Michael Brennan, A Finance Professor at UCLA Anderson School of Management: “A Lot of Harm Was Done By Misunderstanding the Efficient Markets Hypothesis”

I have been sending numerous e-mails letting people know of The Silencing of Academic Researcher Wade Pfau by the Buy-and-Hold Mafia. Set forth below is the text of the response I received from Michael Brennan, a Finance Professor at UCLA Anderson School of Management:

“I read your article quickly. I fully agree with you that prices matter. I think a lot of harm was done by misunderstanding the Efficient Markets Hypothesis. I attach a couple of papers that I wrote on related topics” [The papers were titled "How Did It Happen?" and "Persistence, Predictability and Portfolio Planning."]

Set forth below is the text of my reply:


Thanks much for your response.

Your “How Did It Happen?” article is super. You make all of the most important points, points that have been for too long ignored by far too many, in my assessment. Thanks for letting me know about this important and exceedingly insightful article.

I strongly agree with your point that the Efficient Market Theory has been the primary cause of the problem. I see a highly encouraging side to this reality.

If the Efficient Market Theory is the problem, then the answer to your question “Will it happen again?” is almost surely “No!.” The big picture here is that we are in the early days of a transition from subjective investment analyses to true data-based, research-supported analyses. The Efficient Market Theory is flawed and an unjustified confidence in it has caused big problems. But the fact that the investing public has shown itself accepting of the idea of rooting its allocation decisions in research presents grounds for great optimism re our future. As the Efficient Market Theory is replaced by a more realistic and more accurate model for understanding how stock investing works, attitudes toward investing will change in fundamental ways. We will see things we have never seen before as we see more and more research published that gets things right rather than (inadvertently) wrong.

Once investors learn of the need to change their stock allocations in response to big price swings (and once the “experts” in this field come to see it as an urgent piece of business to insist that all investors be certain always to engage in long-term timing), there can never be another bull market. Each time prices begin to get out of hand, the knowledge that this means reduced returns on a going-forward basis will lead to sales, which will pull prices back to reasonable levels. Market prices are self-regulating so long as investors do not come to believe that the market is automatically efficient!

Another way of saying that is — the market really is efficient so long as investors don’t come to believe that the market is automatically efficient! Our problem is not with the market or with the economy or even with flawed human psychology. Our problem from the early days of stock investing through today is that we have been living in ignorance of the most fundamental reality of the need for price discipline in the stock market, and that ignorance is being dissipated by the publication of fine research like yours and the gradual acceptance of the insights advanced by that research as the price associated with a failure to give full consideration to the power of those insights becomes ever more steep.

Fama was right in an important way. The market WANTS to be efficient, the market strives for efficiency. The missing piece today is the the lack of understanding of the fundamentals on the part of the human investor. The market is comprised of human investors. So long as all the human investors are pursuing their self-interests, the market really is efficient. The problem in the early days of our transition to a research-supported model for understanding how stock investing works is that we did not in the early days have Shiller’s insights available to us. So we came to believe that long-term market timing (which is nothing more or less than price discipline, the magic element that makes it possible for a  market to perform its function of setting prices accurately) was not necessary. As the effects of the past bubble become more painful, I believe that we are going to see a recognition of how essential long-term timing is and that we will move to a model that will for the first time in history permit the market to become efficient not only in theory but in practical reality as well.

The key to persuading thought leaders of the need for the change is helping them to see that it was the stock bubble that caused the economic crisis. This is easy to show with numbers. The market was overpriced by $12 trillion in 2000. Even John Bogle, the King of Buy-and-Hold himself, acknowledges that prices always revert to the mean with the passage of 10 years of time or so (Bogle refers to this reality as an “Iron Law” of stock investing). So we knew in 2000 that $12 trillion or so of buying power was going to disappear from our economy by the late 2000s. There’s your economic crisis!

The problem today is that the leaders in the field are in cover-up mode. Causing an economic crisis is such a big deal that they don’t want to admit to being responsible (my sense is that a fear of lawsuits may be a big factor here). But Shiller’s research shows that we are priced today for another 65 percent crash — following every earlier secular bull, the P/E10 value continued dropping until we reached a P/E10 value of 7 or 8. I believe that this next crash will bring on the Second Great Depression and the widespread human misery we will all see will melt the hearts of the Buy-and-Holders until they “come clean” on the role they have played in holding back progress for decades now. Given that the Social Taboo on widespread public discussion of the implications of Shiller’s insights has been in place for 30 years now, we will essentially see three decades of powerful investing insights open up to us in one day!

