuations affect long-term returns, which is true. But he also always says that investors do not need to change their allocations in response to big valuation swings, which cannot possibly be true if valuations affect long-term returns.
The root problem here is that our understanding of how stock investing works is primitive. We put some important pieces together in the days when Buy-and-Hold was developed (for example, it really is so that short-term timing doesn’t work), but we did not at that time know all there was to know. In later years, we got more pieces to fit in an intellectual sense. But the people who had been promoting Buy-and-Hold did not want to admit that they had made mistakes in their first-draft effort. So we got no corrections. We are today in a strange Twilight Zone in which those who are familiar with the academic research know (at least intellectually) that Buy-and-Hold can never work but dare not say so publicly. Those who say so publicly are shunned by everyone else in the field because all feel embarrassed for the human misery they have caused (not by being wrong, which is nothing, but by not acknowledging the mistakes when they were brought to their attention).
There is no injustice being done to Bogle by quoting his words. He sounds confused because he is confused. He very, very, very much wants to believe that Buy-and-Hold can work. He feels that his entire reputation is riding on this. But he is not able to explain the academic research of the past 30 years. Contrary to popular belief, there has never been a single study showing that timing doesn’t work. There are lots of studies showing that short-term timing doesn’t. But every study of long-term timing shows that it always works. So the statement “timing always works” is every bit as true as the statement “timing never works.” Whether timing works or not is entirely dependent on what form of timing it is that you are practicing.
It is the people who advise Bogle to keep this covered up who are doing him a great injustice. Bogle is a giant in this field. He is responsible for perhaps a dozen of the most important insights in the history of stock investing. Valuation-Informed Indexing is the future. VII is as much John Bogle’s creation as it is Rob Bennett’s creation. All I did to develop VII was to take Buy-and-Hold and drop out the Get RIch Quick stuff (Bogle did not know it was Get Rich Quick stuff at the time he adopted it because the research showing this had not yet been done at the time). VII is going to permit all middle-class investors to retire five to ten years sooner than they can hope to today. It is a huge advance. And Bogle is going to get a huge portion of the credit for it. I am going to see to it.
The only thing Bogle ever did wrong was to fail to make the changes when the research showed that they were needed. Bogle talks about this sort of possibility in one of his books. He says that, if ever he makes a mistake, he hopes that his friends will point it out to him. I am the biggest Boglehead in the world. I am the man’s friend. So I have done what he has said he wants me to do and what I would want him to do if the places were changed.
Bogle is hurting himself today. He is human and he has given in to feelings of pride. We all are capable of doing such a thing. We all should be seeking clear answers from him, not to embarrass him but to get things back on the right track for him and for all the rest of us too.
Bogle is in pain at the moment. He has done wonderful work for us for many years. He made one perfectly understandable mistake (there are lots of smart and good people who made the same mistake). He is now engaged in rationalization aimed at keeping knowledge of the mistake from others and even from himself (cognitive dissonance is a real phenomenon down here in the Valley of Tears). And the worse the economic crisis gets, the more pressure he feels.
Bogle very much needs to offer a fuller explanation and to respond to questions and all this sort of thing. But he does not today possess the courage to do this. All of those who care about him (and about the survival of our economic system) need to do what we can to push him into doing what needs to be done as soon as possible. On the day Bogle walks to the front of the room and says those three magical words “I” and “Was” and “Wrong” (or even just “I’m” and “Not” and “Sure” — those slightly less magical words would also be enough to get the job done), all sorts of wonderful things begin to happen.
We have dover the past 30 years developed hundreds of insights about how stock investing works that we are not today able to share with others because to do so would embarrass the Buy-and-Holders. The Buy-and-Holders did not mean to cause an economic crisis when they were starting out. They never imagined things turning out this way. We need to open the floodgates of knowledge and launch a national debate on what works in stock investing that will generate the greatest period of economic growth in our history. I have studied this subject in great depth for nine years now and I can tell you that the numbers suggest that, within six months of the day Bogle gives that speech, we will all be looking at the economic crisis in the rear-view mirror.
We need to stop looking backward and start moving forward again. Bogle is a leader in this field and we need his help to get this done. Bogle wants to help, at least part of him does. We need to place our confidence in the better part of the man and implore that better part of him to get up on that stage and say what needs to be said. If enough of his friends get to work on this, it will happen. I have seen the last page of the book and I am pleased to be able to report that this one has a happy ending.