“I Have Never Seen Bogle Correct the Lindaurheads. That Suggests That He Does Not Have a Big Problem With What They Tell People.”

Set forth below is the text of my response to a comment advanced by “Arty” to the discussion thread or a recent blog post here:

But just so we are on the same page, what are the precise quotes from, say, Bogle, that are “get rich mumbo jumbo”?

Please understand that Bogle is one of my heroes. I view him as a giant in the field. There would be no Valuation-Informed Indexing without John Bogle. I learned as much from Bogle as I learned from any other expert, including Shiller and Russell.

That said, the sort of thing that Bogle says that causes huge trouble for millions of middle-class investors is his injunction to “Stay the Course!” What does that mean?

If it means “try to keep your risk profile roughly stable,” Bogle is the leading advocate of Valuation-Informed Indexing alive on Planet Earth today. It’s not possible to keep your risk profile stable without changing your stock allocation in response to big valuation shifts. So, if that’s what the phrase means, Bogle and I are soul brothers.

But that’s not how the Lindauerheads interpret “Stay the Course.” The Lindaurheads say that it means to stay at the same stock allocation. That’s the opposite of maintaining the same risk profile.

Bogle won’t tell us what he means. I offered to make a presentation to the annual Bogleheads conference and to ask him that question and find out what he thinks and the owners of the forum elected to start a new forum to escape me and my annoying questions rather than to permit me to ask those questions in a public meeting. So I think it would be fair to say that there is some funny business going on re these matters, Arty.

I know that the Lindaurheads interpret what Bogle says in very dangerous ways. I don’t know precisely what Bogle thinks because he won’t answer questions about these matters. I have sent him three e-mails trying to learn more about what he really believes. But he has not responded to those e-mails.

I have never seen Bogle correct the Lindauerheads. That suggests that he does not have a big problem with what they tell people.

That’s pretty much all I can say about this topic, Arty. I wish that some others would get involved and try to find out in more detail precisely what Bogle believes. We need Bogle promoting Valuation-Informed Indexing. That would be huge. And he has indeed said many things supportive of VII. But I don’t think that I can quite say today that The Big Guy has endorsed VII. I wish I could.

If anybody has any ideas as to what I might do to persuade him to make a flat-out endorsement, I would be grateful to hear them. Once we get that endorsement from The Big Guy, I believe that we are on our way to bringing this economic crisis to an end.

Rob

Comments

  1. Arty says

    Rob wrote: “I have never seen Bogle correct the Lindauerheads. That suggests that he does not have a big problem with what they tell people.”

    I don’t know what his silence means but it can mean many things. All of my thoughts are guesses.

    First, it may indeed mean Bogle agrees enough with his “interpreters” that no editing is needed. I think he *basically* agrees, judging from his other comments on public media, this being: Buy and hold tight with low-cost total market funds—after figuring personal risk, and adjust as you get older, or at valuation extremes (and that is subject to varying viewpoints, Shiller being one of them), and if you must tinker do so lightly.

    But I don’t see any of that as “get rich quick” intended. Bogle is a long-haul guy and makes that clear. And buy and hold at low cost is how he wants to do it, in the main.

    He *may* see some things wrong online but he is friends with the “high priests” and knows they are his supporters, and therefore maybe they are important to him. And it can be an endless chore to correct errors he does see. And he can’t or won’t control everything—in any event, and for a variety of reasons, not the least is that he is pretty old. I’m guessing he would not tune-in much and certainly never like those who visit his boards for the daily dose of drama. And these days he probably wants to communicate only through few and large media venues only. Just guessing…

    So, again, I don’t see “get rich quick” from him. He is a low-cost buy and hold guy (for the most part) and unless things got to like PE 12 or lower or PE 35 or higher (my numerical guesses, exclusively) he’d advise no added action to one’s asset allocation.

    So, I’m guessing his mode (personally) is one version of VII—with a very broad middle range—such that for many years it was/would be buy and hold, in essence. But his basic message to his flock , who knows far less than he about valuations and markets, is to do even less than that. Bogle often says: “Don’t just do something, stand there!”. That says a lot.

    And I think part of the reason why he says this is to help his flock from hurting themselves with guesswork as to the market’s direction. Now, Shiller might say such directions are often clear (given 10 years), and Bogle may agree, especially at extremes. Again, all the above is speculation based on my inferences from his books and media communications.

    If you were in his audience at a conference and could ask him one question what would it be?