I am greatly worried about our short-term future. But if we respond well to the next crash, I foresee us entering the greatest period of economic growth in U.S. history as word spreads that it is possible by taking advantage of Shiller’s insights to reduce the risk of stock investing by 70 percent (please see the chart that Wade provides in his research comparing the Maximum Portfolio Drawdown for Buy-and-Holders [60 percent] and for Valuation-Informed Indexers [20 percent]).

Reading your fine article brought a nice measure of cheer to my Friday afternoon. I wish you great success with the important work you do. Please let me know if there is ever any way that I can help you or any questions in your mind that I might be able to answer or to talk over with you. Keep the faith, man!



  1. Evidence Based Investing says

    What Michael Brennan said “I think a lot of harm was done by misunderstanding the Efficient Markets Hypothesis.”

    What Rob “hocus” Bennett took from his comment “I strongly agree with your point that the Efficient Market Theory has been the primary cause of the problem.”

    Another example of you misunderstanding what you read.

  2. Rob says

    Here’s a link to the paper referred to above:


    It appears to me that you need to pay a fee to view the paper. My view is that it is worth it. Understanding how stock investing really works will pay off big-time as you try to accumulate the assets needed for a comfortable middle-class retirement. The Wall Street Con Men don’t want this information getting out. So it is not terribly likely that you are going to pick up what you need to know for free.


  3. Rob says

    Another example of you misunderstanding what you read.

    I don’t think so, Evidence.

    Michael is trying to earn a living. Like Wade Pfau. Like Robert Shiller. Like Rob Arnott. Like lots of us.

    The Wall Street Con Men have huge war chests they can put to use destroying people who tell the truth about stock investing. So the people who tell the story straight nearly always pull their punches so as not to find themselves on the wrong side of a vicious and unrelenting smear campaign.

    So, yes, he states things a bit softer than I do. But we are delivering precisely the same message. Everything I have said for 10 years now follows logically from the findings of Robert Shiller’s 1981 research. If people were not afraid to speak the truth out loud, there would be HUNDREDS of web sites saying what I say at this one.

    The problem is that people are afraid. And, because people are afraid, they don’t say things clearly. And, because they don’t say things clearly, many people don’t hear the message. And, because many people don’t hear the message, it’s hard to make a buck telling the truth about stock investing. And, because it’s hard to make a buck telling the truth, many are tempted not to tell the full truth. And, because many don’t tell the full truth, it remains possible for the Wall Street Con Men to single out those who do and crush them.

    When the Ban on Honest Posting is lifted, we will have hundreds of researchers saying what Michael says in his paper. And, when there are hundreds saying what he says, each of those hundreds will feel emboldened to say things more clearly and with more details and with a discussion of more practical implications. And we will then begin achieving a huge number of amazing advances in a very short amount of time.

    We are mid-way through a process, Evidence.

    We started out not knowing. This con was not a deliberate con. People really once believed in Buy-and-Hold. We have known now for 30 years that there is precisely zero chance that a Buy-and-Hold strategy can ever work for a single long-term investor. But, until the 2008 crash, most of us were afraid to speak up. Now we are getting some people to speak up in a tentative sort of way. Those voices will grow louder and firmer and more assertive over time.

    Michael is saying the same thing that I am saying. He is just saying it in a softer way. What’s important to you as an investor is the message. The Efficient Market Theory was a terrible mistake. Buy-and-Hold was a terrible mistake. We need to move on.

    I wish you well, Evidence.


  4. Rob says


    That’s a terrible idea, according to the last 30 years of peer-reviewed academic research, Canyon.

    You need to look at the research.

    What you are suggesting here is DANGEROUS.


  5. Evidence Based Investing says

    So, yes, he states things a bit softer than I do. But we are delivering precisely the same message.

    No, that is completely wrong. His message is completely different that yours. You think the problem is the EMH, he realizes that the problem is people misunderstanding the EMH.

    You are a great example of someone who misunderstands the EMH.

  6. Rob says


    I have said hundreds of times that the market WANTS to be efficient, that the market WILL be efficient once we lift the Ban on Honest Posting.

    The thing that keeps the market inefficient today is that investors are not able to gain access to the information they need to invest effectively. The thing that makes a market efficient is the investors pursuing their self-interest. If we PERMITTED investors to learn what they need to learn to pursue their self-interest, the market would indeed be efficient. Prices would increase roughly 6.5 percent plus inflation each and ever year.

