Set forth below is the text of a response post that I put to the blog entry titled Retired at 48: “I Would Occasionally Get a Response Post Saying I Was “the Best Since Hocus Challenged Us to Think'”
What happened is that I pointed out the errors in the Old School safe withdrawal rate studies in a post that I put to the Motley Fool site on the morning of May 13, 2002. The point that I made was undeniable. Either the studies contain a valuation adjustment or they do not. Anyone who cared to could check. The studies do not contain a valuation adjustment.
This means that Buy-and-Hold has failed. Most people invest specifically for the purpose of financing their retirements. If the Buy-and-Hold Model gets the retirement numbers wildly wrong, Buy-and-Hold has failed us and needs to be replaced. Valuation-Informed Indexing is the obvious replacement. It contains all the elements of the Buy-and-Hold Model that have stood the test of time but deletes the Get Rich Quick element (the idea that investors need not engage in long-term timing) that has caused so much economic destruction.
Lots of people are emotionally addicted to Buy-and-Hold today. This point has been well-established by the 10 years of discussions. So our discovery that Buy-and-Hold has failed caused many people a good deal of emotional pain. I get that. It obviously was not my intent to cause people pain but it is obviously the case that large numbers of people felt such pain and continue to feel it to this day. The question is — What to do?
I say we need to move forward. We need to ACKNOWLEDGE that Buy-and-Hold has failed and move on to the model that actually works — Valuation-Informed Indexing. We are the luckiest group of investors who ever walked Planet Earth. We know what we need to know to reduce the risk of stock investing by 70 percent. We are fools if we do not take advantage of the huge opportunities that have been presented to us.
But the key that turns the lock is the Buy-and-Holders saying The Three Magic Words. For so long as there are people trying to rationalize not taking price into consideration when setting their stock allocations, there are going to be people feeling great emotional pain every time we discuss what the academic research of the past 30 years tells us about how stock investing works. We all need to be united in getting Bogle and other leaders in this field to publicly acknowledge that Buy-and-Hold has failed and that it is time to move on.
The turmoil we have seen on the boards is not the result of me telling the truth about what the academic research says. That is a wonderful thing. I need to be sure to never, never, never stop doing that. The turmoil has been caused by the failure of the Buy-and-Holders to say The Three Magic Words.
I have done everything I can think of to encourage them to take this step. I need help. I need you doing what you can do. I need Bogle’s help. I need Bernstein’s help. I need Obama’s help and Romney’s help. I need the New York Times writing all this up on the front page. I need my fellow bloggers uniting in an effort to open every blog on the internet to honest discussion of these issues.
When we get there, there is no more turmoil. There is no down side to learning the realities of stock investing. There is no down side to bringing the economic crisis to an end. There is no down side to reducing the risk of stock investing by 70 percent. The shift from Buy-and-Hold to Valuation-Informed Indexing is a win/win/win/win/win.
All the turmoil comes from the failure of the Buy-and-Holders to acknowledge the mistake they made. I cannot do this for them. I can advise. I can encourage. I can implore. But I cannot put on a John Bogle mask and say the words he needs to say and have that act achieve the effect we need to achieve here. I need Bogle’s help. I need your help in securing Bogle’s help.
Please help, What.
I of course wish you the best of luck in all your future endeavors in any event. Take care, old friend.