Going back to the first day, the Great Safe Withdrawal Rate Debate has been a story demonstrating the power (and risks) of the new internet communications medium.
Set forth below are ten illustrations of the point.
1) We have never seen as much support for discussions of Valuation-Informed Indexing as we saw in the early months of the Motley Fool stage of the discussions (May through August 2002). This tells us something important. Investors have a great deal of interest in these ideas so long as the discussions are held in a civil and reasonable way. There were detractors from the first days, to be sure. The first abusive post appeared on the morning of May 13, 2002. But there were limits to what the Goons could get away with in those days. I was the most popular poster at the Motley Fool’s Retire Early board. So the detractors couldn’t get away with death threats and defamation and board bannings at that time. The confusion over these issues is real and deep and many Buy-and-Holders feel genuine emotional pain to learn that a strategy they have been following for years to finance their old-age retirements is a Get Rich Quick scheme. But those early Motley Fool discussions teach us that, despite the sensitivity of the issue, interest in the topic is real and broad under the right conditions.
There’s never before been a communications medium that let us test things like this. If these discussions had been proceeding through newspapers or magazines or books, perhaps we could say that there is some interest in the new ideas as well as a great deal of reluctance to giving up on Buy-and-Hold. With the new communications medium, we can draw sharper and more edifying conclusions. We know how deeply people feel about various issues, we know what the hot buttons are, we know what sorts of arguments ring true and what sorts of arguments are ignored. It’s exciting stuff. I obviously view the transition from Buy-and-Hold to Valuation-Informed Indexing as being a very big deal. Could it be that the birth of this new communications medium will end up being an equally big deal in the end?
2) I met John Walter Russell through the internet. I’ve said that Wade Pfau’s research merits a Nobel prize. The same is true of the research of John Walter Russell. John spent the last eight years of his life working these issues 50 to 60 hours per week. One of the funny things (perhaps not to the Goons!) about the story is that I dropped out of the discussions on Day Five. I was fed up with the abusive posting. It was a sensitivity study that John posted on Day Six and the community’s strong positive reaction to it that pulled me back in. And I of course could never have developed the five unique calculators available at my site without John’s help. I don’t have the numbers skills to develop calculators on my own. So those calculators wouldn’t exist but for John’s efforts. And a good percentage of the insights that I have developed over the course of the ten years came to me as a result of work I did either building the calculators or playing with them after they were developed. It’s not possible to overstate the extent of John’s contributions.
My partnership with John was a 100 percent internet phenomenon. He lived in Florida. I live in Virginia. We did not have similar backgrounds or interests. Our chances of coming to know each other were virtually nil on the morning of May 13, 2002. John has just retired from his job as a government systems engineer. He was looking for something productive to do with his time. I put up the famous May 13, 2002, post, John saw merit in the core idea and decided to spend some time researching the question (my guess is that he was thinking a few days, not eight years!) and things took off from there. We were able to run ideas past each other at discussion boards and through e-mails. John published his most important research in real time at The SWR Research Group; has anything like that ever even been tried before?
3) I met Wade Pfau through the internet too. The story repeated itself with Wade. Wade is a young guy who sees the potential of the internet to change the job of the academic researcher. The internet provides a means to run ideas past interested parties and thereby refine them before setting one’s research in concrete. I always thought that Wade was smart to see the potential in that way of doing things. He learned of my work by my posts at the Vanguard Diehards. You never know who is reading your stuff on the internet! Wade never commented when he was reading my stuff. He saw the merit in the ideas and he saw the vicious reaction of the Buy-and-Holders. And he pondered. Eventually he formed the idea of going ahead and doing research to test the ideas and made contact with me.
Both Wade and John of course saw the negative side of the internet too. The negative side is those darn Goons! Anything that carries the potential to do great good when it is put to constructive uses carries the potential to do great bad when put to destructive uses. Wade and John possess creative minds. Creative minds enrage the Goon personality. There’s nothing that a Goon will not do to stop a Wade Pfau or a John Walter Russell from teaching new ideas that make the relatively ill-informed Goons look bad in comparison. If the internet is going to achieve its potential as a communications medium, we are going to need to do something about the Goon problem. We have rules at all our boards and blogs that protect us. But the site owners obviously do not feel much obligation to honor their promises to us. It is my hope that the lawsuits that will be brought as a result of the losses suffered due to the 10-year cover-up of the errors in the Old School SWR studies will be the catalyst for teaching site owners all over the internet of the need to exercise some responsibility in their site administration practices.