    Investors need access to tools like the Stock-Return Predictor and Wade’s research showing investors that they can reduce investing risk by 70 percent by tuning out the Wall Street Con Men who promote Buy-and-Hold strategies.

    It’s that simple and that complicated, Evidence.

    We have to stand up to the Wall Street Con Men.

    They would be happier people if we did. They are like everyone else. They would like to be honest. But, until the rest of us start calling them out on their nonsense, competitive pressures force them to continue pumping out the GRQ garbage. When we call out the Wall Street Con Men on their nonsense, we will begin hearing better investing advice from the Wall Street Con Men.

    I wish you all good things.


  7. Rob says

    Your misunderstanding of where stock returns come from is profound.

    So you say, Evidence.

    The conventional wisdom you put so much confidence in caused an economic crisis.

    If my ideas had caused an economic crisis, I would spend some time rethinking my ideas.

    Not the Buy-and-Holders. They come across every bit as arrogant and full of themselves today as they did prior to September 2008.

    I love them for their many genuine and powerful insights. But for this other stuff — not so much.

    We all make mistakes.

    That’s nothing.

    The unwillingness of the Buy-and-Holders to correct their mistakes is a national tragedy.

    My best wishes to you and yours.


  8. Rob says

    You need to read and understand Bill Bernstein.

    I’ve read Chapter Two of his book Four Pillars four times all the way through. Most of the pages of that chapter have fallen out of my copy because I have referenced it so many times. Nearly every page is covered in yellow highlighter.

    So it would be fair to say that I am a big fan.

    The other chapters are Buy-and-Hold garbage.

    I mean no personal insult. But you can’t give good advice working from a bad premise. Bill needs to read Chapter Two of his own book more carefully and then rewrite the other chapters.

    That’s my sincere take re this one, in any event.

    I wish you well.


  9. Evidence Based Investing says

    Well known financial analysts Simon and Garfunkel summed you up best when they said “Still a man hears what he wants to hear And disregards the rest”

  10. banned plop contributor says

    Rob describes, in his own words, the self-regenerating delusion that allows him to nurse his psychosis, when any rational human would have long ago admitted the stupidity and illogic of their rants and bloviations:

    “The problem is that people are afraid. And, because people are afraid, they don’t say things clearly. And, because they don’t say things clearly, many people don’t hear the message. And, because many people don’t hear the message, it’s hard to make a buck telling the truth about stock investing. And, because it’s hard to make a buck telling the truth, many are tempted not to tell the full truth. And, because many don’t tell the full truth, it remains possible for the Wall Street Con Men to single out those who do and crush them.”


    I find it instructive (but of course, tin ear Rob misses the signals every time!) that even those who *want* to agree with some general principle, i.e. perhaps “Valuations matter”, that they invariably have to give a preamble: “after skimming…”, “I briefly read…”, “After a cursory look…”, all in order to excuse their need (felt by all normal human beings) to eventually start skipping ENORMOUS redundant blocks of recurring nonsense blather found in the screeds that Rob drops. It is testimony to their individual integrity that they even try. I salute you, first time engagers of Rob! And what does Rob do? According to the dictates of his psychosis engine, he necessarily jettisons them on after another as ‘afraid’, ‘dishonest’, ‘wanting to earn a buck’, ‘protect their positions’ etc. Anything –ANYTHING — that allows Rob to spend another day trolling, basking in attention, and avoiding reality.

    When you read this Rob, your instinct will be to remove it, of course. Not because it’s an ‘attack’ (which you will surely label it), but because in some tiny shriveled part inside of you that used to be human, you know full well the utter and shattering truth of it.

    AN EXERCISE FOR ROB: Find any investor, or any ‘stripe’, of any ‘school’, who ever purported that “Valuations don’t matter to overall returns”. Rob, there is no such person. Never has been, to my knowledge. B&H’ers don’t say that, no matter how many times you try to claim that they do! What they do simply say, however, is that if the train really is going to our destination city at an AVERAGE speed of say, 6.5 miles traveled every hour (ahem), then it doesn’t much matter if you happen to step onto the train from the very southern tip of the station, or the middle, or the northern edge of the station — or heck, even if you just barely manage to catch it on the very outskirts of town — just as long as do you get on it, ride & wait through the various mountains and valleys and stops and scares, then you’ll still get to your destination just like others who had the same resolve as you to see it through for the long haul, even those who might have boarded at earlier stops.