  2. Rob says

    Thanks for sharing your thoughts, Arty.

    If you were in his audience at a conference and could ask him one question what would it be?

    That’s a super question.

    I would ask him whether the behavior he sees on the Bogleheads Forum leads him to believe that there must be something seriously wrong with Buy-and-Hold. Shouldn’t a data-based, research-supported strategy cause people to feel less emotional about stock investing rather than more so?

    Rob

  3. what says

    #1 Arty, your problem is that you are interpreting ‘get rich quick’ in the ‘normal’ sense of the word. Rob uses a very different definition.

    #2 It is interesting that Rob continuously tries to get Bogle to concern himself with the Bogleheads Forum.

    Why is it interesting? Well, its interesting because the Bogleheads forum has a great number of highly successful investors so why Rob would be intent on trying to change what _they_ are doing is interesting.

    There are plenty of other venues where investors are doing terribly – like the various M* forums or Motley Fool etc. In fact, I have found on those forums that some of the poor investors there think they are doing well but have no idea how to measure their own performance. Some of them buy active funds _after_ the fund did well and then proclaim the past returns as their own.

    Seems strange that Rob a self-professed messiah of investing would first concern himself with a very affluent and successful group…many of whom are worth 10-20x what Rob is?

  4. Rob says

    the Bogleheads forum has a great number of highly successful investors so why Rob would be intent on trying to change what _they_ are doing is interesting.

    All that I am saying is that they should permit both points of view to be expressed, What. Are you saying that these highly successful people are incapable of continuing to follow their current strategies if they hear the other side? No personal offense intended, but that makes no sense.

    I think that these people are following a dangerous strategy. But I am not God. I could be wrong. How could it possibly hurt them to hear the other side?

    It hurts because there is a part of them that entertains doubts. That’s been the dynamic here going back to the first day. They are not sure. So it upsets them to hear someone challenge what they for the time-being are struggling to believe.

    That’s my role in the Bogleheads Forum. I am the one who challenges the majority viewpoint and who encourages those holding the minority viewpoint. That community needs me desperately. It needs to hear both sides if it is t survive as the economic crisis continues. And it needs to permit the hearing of both sides to win back its integrity.

    You may or may not be right on the substantive issues, What. I think you are wrong, lots of good and smart people think you are right. You are wrong without question on the process issues. You are acting in defiance of the most fundamental social norms of our society re that one, social norms that you yourself endorse in other contexts.

    Re that one, I KNOW you are wrong. More importantly, so do you. That’s the one that causes you the most pain of all.

    Rob

  5. Rob says

    your problem is that you are interpreting ‘get rich quick’ in the ‘normal’ sense of the word. Rob uses a very different definition.

    Stocks went up by 20 percent or more in a number of years in the late 1990s, What. Did those gains represent something real? Or did they consist of cotton-candy nothingness fated to be blown away in the wind within 10 years or so of passing time?

    If those gains were real, Buy-and-Hold is solid. It is the ideal strategy.

    If those gains consisted of cotton-candy nothingness, Buy-and-Hold is Get Rich Quick. Buy-and-Hold encourages people to believe in the cotton-candy nothingness, to plan their financial affairs on the premise that those gains constitute lasting wealth, to hand in resignations from jobs based on what they see in those numbers.

    What does the phrase “Get RIch Quick” mean if it doesn’t mean “living in a fantasy world because it makes you feel good to ignore financial realities for a time”? That’s the concept, What.

    I am using the phrase “Get Rich Quick” as it has always been used. You don’t like it that I am applying it to an investment strategy that you have been following for many years now, that’s all.

    If there is something wrong with Buy-and-Hold (I obviously believe that there is), that something is that it is a Get Rich Quick approach. If the market is efficient, Buy-and-Hold is NOT Get RIch Quick. I have no difficulty conceding that point. Are you able to concede that, if Shiller is right and Fama is wrong, Buy-and-Hold IS Get RIch Quick?

    If not, how do you justify treating the imaginary gains of bull markets as real (Shiller says that bull market gains are imaginary, temporary phenomena, not lasting wealth).

    Rob

  6. Rob says

    Rob a self-professed messiah of investing

    I’m some guy whose claim to expertise in this field is that he figured out how to get stuff posted to the internet, What.

    It is the Buy-and-Holders who made me a “Messiah.”

