Welcome to the July 2012 Carnival of Passive Investing, a monthly collection of the best and most intelligent Passive Investing strategy articles around the internet. Some people foolishly want to beat the market (want being the key word) but we just want to invest with it.
The purpose of the carnival is two-fold:
- To provide a forum to showcase articles and research in passive investing strategies (i.e. investing in ETFs, index mutual funds, etc. in such a way that one avoids employing active stock picking). By investing with the market, we are able to beat 70-80% of investment “professionals.”
- To create a community of passive investment bloggers to connect and share expertise.
The theme for this month’s carnival is: Behavior Gap sketches by Carl Richards. You can take a look at all of Carl’s sketches (he is creating new ones all the time) here. I’ve selected a few of my favorites to add some color and fun and under-the-radar learning experiences to the July 2012 carnival. I like Carl’s work for several reasons. One is that he focuses on the emotional side of the stock investing project and I view mastering the emotional side as the key to long-term success.
Another is that his sketches communicate to us without words. There are too many words written about investing! Seriously, we have heard the words so many times that we tune a lot of them out. Sketches can hit us with a familiar point in a fresh way. That can be a mighty good thing if the sketch is the thing that finally permits an important insight to sink through our thick skulls!
Here are this month’s Top Three Editor’s Picks:
Juicy Excerpt: Getting back to the word risk, it’s more complicated than reward because there are so many clever yet useless ways to define it. Some think of it as negative reward. Others think of it as how volatile the price of the particular investment can behave over time. Others perceive of it as the possibility of a loss of permanent capital over time. We think of risk in a simple manner. In case you haven’t been paying attention, we define risk as follows: How much money could I lose if I invested at the worst possible time before I recover my initial investment?
what says
Rob, did you actually write any of this? It has a totally different style (organized) and tone (sane) than yours.
Sean @ One Smart Dollar says
Hey Rob,
Thanks a lot for hosting and for including my article.
Drip Guy says
Rob:
Allowing this piece to appear on your site marks you as a total sell out.
Either you believe what the remainder of your site preaches, or you believe this article. You cannot believe both.
Which is it?
Rob says
It has a totally different style (organized) and tone (sane) than yours.
Flattery will get you everywhere with me, Goon Man.
Rob
Rob says
Thanks a lot for hosting and for including my article.
Thanks much for your contribution, Sean.
Take good care, man.
Rob
Rob says
Either you believe what the remainder of your site preaches, or you believe this article. You cannot believe both.
I believe strongly that the development of the Buy-and-Hold investing philosophy was a major advance in our understanding of how stock investing works. I am the lead creator and the lead promoter of the Valuation-Informed Indexing strategy. I argue all the time (based on what the academic research shows) that the VII strategy reduces risk by 80 percent. That’s the most important advance in the history of investing analysis and not by a small amount. We would not have VII today had it not been for the advances achieved by the Buy-and-Holders.
Do I believe in Passive Investing? I sure believe in indexing. I urge Valuation-Informed Indexing, right? Is indexing not a form of Passive Investing? I think it would be fair to say that I am the foremost proponent of indexing alive on Planet Earth today. I have taken the indexing concept to places it had never been taken before.
I obviously don’t believe in Buy-and-Hold (ignoring price when setting your stock allocation). There is now 30 years of academic research showing that the idea that Buy-and-Hold can ever work for even a single long-term investor is the biggest mistake ever made in the history of personal finance. it was the ruthless and relentless promotion of the Buy-and-Hold “idea” that caused the economic crisis. I have said so on numerous occasions.
Where is the sell-out, Drip Guy?
Jacob at My Personal Finance Journey runs The Carnival of Passive Investing. I have a quote from Jacob posted at the “People Are Talking” section of my site (it’s on the left-hand side of this page). Jacob notes in that quote that my investing ideas bear many similarities to John Bogle’s investing ideas. That’s obviously not by accident. It was by reading Bogle’s book that I learned about the errors in the Old School safe-withdrawal-rate studies and it was by seeing the reaction of many Buy-and-Holders to my discovery of the errors in the Old School SWR studies that I determined that Buy-and-Hold was a purely emotional “strategy” and had to be reformulated (VII is Buy-and-Hold with the Get Rich Quick component removed).
It is you and the other Goons who are the sell-outs in my assessment, Drip Guy. I read A Random Walk Down Wall Street soon after it was published in 1974. That book set me on the path I am on today. The exciting thing about that book was that its advice was rooted not in subjective opinion or b.s. marketing slogans but in research and data and science and the hard, real stuff. It’s you and the other Goons (and those who fail to speak up in opposition to them) who have betrayed the Buy-and-Hold vision by developing a contempt for the academic research once it showed that some of the original Buy-and-Hold ideas (formulated before all the research was available to us) was off the mark. Do you consider it a core principle of Passive Investors that we must never correct our mistakes? No personal dig intended, but that’s insane. I pray that I always possess the decency to correct mistakes I make in this field as quickly as is humanly possible.
I believe in that original vision. I am the world’s truest Buy-and-Holder. Because I believe enough in the founding principles of Buy-and-Hold to accept that, when we get things wrong, we need to acknowledge it, correct the errors and move on.