  11. Rob says

    Well known financial analysts Simon and Garfunkel summed you up best when they said “Still a man hears what he wants to hear And disregards the rest”


    But not just me, Evidence.

    Those words apply to all of the humans.

    Even — Yikes! — you, my old friend.


  12. Rob says



    We don’t disagree on the “Wow” part, Banned.

    But perhaps we should not be so shocked.

    The economic crisis was a “Wow” event. Perhaps when we see a “Wow” event, we should be looking for a “Wow” explanation.

    The 30-year cover-up of Shiller’s findings fits the bill.

    I like to highlight the positive side of all this.

    Think what it means if we turn the negative “Wow” into a postive “Wow.”

    There’s 30 years of powerful insights we have ignored!

    That’s a negative.

    There’s 30 years of powerful insights that open up to us on the day we lift the Ban on Honest Posting!

    That’s a positive.

    It’s all in the perspective you bring to the table


  13. Rob says

    Find any investor, or any ‘stripe’, of any ‘school’, who ever purported that “Valuations don’t matter to overall returns”. Rob, there is no such person.

    There are millions of such persons, Banned.

    We call them Buy-and-Holders.

    Jack Bogle is the King of Buy-and-Hold. I have a quote from my good friend Jack in the “People Are Talking” section of the site. He says that there are circumstances in which it is okay for an investor to change his stock allocation by 15 percent in response to extreme valuation levels.

    Where did my good friend Jack get that 15 percent number? I think it would be fair to say that my good friend Jack pulled it out of his backside.

    That’s blunt language.

    But it is a fair statement, is it not?

    Buy-and-Hold is a research-based strategy. So, if you are going to tell people how much they need to change their stock allocations at times of extreme valuation levels, you need to consult the research. The research shows that the most likely annualized 10-year return in 1982 was 15 percent real and it was a negative 1 percent real in 2000. That calls for a change of perhaps 60 percentage points (say, from 90 percent stocks to 30 percent stocks). Jacks says 15 percent. He is off by a factor of four. He is nowhere even remotely in the right neighborhood.

    Why is my good friend Jack so wildly off re this one, Banned?

    I say it is because he is not hearing the voices of all the many people who understand valuations (and investor emotions!) far, far better than he does. He needs to hear from Microlepsis. He needs to hear from John D. Craig. He needs to hear from Wade Pfau (and Wade needs to be permitted to post his honest beliefs). He needs to hear from Rob Bennett.

    The Ban on Honest Posting is hurting Jack Bogle. It is making him appear to be dumber than he really is. He is capable of giving better advice than he gives today. But he needs to hear from the people who understand things that he does not understand to be able to achieve his potential.


  14. Rob says

    What they do simply say, however, is that if the train really is going to our destination city at an AVERAGE speed of say, 6.5 miles traveled every hour (ahem), then it doesn’t much matter if you happen to step onto the train from the very southern tip of the station, or the middle, or the northern edge of the station — or heck, even if you just barely manage to catch it on the very outskirts of town — just as long as do you get on it, ride & wait through the various mountains and valleys and stops and scares, then you’ll still get to your destination just like others who had the same resolve as you to see it through for the long haul, even those who might have boarded at earlier stops.

    I see that as a fair enough description of what Buy-and-Holders believe.

    And I acknowledge that it sounds plausible enough on first hearing. That’s why there are millions of good and smart people who think Buy-and-Hold is the cat’s meow.

    I’ll tell you what is wrong with that understanding from my point of view.

    In your train analogy, the train runs independently of the passengers. They just get on and off. That’s not how it works with stocks (according to the last 30 years of academic research).

    With stocks, the investors determine the speed at which the train runs.

    We don’t determine the average speed. That is set by the economic realities. The economic realities support an average return of 6.5 percent real.

    What we control is the deviations from the average speed.

    We can turn this year’s return from 6.5 percent real to 30 percent real. That sounds nice, doesn’t it?

    But that change comes at a cost. It’s like borrowing on a credit card. You need to pay the extra 24 percent of return back at a later time.

    Borrow enough from the future and you end up in an economic crisis. You have people experiencing year after year of zero returns and they are falling farther and farther behind in the financing of their retirement plans. Eventually, they get scared and stop buying as much in the way of goods and services. Then the entire economy contracts and millions of people lose their jobs. Not good.

