My first reaction to this comment of Wade’s is that it is an odd one for an academic researcher to be putting forward. The value of academic research is that those who produce it are given tenure so that they can report honestly what the historical data reveals. Those trying to make a buck in this field are inevitably going to be drawn to doing the popular thing, which often translates into doing the thing that appeals most to the Get Rich Quick urge that exists within all of us. The reason why we turn to academic research for the straight story is that we imagine researchers to be beyond all that. Their jobs are safe. They are not caught up in the dog-eat-dog world of commerce. They are not salesmen. They can tell the truth because they do not need to worry about whether what they say will make them popular or not.
I think it would be fair to say that we have overestimated the extent to which living the life of the academic can insulate one from financial considerations, especially in a field in which there is so much money floating around. Wade has produced amazing research. But he wants its both ways. He wants to produce great research and to be popular too. He wants the links to his blog that go to those who play ball with The Buy-and-Hold Machine. He wants the job referrals that go to those who play ball with the Buy-and-Hold Machine. He wants the applause that goes to those who flatter investors who have bought into the marketing pitches advanced by The Buy-and-Hold Machine.
Make no mistake. I want those things too. I want links. I want job referrals. I want applause. I want bucks.
But I take strong offense at the idea that I need to post dishonestly on the numbers that my friends use to plan their retirements to get those things. I have seen little bits of corruption at every job I have worked, going back to my fast food days. That’s the way it is with the humans. You take that sort of thing in stride. You understand that humans have a lot of good in them and a bit of bad in them as well and you make the best of things as they are. Fine. But I have never experienced anything like what I have experienced in the ten years since I put forward that fateful post of May 13, 2002, pointing out the errors in the Old School safe withdrawal rate studies. What I have seen in the past ten years has been special and in a very, very bad way. Tens of thousands of links are not payment enough to persuade me to betray my friends. And I consider it a fresh insult every time I am asked.
That said, there is a practical point that Wade is making here that is worthy of some consideration.
I am trying to sell something. I am trying to persuade people of the merits of a new investing strategy. No one buys anything from anyone whom he doesn’t like. Gaining the customer’s respect and affection comes first. When they like you and respect you, they listen to your pitch. If your product is good enough, they buy it. If they hate your guts with a burning passion, as many Buy-and-Holders hate my guts with a burning passion, no amount of historical data will win them over.
I need people to like me. Wade is right about that. And Wade needs people to like him. He cannot do the good work he wants to do if people hate him with a burning passion. One of the things he learned during his 16 months of e-mail correspondence with me is that lots of Buy-and-Holders hate me with a burning passion.
Here are some words that Drip Guy wrote to the Bogleheads Forum when Wade posted about his research showing that Valuation-Informed Indexing has provided far higher returns than Buy-and-Hold at greatly reduced risk for the entire 140 years for which we now possess return data: “Since your own work is overtly at odds with the ethos of the board — here, the theme is John Bogle’s philosophy, which eschews market timing — I myself will no longer obliquely support it by giving you a whetstone on which to sharpen your knife. You must certainly know that this very board came into existence in order to ESCAPE the lunatic behaviors of one individual — the very individual with which you have publicly and openly aligned yourself, and who you are openly quoting and sourcing in your column and are forming your intended paper around. While there is much merit in open discussion of competing, differing, and varied approaches, as to you, sir, I personally will have no more of it here on this forum, given the poison well from which you are now openly drawing your own water.” That’s hate. And there’s a threat implicit in those words. Drip Guy is telling Wade “We will destroy you if you associate with Rob Bennett.” And Wade knows that Drip Guy is prepared to follow through with the threat.
He knows something else. He knows that no one at the Bogleheads Forum is willing to speak up in opposition to the threat. Not John Bogle. Not Bill Bernstein. Not Larry Swedroe. Not Rick Ferri. Not anyone.
If Wade posts honestly on Valuation-Informed Indexing and on my role in developing the concept, he is finished in this field. That’s what his experiences posting at the Bogleheads Forum taught him. I don’t approve of his behavior. But it would not be fair to him to fail to point out that the opposition to anyone who sings my praises is rooted in nothing short of blind rage. If we are to make the transition from Buy-and-Hold to Valuation-Informed Indexing and thereby bring this economic crisis to an end, we are going to need to come to a understanding of the cause of that blind rage.
There are three elements.