I am grateful to all the Buy-and-Holders for all the important things they have taught me and all of us. I respect and admire the bloggers who contributed the articles linked to here for their efforts to extend our knowledge and thereby to enrich us all (in all senses of the word).
Where’s the sell-out? I am proud to host this carnival, just as I am proud to report on our breakthrough findings of the past 10 years that have showed the dangers of the discredited form of Buy-and-Hold Investing and the benefits of making the switch to The New Buy-and-Hold or Buy-and-Hold 2.0 or Valuation-Informed Indexing or whatever you want to call it.
No apologies on this end, my Goon friend.
I wish you well in all your future endeavors. Most of all, I hope you find some inner peace.
Rob
Drip Guy says
Rob asked: “Do you consider it a core principle of Passive Investors that we must never correct our mistakes?”
No.
Rob says
Thank you for saying that, Drip Guy.
Wade Pfau holds a Ph.D. in Economics from Princeton. Wade contacted me because he had read my posts at the Vanguard Diehards board and wanted to learn more about Valuation-Informed Indexing for the purpose of publishing peer-reviewed research on it. Wade spent months comparing what the historical data says re Valuation-Informed Indexing with what it says re Buy-and-Hold.
He concluded that the case for Valuation-Informed Indexing is “compelling.” Wade said that: “Valuation-Informed Indexing always provides more returns for often less risk….. No matter what I try, Valuation-Informed Indexing will still perform better in 85-95% of cases for 30 years.”
http://arichlife.passionsaving.com/2012/05/31/academic-researcher-wade-pfau-valuation-informed-indexing-always-provides-more-returns-for-often-less-risk/
Do you think that perhaps you made a mistake in demanding that discussion of Valuation-Informed be banned at 15 different investing boards and blogs? Do you think that we all might be learning a lot more about how stock investing works if such discussions were permitted everywhere?
I think you made a mistake. I think we need to be discussing what the research says. I think this stuff matters.
Rob
Rob says
Here is the discussion that the Greaney Goons are having re The Carnival of Passive Investing at the Goon Central site:
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1343832401/0#8
I have sent two e-mails to John Bogle letting him know about how the Goons have disrupted threads at the Bogleheads Forum (a board with his name on it). Bogle has not responded to those e-mails.
Not good.
Rob
Drip Guy says
“Where’s the sell-out?”
Passive Investing is by definition designed to allow an investor to do as little as possible — ideally, nothing. The people promoting the Carnival certianly understand that, it’s how they describe it themselves.
You, however, relentlessly promote market timing via some nebulous PE10 scheme, although you do not actually use any such method for your own investing. You’ve done this so continuously, and yet so ineptly, that you’ve been banned at at least 15 finance boards. I personally had nothing to do with any of those bannings, despite your apparent belief otherwise, stated above. The site owners and their chosen moderator/admins make those calls. I own, administer or moderate no site whatsoever.
Market timing is the antithesis of Passive Investing.
Hence, the ‘sell-out,’ as if you needed this explained to you.
Again.
Please do let this reply stand; even though it is your long established habit to delete all almost all posts here that disagree with you, or that you otherwise find unsettling.
Rob says
Passive Investing is by definition designed to allow an investor to do as little as possible
Valuation-Informed Indexers do LESS than Buy-and-Holders, Drip Guy. When you consider the emotional angst that is involved in losing most of your life savings in a series of stock crashes, VII is the FAR more simple approach.
There was ONE TIME in the past 30 years when an allocation change was required. Stocks offered a great long-term value proposition from 1982 through 1995. In 1996, the long-term value proposition turned poor and it has remained poor since then (with the exception of a few months in early 2009). In exchange for taking 15 minutes to make that one allocation change, the investor reduces risk by 80 PERCENT.
RIsk is what causes investors to become emotional. Reduce risk by 80 percent and you are making investing LESS complex, not more so.
You are ignoring the human element of the investing project. That’s a mistake. I know from seeing threads at the Bogleheads Forums that the 2008 crash scared lots of Passive Investors. If we had permitted honest posting on what the academic research of the past 30 years says, all that could have been avoided. There is no excuse for keeping important information from people who need to know about it to invest effectively.
Rob
Rob says
You’ve done this so continuously, and yet so ineptly, that you’ve been banned at at least 15 finance boards.
I’ve been banned at 15 boards because a small group of Buy-and-Hold dogmatics cannot bear to acknowledge that they have made mistakes that have cost investors hundreds of billions of dollars in losses because they have not been corrected for so long. As you know, I am the person who discovered the errors in Old School safe-withdrawal-rate studies. There is today a consensus in this field that those studies get all the numbers wildly wrong because they do not contain valuation adjustments. I reported on these errors in May 2002. Not one of these studies has been corrected TO THIS DAY.
Are you going to cover the hundreds of billions in losses? If not, how dare you support bans on honest posting at these boards?