    We CONTROL this train, Banned. We have the power!

    We need to learn how to use it wisely.

    We need to listen to more than just the Wall Street Con Men. We need to permit those who post honestly on the academic research to have their say too.


  15. Evidence Based Investing says

    “The economic realities support an average return of 6.5 percent real”

    No they don’t. As Bill Bernstein pointed out in the link I provided “It is impossible for long-term corporate growth to be higher than GDP growth for this would entail corporate profits eventually growing larger than the economy itself.”

  16. Rob says

    You have a long record of dishonest and abusive posting, Evidence.

    I encourage all readers of these words to take this into account when viewing your words and to read Bill Bernstein’s words for themselves.

    I advise you to knock off the funny business.

    I advise site owners who permit you to post at their sites to consider that they can be held liable for financial losses that result from site owners failing to reasonably administer their own published posting rules (for example, those that prohibit defamation and death threats and intimidation tactics).

    You have exhausted my patience, Evidence. I will delete any further comments you put to this thread. I remain open to talking things over with you on other threads. But I will not agree to post dishonestly and I will not encourage any other community member to do so. To the contrary, I will encourage all my fellow community members (Valuation-Informed Indexers and Buy-and-Holders alike) to post their honest beliefs.

    I believe that the “experts” who ignore the emotional pain caused by their promotion of Buy-and-Hold strategies and doing people like you a great injustice, Evidence. You are responsible for your own actions. But experts should be trying to help you, not encouraging you to self-destruct.


  17. banned plop contributor says

    Continuing to utilize the train metaphor, and in the spirit of finding common ground between us if and when any exists, Rob, let’s pretend that passengers embarking and disembarking, or perhaps jostling forward in their seats on downhill runs, or leaning into the turns on corners, could somehow affect the temporary momentum of the train.

    Let me concede that to you, just for the purposes of argument and hopefully after 15 or 20 years of your apparently willful and overtly arrogant ignorance, to reach an understanding on a fundamental concept:

    B&H’ers don’t care about jostles. They don’t care about bumps. They even disregard ocasional complete stops (0% returns) for the train to take on water or coal, as required from time to time. They understand that slogs up long grades can be tiresome and vexing. They also understand racing downhill can be exhilarating, intoxicating, but also dangerous.

    but they boarded the train with the faith and belief, based on past performance, engineering information, observation of past trips, weighing potential available alternate forms of travel, etc and their best reasoned stance is: buy a ticket. Sit on train. Arrive at destination. Trying to wrestle the throttle from the engineer, or jumping off on slow grades is not a winning proposition, in their minds.

    Rob, B&H is not for everyone. It is clearly not even for most, based on mutual fund turnovers and individual stock gyrations.

    The utopia you hope for (actually, you state already exists!) where the market, made up of the sum of individual outperforming, but also the failing, and the honest, and also the few fraudulent companies all in one pot can somehow have it’s return predicted to 6.5000% real,inflation adjusted, for eternity, is ridiculous on it’s face.

    Even the most diehard adherent of B&H would not expect or even be able to hope for that kind of stability and certainty. History does not actually repeat, but Rob, it does rhyme.

    So B&H’ers are sloggers, not timers. The know that temporary inflections in world economics, supply and demand, new discoveries, technolgy and or labor breakthroughs, and yes, metrics like book-to-bill, P-to-E, turnover, debt-to-equity, etc can ALL seemto be current proxies for predicted returns. All have been of some use. And all have proven imperfect and failed for people going “all in” betting the bank on them. Why you insist on THIS particular metric, and to jail those who refuse to employ it, is among the nuttiest things I’ve ever heard in my relatively long life. Which is why I follow you. To see what you do next. Not for advice. Not for insight. Not because I’m made with my own ever-growing fortunes. Not because I am secretly ‘mad’ at you or jealous, or working for some mysterious cabal of Wallstreet con-men. Nope. It’s just to watch the freak show, Rob. That’s the God’s honest truth. And I suspect 99% of your ‘traffic’ feels exactly the same.

    The day you see that, and then admit it to yourself is the day your healing can begin. Even though it will be boring for me, and I’ll no longer have the entertainment, I do sincerely and often hope for that outcome for you Rob. Honestly. That’s as close to a friend to someone like you as I could ever be.

  18. Rob says

    There are parts of this last comment that are awful, Goonish stuff. There are also parts that really do make a reasoned case for Buy-and-Hold.