4) I’ve been able to detect what brings on changes in support for the new investing ideas by watching changes in the reactions to my writings. Again, this is cool stuff. People talk about how ideas achieve a Tipping Point and achieve popularity or even dominance. When Valuation-Informed Indexing becomes the hot thing, we will be able to identify what made it happen by reviewing the ten years of Post Archives. I know the event that caused the biggest change so far: The 2008 price crash. I couldn’t get a Guest Blog Entry accepted in the days before the crash. There were times when I couldn’t get a comment accepted in a blog thread! Those were dark days. I am not Mr. Popularity today. I remain frustrated the other bloggers do not write about the Goon phenomenon, which I see as an important part of the story (research-based strategies should make those who follow them confident and the Buy-and-Holders obviously cannot be confident about their strategy if they engage in or tolerate the behavior we have seen from the Goons). But today I can get Guest Blog Entries accepted at numerous quality blogs. When I appeared at the Financial Bloggers Conference last year, most of my fellow bloggers were wary of me but friendly to me. This year I was invited to speak at the conference. The price crash scared people and the fears generated opened some minds to at least some tentative consideration of new investing ideas.
So it is almost certainly going to be the next crash (Shiller’s work says that we should be seeing another 65 percent price drop in coming days, perhaps all at once, perhaps in stages) that is going to give Valuation-Informed Indexing the big push it needs to finally supplant Buy-and-Hold as the dominant model for understanding how stock investing works. But I don’t think that we should conclude at that time that it was only the second crash that did the trick. Ideas don’t achieve the Tipping Point in one big rush. There are lots of preliminary steps. For example, John’s research was essential. That research gave my rough concepts (all that I am capable of on my own!) credibility with people who believe that numbers rule. We would not today be in a position to hit pay dirt with the next crash were it not for the calculators. When people get interested in these ideas, they are going to need to explore them in depth before they become converts. The five calculators facilitate lots of exploration. Wade’s work was of huge importance too. Wade’s research went through the Peer Review process. A lot of people won’t take John’s research seriously because he is not an “official” academic researcher (I don’t go along with this prejudice, I think the work should be judged on its own merits, but attitudes are what attitudes are). The testing of my ideas that has been going on in the Personal Finance Blogosphere for four years or so is going to be a factor in the end. People know that I am not some Johnny Come Lately. They know that I have been pushing these ideas for a long time. When the bottom falls out of the market, they are going to go looking for answers and the first place they go (I hope!) will be to that nice fellow who has been trying to interest them in some new ideas for years now and who has been getting shot down again and again and yet has never given up.
None of this stuff would be in place without the internet. The calculators reside on the internet. The research resides on the internet. There would be no Personal Finance Blogosphere without the internet.
5) The entire ten years of my work is time-stamped because of the internet. I have generated a huge amount of material on Valuation-Informed Indexing. I have produced 200 one-hour-long podcasts. I have produced over 100 investing articles. I have produced half a dozen of the in-depth articles that I wrote for the Google Knol site and that are now housed in the “The Buy-and-Hold Crisis” section. I have produced 100 entries for each of the three weekly columns I write. I have produced scores of Guest Blog Entries. I have produced hundreds of entries at my own blog. I have produced five unique calculators. I have produced hundreds of thousands of discussion-board comments. None of this material has received the attention it merits. Why do I keep producing more and more material?
There are two possibilities re Valuation-Informed Indexing. One is that I am wrong about it. In that event, the whole thing has been a waste of time. The other is that this is the most important advance in our understanding of how stock investing works ever achieved in history.
All of the evidence points to the latter possibility.
The problem in getting VII the attention it merits is the hostility that the Goons feel toward it and the less intense hostility or indifference that many ordinary investors feel towards it (it is because of this less intense hostility or indifference that I have not been able to do anything to limit the negative effect of the Goons). We have hugely important material that cannot receive a fair hearing.
If that is going to always remain the case, the sensible thing is to throw in the towel and move on to other endeavors.
I do not believe that that is always going to remain the case. I know what the numbers say. The numbers say that, if we continue on our current course, we are going to end up in the Second Great Depression. I cannot bear to see that happen if I can do something to fix it. I didn’t ask for the job of saving us from the Second Great Depression. But I think it would be fair to say that I have been selected for the position.