First, I put forward insights. In ordinary circumstances, that is seen as a good thing. I know that because I put forward many important insights in the days before I posted about investing and I was the most loved poster at the Motley Fool site because of them. Putting forward insights does not by itself cause rage. But in the particular circumstances that apply in the investing realm, it does. The particular circumstances that make something that is ordinarily seen to be a good thing (advancing insights) to become viewed as a very bad thing are contained in the remaining two elements of the story.
The second element is the core of the problem. The insights are of earth-shaking significance. Making the shift to Valuation-Informed Indexing reduces investing risk by 80 percent. Buy-and-Hold caused the economic crisis and making the shift to Valuation-Informed Indexing would bring it to an end. All four economic crises that we have experienced since 1870 were caused by the widespread adoption of the Buy-and-Hold “idea” that there is no need for investors to lower their stock allocations when prices rise to insanely dangerous levels. Once we open the internet to honest posting, millions of middle-class people will be able to retire five to ten years sooner than they imagined was possible during the Buy-and-Hold Era. Valuation-Informed Indexing takes the emotion out of stock investing. It is the first truly research-based investing strategy and the first emotionally balanced investing strategy.
When someone gives you directions to the restaurant you are trying to locate, you thank them. They obviously possess some piece of information about the world that you lacked but you don’t see that as being a big deal. By sharing the information with you, they make your life better. They are doing you a favor! You say “thank you” and you go on your way.
It’s different when someone says you are living your life wrong. You don’t thank someone when they tell you that you married the wrong person. You don’t thank someone when they tell you that you are going about this business of raising your children all wrong. You don’t thank someone when they tell you that you have wasted 20 years of your life doing work for which you are not suited and which has little value in this world. You don’t thank someone when they tell you that your religion is a false one, that you are on the road to hell and you had better make some changes pronto.
We like people who help us out in small ways. We do not like people who offer to shake up our foundations and change our lives around from top to bottom.
I thought I was offering the ordinary sort of insight on the morning of May 13, 2002. I read some things in John Bogle’s book about how stock prices are determined and what I read told me that studies that did not contain adjustments for the valuation level that applies on the day the retirement begins could not possibly get the number right. I told my friends what I thought I had learned. I didn’t do it in even a slightly arrogant way. I didn’t even put forward a declarative statement. I posed a question. I asked my friends at the Motley Fool board: “Should we be considering valuations when calculating safe withdrawal rates?” I obviously believed we should be doing that, but I wasn’t certain and I didn’t pretend to be certain.
So I did nothing offensive. Zero. Nada. Zilch. There are Post Archives. This can be checked.
The problem is that the Buy-and-Holders had formed doubts in their own minds about those Old School safe withdrawal rate studies long before I came on the scene. They didn’t want to think about those doubts. They wanted things to go on as they had been going on during the huge bull. There were implications to what I was saying that they did not want to entertain. They wanted me to drop it and they made that clear. I didn’t want to drop it. I wanted to learn. I took the defensiveness as a sign that there was a lot to learn here. And the more I explored, the more I did learn. I learned amazing things. I generated insight after insight after insight.
In ten years, I revolutionized our understanding of how stock investing works.
I feel like I should apologize for that statement.
None of us are supposed to stand above all the others to that extent. None of us are supposed to be smarter or better or more ethical or whatever.
I cannot apologize. The insights that I have generated are too important. I am happy and proud to have produced them. So no apologies.
I can share credit. That’s honest. I obviously could not have done what I have done without huge amounts of help from people like Robert Shiller and John Bogle and Bill Bernstein and John Walter Russell and Wade Pfau and hundreds of other fine people. By no wild stretch of the imagination am I saying that I produced these amazing insights on my own or that I am smarter or better or more ethical than these other people. But I cannot deny the power of the insights. If our free market system is to survive, we need to make the shift to Valuation-Informed Indexing. I love our economic system. I cannot betray it by pulling a Wade Pfau and doing the popular thing and saying that perhaps Buy-and-Hold is not really all that dangerous, perhaps we will find a way to muddle through without Bogle ever having to say The Three Magic Words (“I” and “Was” and “Wrong”).
I violated a Social Taboo. I did too much. I generated investing insights of far too great a power. I made lots of smart and good and hard-working people look bad by doing so.
I cannot change that. I can offer the hand of kindness to these people. I can praise them to the skies. Because they have achieved things that justify me praising them to the skies. I can say that I love them and respect them and am grateful for all the things they have taught me over the years. But I cannot deny the power of the insights themselves. The insights are our salvation. The insights are the means by which we bring an end to the financial misery we brought on because of the ignorance about how investing works into which we were born and which we have only begun to rise above in recent decades.