    The part I like best is when you refer to the many various metrics that have been used to predict returns and then make the Buy-and-Hold case that these “have been of some use” but are “imperfect.” This is indeed (in my assessment) an important reason why Buy-and-Hold possesses such appeal to so many smart people. It is true that most of these metrics do not do the job. I agree with the Buy-and-Holders re that. I don’t agree that the P/E10 metric is not different. That’s the source of the dispute.

    P/E10 is different.

    Why? It’s because of a point that Buy-and-Holders make all the time. The factors measured by the other metrics are “priced in” to the market price. So there is no need for the investor to take separate note of them.

    P/E10 is NEVER priced in.

    It’s a logical impossibility that it could ever be priced in.

    P/E10 measures mispricing. Mispricing by definition is not priced in. So P/E10 MUST be separately taken into consideration by the rational investor.

    All the insults in your post show why.

    No investor can ever persuade himself that price doesn’t matter. To follow Buy-and-Hold, you must suppress what common sense tells you must be so. Thus turns you into an emotional basket case. You find yourself somewhere down the line engaging in all the nastiness we see evidenced in this comment, Banned.

    I am always going to give the Buy-and-Hold pioneers credit for their many genuine, powerful insights, Banned. But I am not going to betray the original Buy-and-Hold vision by pretending that the Buy-and-Hold pioneers were the first humans not capable of making a mistake.

    The pioneers made a mistake. It needs to be fixed. it is because the mistake has been covered up for 10 years that we have seen death threats and board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs. The cover-up was a terrible, terrible, terrible mistake.

    And financial fraud really is a crime, Banned. Bernie Madoff really is in prison today for committing the crime of financial fraud. New York magazine interviewed Madoff and he had a sad story to tell about how he really tried to help people. My guess is that there is a part of his mind that really does believe that. The problem is that he created phony documents. That’s the sort of thing that gets you sent to jail for fraud.

    To leave a retirement study uncorrected for 10 years after serious errors are discovered in it is an act of financial fraud. The mistake isn’t fraud. The cover-up is fraud. The cover-up includes death threats, tens of thousands of acts of defamation and threats to get an academic researcher fired from his job. People not engaged in fraud don’t behave that way. You can tell yourself that you really are a good person and you might convince yourself. But will you be able to convince a jury filled with people who have lost their life savings?

    You’ve lost perspective, Banned. You lost perspective a long, long time ago. I am happy to help in any way that is remotely reasonable. Asking me to endorse retirement studies that get the numbers wildly wrong is not even remotely reasonable. If I were to do that, I would be committing fraud myself and I would be going to jail with you. That’s obviously a no-go on my end. I am obviously insulted that you would suggest such a thing.

    The very fact that we even need to discuss your prison sentence should tell you that you have wandered onto a very, very, very wrong path.

    Was Buy-and-Hold a wonderful advance? It was.

    Were the Buy-and-Holders the first perfect humans? They were not.

    Can we take Buy-and-Hold to some amazing new places by correcting the one big error we have found in it? We can.

    Should we be directing our energies to that life-affirming work rather than engaging in behavior that will only serve to increase our prison sentences? We should be.

    I will work my butt off to help you once you make the decision to use your life energies in a positive and constructive way.

    But only you can make that change.

    I naturally wish you the best of luck in all your future life endeavors.

    And I thank for for a half-good post, which is better than a good number that I have seen show up on my computer screen today.


  19. Rob says

    So B&H’ers are sloggers, not timers.

    You insult the Buy-and-Holders with these words, Banned. You are acknowledging here that the Buy-and-Holders do not practice long-term timing.


    Investors who do not engage in long-term timing are not exercising price discipline. No market can function if a large number of participants are not exercising price discipline. Price discipline is the magic that makes markets work.

    It is the failure of stock investors to exercise price discipline that caused our economic crisis. You are here acknowledging that the Buy-and-Holders caused the economic crisis.

    That’s not a good thing, Banned. It is a very bad thing. We want to bring the economic crisis to an end. We need to be encouraging all investors to be ABSOLUTELY CERTAIN TO EXERCISE PRICE DISCIPLINE FROM HERE ON OUT.

    Another way of saying it is to say that we need to be encouraging all investors never, ever, ever again to follow a Buy-and-Hold strategy.