    Honest posting is permitted on hundreds of subjects on the internet. It is the idea that Buy-and-Hold must be placed in a special category that causes all the “controversy” that causes you to characterize me as “a self-professed messiah of investing.”

    What gives me my great powers is that everything I say about investing is rooted in the academic research and in the historical data. Buy-and-Hold is promoted as a strategy rooted in academic research and historical data. So it looks very, very, very bad for Buy-and-Holders to insist on a silencing of my message.

    It is the Buy-and-Holders who have built me up into a Messiah, not me. I say that I am a fellow community member with the same rights to post his sincere views on stock investing as every other community member. It is you and the other dogmatics who make me into something special, What.

    Rob

  7. Arty says

    Fun Stuff

    Bogle: Market About Fairly Valued Today
    http://www.morningstar.com/Cover/videoCenter.aspx?id=397707

    You’ve probably seen this but just in case you have not. Bogle likes Shiller’s work—a lot, apparently— and sees value in it but has slightly different conclusions as to expected return from today’s valuations (I’m guessing—and just a guess— due to other factors outside just PE/10 like the depressed earnings of the recent 2 Bear markets). But this difference seems minor to me.

    Note his endorsement of Shiller’ work, and the sound reasonings for doing so in the first half of this video. I think his take on Shiller and the importance of his work is correct.

    I also see his take on Bonds (yields and the yield curve being the valuation metrics here) as being correct.

    One can use what Bogle is saying *here* as an endorsement of Shiller as a tool for one’s strategy.

  8. Rob says

    Thanks for the link, Arty. It’s smart stuff and it’s obviously relevant to what we are talking about here. So it is certainly helpful.

    Please understand that it is not Robert Shiller who told me what I needed to know to know that the Old School SWR studies get all the numbers wildly wrong. That was Bogle. I read an analysis similar to the one he puts forward here and that caused the click moment. As you note, he specifically mentions valuations in his presentation. That’s nothing new. He always does that!

    What he DOESN’T do is to tell people how much they need to adjust their stock allocations in response to valuation shifts. That’s why his approach is Get RIch Quick. It’s not enough to know that valuations have an effect. You must ACT on that knowledge for it to do you any good. Bogle tells people to follow Buy-and-Hold. He tells them it is okay not to act. He is pushing Get Rich Quick.

    Bogle’s 7 percent number (nominal, not real) for the 10-year return on stocks is slightly high but in the right ballpark. So he is getting that part right. The problem is the part he is leaving out (presumably because he doesn’t understand how this all works — but still….).

    He is leaving out that the economic crisis caused by the promotion of Buy-and-Hold will be putting us in the Second Great Depression before those 10-year numbers show up. All huge bull markets bring us to P/E10 levels of 7 or 8 once they cause a crash and an economic crisis. That’s 65 percent down from where we are today. Middle-class workers cannot take another 65 percent loss, Arty. We are headed to the Second Great Depression unless we open up the internet to honest posting first.

    Once we are in the Second Great Depression, all bets are off. Yes, you will get to 6 percent or perhaps 7 percent nominal after 10 years. The numbers do indeed say that. But if our political system falls, you don’t get to collect. This is a critical part of question that MUST be included in the analysis.

    There’s talk about the economic crisis everywhere today. They bring it up in these political discussions all the time. We should be talking about how to solve it! People need to hear good news.

    Permit honest posting and we are not going to see these economic crises in the future. They are caused by the huge crashes that always follow the heavy promotion of Buy-and-Hold strategies. Now that we know this (there’s 140 years of data showing this and 30 years of academic research), we should be doing something about it. This is all positive stuff. It’s not even possible to imagine any downside. This should not be controversial!

    Why do we not do it?

    The answer I get from people when I ask this question is: “It would hurt Bogle’s feelings if he had to admit a mistake and he’s such a nice man.”

    That’s insane.

    I agree he is a nice man. I do not agree that it would be hurting his feelings to let him know that he had made a mistake and to ask him to correct it. You’re not hurting him to let him know about the mistake. You are helping. He didn’t take up this work with the idea of making huge mistakes that would someday cause an economic crisis! Do I really need to spell all this out?

    When you make a mistake, you need to fix it, Arty. There is no other way.

    We are not asking Bogle to fix his mistake because we want to be mean to him. We are not saying he is dumb. We want his good ideas to achieve their potential. For the good ideas to achieve their potential, the mistakes need to be fixed.

    Again — there is no other way.

    Or so it seems to me.

    What am I missing here?

    Rob

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