Our knowledge of how investing works has advanced over the years. We were at the 25-yard line prior to the development of Buy-and-Hold. We had never studied investing in a systematic way before. So we didn’t know much more than the basics. Buy-and-Hold was a huge advance that pushed us forward another 25 yards. Shiller’s research was another huge advance that pushed us forward yet another 25 yards. And Valuation-Informed Indexing has taken us to the 99-yard line. We are so close to entering a new age where a smart, simple and safe investing strategy will be available to all investors. The only thing holding us back is the Goon problem. And that will go away when things get bad enough that the Buy-and-Holders swallow enough of their pride to look at what the academic research of the past 30 years really says about how investing works.
I don’t have all the answers. But I believe that I have a lot of the answers. I like the idea that when things reach a point where large numbers of people are willing to listen to answers not rooted in the Buy-and-Hold Model, I will be able to point to the answers that I have developed and point to time-stamps that will show when each of the answers was developed. There’s transparency in that. People will know that Valuation-Informed Indexing is not something that I cooked up only when it became popular to diss Buy-and-Hold. My answers were developed at a time when Buy-and-Hold was all the rage, not to sell something but to figure out this investing project for the benefit of all of us. I like it that my answers will come with time-stamps. It is the internet that makes that possible.
6) I have been able to test the strength of the Valuation-Informed Indexing concept by putting it before its harshest critics to see what they can come up with. Many people wonder why I post at the Goon Central board. I don’t want to make the mistake that the Buy-and-Holders made of coming to believe my own press releases because I only associate with people who flatter me. The Goons want to prove me wrong in the worst way. If there are holes in my ideas, they are the most likely ones to identify them.
I am of course not saying that I approve of the Goon phenomenon. Their behavior causes our best contributors to leave our boards. So they hurt us in very serious ways. But it’s an ill wind that carries no good whatsoever. As twisted as is the way the Goons present their case, the reality is that they do believe in Buy-and-Hold in at least one important sense; they follow its dictates themselves. They are highly motivated to find holes in VII. They have not found any major holes. That gives me confidence that I am on the right track.
7) I have been ale to test the strength of Valuation-Informed Indexing by putting it before the smartest experts in the world. The internet permitted me to put these ideas before the following people: (1) John Bogle; Wade Pfau; John Walter Russell; Bill Bernstein; Rick Ferri; Larry Swedroe; Jonathan Clements; Scott Burns; Michael Kitces; Adam Butler, Rahiv Sethie; Mel Lindauer; John Greaney; Taylor Larimore; Felix Salmon; Michael Harr; Jim Wiandt; J.D. Roth; Norbert Schlenker; Bill Shultheis; Chuck Yanikoski; Tom Behlmer; Neal Deustch; Todd Tresidder; Kay Conheady; Larry Evans; Sam Parler; and Carl Richards. None of these people has found any significant holes. A good number of them have expressed huge enthusiasm for the Valuation-Informed Indexing concept. Again, I could never have received this sort of feedback in pre-internet days and it has made a big difference in helping me to know where I have gotten things right and where I needed to go back to the drawing board and do additional work on particular points.
8) I have been able to keep a record of the contradictions in the thinking of Buy-and-Holders. Buy-and-Holders contradict themselves all the time. The ultimate example is with the safe withdrawal rate studies. For years, they said the studies contained no errors. Now they acknowledge the errors but say there is no need to correct the studies. I have identified scores of such contradictions over the years. I would not have believed that Buy-and-Hold was so full of holes had I only seen one or two of the contradictions. The internet permits me to keep a record of all of them and thereby to present a much more powerful case.
9) I have been able to keep a record of the research supporting Valuation-Informed Indexing. There are not just one or two studies supporting Valuation-Informed Indexing. There are scores of them. And there are scores of statements by experts in the field expressing grave doubts about the validity of Buy-and-Hold. Again, seeing one or two of these studies or statements would not make much of an impression. It is by pulling them all together in one place that their collective power can be experienced. The internet makes it possible for us all to see how widespread the doubts about Buy-and-Hold have become in recent years.
10) The internet gives us access to informed people who do not have ties to The Stock-Selling Industry. Anyone who makes money selling stocks is compromised when the question is “Is it always a good idea to buy stocks?” We cannot trust the experts in this field to tell us the straight story. But of course we do need to talk to informed people. The internet lets us do this. All sorts of people who we would not have known to contact in earlier days have set up web sites or blogs in the internet age.