    At least not the first-draft version. If the Buy-and-Holders want to call the new model Buy-and-Hold 2.0 or something like that, I have zero problem with that. That was my original intent. All Valuation-Informed Indexing is is Buy-and-Hold with the error corrected, Buy-and-Hold with the Get Rich Quick element (the idea that there is no need to practice price discipline) removed.

    We MUST practice price discipline.

    For reasons that I wish were obvious to all. For reasons that WOULD be obvious to all if the Buy-and-Holders had not been telling people for 30 years that timing doesn’t work or isn’t absolutely required or some such thing.

    Price discipline (long-term timing) is ABSOLUTELY required. That’s the mistake. If you don’t practice price discipline, you are not following a research-based strategy. Pre-1981, you were. But not today.


  20. Rob says

    I know Buy-and-Holders, Banned.

    One of the big differences between us is that I understand where the other side is coming from. I was a proud Buy-and-Holder for many years myself. So I know why Buy-and-Holders believe what they believe.

    You don’t understand Valuation-Informed Indexing.

    You don’t try to understand it.

    If you did, you would probably find yourself being drawn to it.

    If I could love Buy-and-Hold, you can love Valuation-Informed Indexing, believe it or not.

    I am not your enemy.

    Someone who helps you fix a mistake is a friend.

    Can you acknowledge even the possibility of you and the other Buy-and-Holders having made a mistake? I can say that it is possible that I am wrong. Are you able to say that it is possible that you are wrong?


  21. banned plop contributor says

    Rob, you are insane.

    Please seek out a medically qualified mental heath practitioner, ASAP.

  22. Rob says

    If there comes a time when I can help, please let me know, Banned.

    If that times never comes, then I naturally wish you all the best that this life to offer, my old friend.


  23. banned plop contributor says

    Rob, you can help now:

    Why do you think this person trying to fund a start-up, and get going in ‘crowd-sourcing’ real estate in a PASSIVE way (her words, not mine) would want interview you, of all people?

    And how do you think you did — were your answers informative? Accurate? Actionable?

    Did you come across as the expert you purported to be?

    Did you do well discussing R.E. valuation trends? Interest rates? Allocation decisions? Distinguishing the strengths and weaknesses of RE versus stocks?

    Do you feel you are the financial “Gooroo” the article claims you to be?

    Do you endorse her business approach to real estate investing?

    So many questions.


  24. Rob says

    You are filled with anger morning and night, Banned.

    You are filled with anger in the Summer and in the Winter.

    You are filled with anger on sunny days and on rainy days.

    You need to stop at some point and ask yourself — What is that about?

    I enjoyed doing the interview. I wish the woman who did the interview the best of luck with her endeavors.


  25. Rob says

    Did you come across as the expert you purported to be?

    I’ll answer this one separately.

    I don’t think that there can be such a thing as an investment “expert” today, Banned. We only started doing academic research on investing questions in a systematic way in the 1960s. So we are talking about a field with a history of about 50 years. We are still in the Pioneer days, when we are going to make lots of mistakes and track back and re-start and all that sort of thing. So I think it is dangerous for people to be taking too seriously the idea that they have developed some form of permanent “expertise.”

    So I don’t really think of myself or anyone else as an expert. I don’t object if someone refers to me as an “expert” in an introduction because this is common practice in this field. If the question comes up in the discussion, I make the point I made in the paragraph above, that it would be best if investors appreciated that there is no such thing as an true investment expert in today’s world, the science is too young.

    I am very proud of my accomplishments. I potentially saved millions of middle-class retirements by discovering the errors in the Old School SWR studies back in 2002. The discussions that followed from that discovery (“The Great Safe Withdrawal Rate Debate”) led us to all sorts of exciting places. I think it would be fair to describe Valuation-Informed Indexing as the first true research-based investing strategy (it obviously owes a great deal to the Buy-and-Hold pioneers). Nothing could be more exciting than the discovery I made with my friend Academic Researcher Wade Pfau that it is today possible for us to reduce the risk of stock investing by 70 percent by warning investors of the dangers of Buy-and-Hold strategies (dangers that we did not know about until Shiller published his revolutionary research in 1981).