People hate that. People are small that way. It’s one of the deficiencies of the humans. Some people will no doubt hate me even more for stating things so frankly here. Again, I cannot apologize. We need to get over the hate and start enjoying the benefits that come from learning about the insights. So it is my job to help interested parties understand where all this hate comes from. It comes from a place in the human psyche that hates, hates, hates, those of us who get too big for our britches. I am no investing expert. I am some guy whose only claim to expertise in this field is that I figured out what buttons to push to get my words to appear on other people’s computer screens. I am not supposed to know things that John Bogle does not know. And I obviously do. And so a good number of people hate me with a burning passion and for ten years now have not been able to give it up.
The third element is that the manner in which I tapped into all these powerful insights makes it seem so darned unfair that I was the one to develop them.
I contacted Dallas Morning News Columnist Scott Burns about my safe-withdrawal-rate findings in February 2005. The first two words of Scott’s response to my e-mail were: “You’re right.” He asked me in that e-mail for my telephone number so that he could interview me for an article. Then he got cold feet. Five months later, he published an article on the SWR findings but did not mention my name or include a link to my New School SWR calculator (“The Retirement Risk Evaluator”). Nor did he note his personal belief that I was right in my criticisms of the Old School studies; he presented the findings as if they had just appeared on the internet somewhere and as if he was not able to verify whether they were solid or not. This strange reaction on Scott’s part led us into an exchange of e-mails in which he offered a number of inappropriate personal comments.
Scott said that my efforts to get the discredited studies corrected would prove to be “catastrophically unproductive.” He said that the enthusiasm I evidenced re my efforts to give investors accurate SWR numbers demonstrated a desire for “personal aggrandizement.” Huh? Why would it be a bad thing to try to get discredited retirement studies corrected? And why would it be a bad thing to develop a calculator that offered access to the correct numbers?
The “problem” was that Scott knew for years that valuations matter. Shiller published his research showing that valuations matter in 1981. Scott was angry that I was using information that had been readily available to him for decades to produce the most powerful investing insights in history. How dare I? That could have been Scott Burns doing that!
Except it would have taken a level of courage that Scott Burns did not possess at that time for Scott Burns to have done that. What we have learned over the past 10 years is that offering good investing advice is not primarily an intellectual endeavor. The thing that makes stock investing hard is that we all possess an inclination to fall for Get Rich Quick strategies, and, once we fall for them, we become emotionally addicted to Get Rich Quick thinking. But we never lose the common sense that tells us that Get Rich Quick approaches always turn out badly in the long run. The true investing experts are not those who promote Buy-and-Hold strategies but those who warn us of their dangers.
The “experts” in this field are envious of Rob Bennett and the mountain of investing insights he has generated over the past 10 years by ignoring the ruthless attacks of The Buy-and-Hold Machine and by following the academic research where it led him. It would be dishonest of me to deny the power of the insights. So that cannot happen. It is the experts who have rationalized their continued promotion of the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind for 30 years after the research showed that there is precisely zero chance that it can ever work for any long-term investor who need to make some changes.
These people are great people. They have a lot to offer. They have done good work in the past. They are smart. They are hard-working. They are good.
But they are going to need to get over their anger and envy and hate if they are to going to continue to do good work in the Valuation-Informed Indexing Era.
My hand is outstretched to all of them. There is nothing I would rather do than to work with them to help the millions of investors who were taken in by the Buy-and-Hold mumbo jumbo to learn what really works.
But I cannot bring about healing by agreeing to post dishonestly about the Old School safe withdrawal rate studies or any other critically important investment-related topic. It is the Buy-and-Holders who got it wrong. It is the Buy-and-Holders who have been behaving uncharitably and in fact shamefully for ten years now. It is the Buy-and-Holders who at this point need to extend the hand of kindness to get us out of the economic crisis brought on by their relentless promotion of dangerous and irresponsible and research-discredited investing strategies.
In the long run, all the ugly stuff will get blown away in the wind. It is the insights we have generated together over the past 10 years that will live on forever. We need to have the smartest people in this field united in their effort to spread knowledge of those insights to every middle-class investor. We need to get over our personal regrets over our earlier bad behavior and move on to better things and better days. All of us have a role in helping the Buy-and-Hold advocates come to recognition of why it is so important that they take that step soon.
We will all be viewed as Good Guys when we make it together to the other side of The Big Black Mountain!
The short version?
Some people need to get over themselves.