Thousands of community members have expressed a desire that honest posting on all investing topics be permitted at every investing board and blog on the internet. Here is an article in which I advance sample comments put forward by a small number of my fellow community members:
http://www.passionsaving.com/investing-discussion-boards.html
Rob
Rob says
Market timing is the antithesis of Passive Investing.
Long-term market timing is paying attention to the price at which the stocks you are buying are being offered for sale.
You are saying here that paying attention to price is the antithesis of Passive Investing. You are saying that Passive Investing is a con.
There are MANY passive investors who possess common sense and who pay attention to price when setting their stock allocations. You speak for those operating the con. I speak for those who follow the academic research. The academic research of the past 30 years shows that investors MUST pay attention to price to have any hope whatsoever of achieving long-term investing success.
Following the academic research is NOT antithetical to Passive Investing. Passive Investing can be wonderful when honest discussion of how it must be done is made available to the investors considering it. I LOVE what Passive Investing was in the days before the ten-year cover-up of the errors in the SWR studies and I love what it can be again when the cover-up comes to an end and we open every board and blog on the internet to HONEST and ACCURATE and REALISTIC discussion of what the academic research in this field tells us about what we must do to invest effectively for the long run.
You and the other Goons have turned Passive Investing into something very, very ugly indeed. I want no part of a dishonest approach to Passive Investing. Fortunately for the millions of middle-class people looking for a sensible and effective way to invest, there is no law of of the universe that says that Passive Investing must be a dishonest approach. It is only the internet Goons posting in “defense” of Mel Lindauer and John Greaney and their never-ending smear campaigns who say that.
Rob
Rob says
Hence, the ‘sell-out,’ as if you needed this explained to you.
You are the one who has sold out all who read your words by advocating an approach to stock investing that never once in history has worked for any long-term investor.
I support a research-based approach to Passive Investing. I offer precisely zero apologies for doing so. I am proud of what I have added to the Passive Investing story by showing people how can they obtain far higher returns while taking on dramatically reduced risk.
Love is the answer, Drip Guy. Hate is not a sound long-term investing strategy. I am sure.
I wish you all good things, in any event.
Rob
Jacob @ My Personal Finance Journey says
Thanks so much for hosting Rob! Nice work!
Rob says
You’re welcome, Jacob. I enjoy it.
Rob
Drip Guy says
Jacob said: “Nice work!”
Really?
Are you reading the same blog I am Jason?
Or is getting ‘linkbacks’ and ‘clickthroughs’ and ‘pagerank’ all that counts?
Rob says
I keep telling my blogger friends that we need to get together and do something about the Lindauerheads and the Greaney Goons. But does anyone listen to Old Farmer Hocus? Nooooo….
I let these guys post here because I want people to see that the emotional side of investing matters and that Buy-and-Hold causes emotional pain for a great number of investors. I of course understand that Drip Guy is an exceptional case. But what is true of Drip Guy in an extreme way is true of a large percentage of Buy-and-Holders in a more moderate way.
Anyway, we all need to be talking about this emotional stuff. The numbers stuff is important. But the numbers stuff can never tell the whole story of what effective long-term stock investing is all about.
Sorry for the insults directed your way, Jacob. If Drip Guy continues to push this garbage, I will take action. I like to give them as much leeway as I can without permitting them to cause people of intelligence and integrity (like you!) not to feel welcomed posting here. Our friend Drip Guy has exhausted my patience on this thread. Please don’t think that I will let him continue along these lines.
Please take care.
Rob
Drip Guy says
just to correct you, Rob — it was not an insult — it was a legit question to Jacob, fostered by a real difference of opinion — he apparently thinks you did a ‘great job’ of hosting the carnival, whereas I feel you did him, his audience, and the materials he hoped to promote, a distinct and perhaps permanent disservice by now having it all associated with you and your insane jihad against reason and sanity.
I wonder if he had replied, whether you would have left his answer stand unedited….. Hmmmmm…..
I guess no one can ever know, can they, since you viciously and indiscriminately hack and slash virtually any comments that people might actually take the time to make on TPOL.
Rob says
it was a legit question to Jacob, fostered by a real difference of opinion
The question of whether people should behave with integrity or not is not a matter of opinion, Drip Guy. If personal integrity doesn’t matter, why is it that every one of our boards and blogs has adopted published rules prohibiting the intimidation tactics employed by those who have posted in “defense” of Mel Lindauer and John Greaney? I mean, come on.
I feel you did him, his audience, and the materials he hoped to promote, a distinct and perhaps permanent disservice by now having it all associated with you and your insane jihad against reason and sanity.
I see it just the other way, Drip Guy. I pointed out the errors in the Old School retirement studies on the morning of May 13, 2002. Those who have posted in “defense” of Lindauer and Greaney are now on the hook for hundreds of billions in legal liabilities as a result of their 10-year Campaign of Terror against our board and blog communities. Somehow I don’t see this as being a good thing.
Here’s the test, Drip Guy. Is there one Goon who wouldn’t like to be able to go back to May 13, 2002, and do it over differently this time? If all the Goons feel bad about what they have done, I think it’s fair to say that that’s a pretty darn strong sign that they know in their hearts that they have done wrong.
My best wishes to you, my Goon friend.
Rob