    Do I know more about what works in stock investing than any of the “experts” who advocate Buy-and-Hold strategies? I think that is certainly fair to say that that is so in a practical real-world sense. They know more about what is written in the textbooks. I know more about what works in the flesh-and-blood world. But not because I am smarter than my Buy-and-Hold friends! I know more because I abandoned Buy-and-Hold back in August 2002 (when Greaney advanced his first death threat and hundreds of Buy-and-Holders who saw him do it cheered him on). That told me that Buy-and-Hold causes those who follow it to become excessively emotional. So I have learned all sorts of amazing things about how stock investing works over the past 11 years that the Buy-and-Holders have closed themselves off from learning by virtue of their unwillingness to acknowledge the 30 years of peer-reviewed academic research showing that there is zero chance that a Buy-and-Hold strategy can ever work for a single long-term investor.

    Do I want my Buy-and-Hold friends to join me in this amazing learning adventure? I do. Very, very, much. There’s nothing that would make me happier than to be working beside great and smart and good people like Jack Bogle and Bill Bernstein and Larry Swedroe and Scott Burns. Tell me what magic words I need to say to them to get them to drop the pose that they knew it all going back to the day they were born on Planet Earth, and I will say those magic words, Banned.

    I am not working with these people today not because I am too good for them. I am not working with these people today because their puffed-up egos don’t permit them as of today to acknowledge that they got on the wrong track during the insane bull market and that we all become better informed about how stock investing works when we all work TOGETHER for the purpose of helping the people who look to us to provide effective guidance.

    I love these guys, Banned.

    Do they love me? That’s the question you should be asking.

    Are they even able to swallow their pride enough to acknowledge that there's a lot that they can learn from me? (I have certainly acknowledged on many occasions that I have learned a lot from them).

    That's where things stand today, Banned. There's no issue on my end. The problem is with the Buy-and-Holders. The hand of kindness is extended to them. Can they work up the courage and grace to reach out and accept it before their investing advice brings on another stock crash and puts us in the Second Great Depression?

    No, I am not an expert in the conventional meaning of that word. And, no, my good friend Jack Bogle is not one either. So Jack and I should be comparing notes, learning what we can from each other so that we can do a better job for the people who look to us to learn how to finance their retirement plans.

    That's my take re this important question, in any event.

    My warmest wishes to you and yours, Banned.


  26. Rob says

    Do you feel you are the financial “Gooroo” the article claims you to be?

    Experience feelings of envy much, Banned?


  27. Rob says

    There’s a follow-through point to be made re my comment just above.

    Part of the cause of your anger today is that you are on the outside looking in re this amazing adventure we have been enjoying now for 10 years bringing our knowledge of how stock investing works out of the dark ages.

    I never locked you, out, Banned.

    You locked yourself out.

    Or it could be said that your rage locked you out.

    I invited you to share in the fun.

    I invite you again today.

    A lot of good it will do me, I know.

    But I invite you all the same.

    I always will. We could use the help. We do not suffer from feelings of puffed-up pride. We are into Learning Together. That’s the motto of the Motley Fool site, where I built the Retire Early board into the most successful board in the site’s history as of its day in the sun.

    When you want to begin learning again, we become good friends again.

    So long as you want to give in to your feelings of envy and resentment and rage and shame, you remain on the outside looking in.

    But please don’t try to blame me for it.

    No, I do not feel that good when I see the heartbreaks you embrace.
    If I were a master thief, perhaps I’d rob them.
    And I know you are dissatisfied with your position and your place.
    Please try to understand — its not my problem!



  28. banned plop contributor says

    Three consecutive posts, using thousands of words.

    Rob, you could have trimmed it all down to just these few you buried in the middle, and still not lost a single bit of significance or meaning:

    “No, I am not an expert…”


  29. Rob says

    We disagree, Banned.

    I am not an expert. We agree re that one.

    But is Jack Bogle an expert?

    Is Larry Swedroe an expert?

    Is Bill Bernstein an expert?

    Is Scott Burns an expert?

    I discovered the errors in the Old School SWR studies ten years before any of those guys.

    If I’m not an expert, and I’m 10 years ahead of them, what are they?

    People need to know that. There are millions of middle-class people who believe that these guys ARE experts. I know because I have talked with them.

    I am MORE expert than those four. I am MORE expert than any of the Buy-and-Holders.

    People need to know that too.

    People who understand that I am not an expert and that I am MORE of an expert than the Buy-and-Hold advocates who frequently tout themselves as experts know what they need to know to evaluate statements that both I and these other fellows make.

    You want to take six words out of context.


    Because you are in pain.

    Your belief in Buy-and-Hold did that to you.

    A true expert would never have told you things that would put you in such pain.

    Hang in there, my old friend. It gets better. A lot better.



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