Set forth below is the text of a comment that I recently put to a blog entry at this site:
There are extremely smart people in the investment industry and the ability to invest successfully in order to maximize returns would compel those extremely smart people to follow the money. If you really had discovered something so revolutionary, wouldn’t you have a strong vocal following by now?
Yes and no, Questions.
The people who work in this field have high I.Q.s. No dispute there.
But Shiller’s findings are truly “revolutionary” (that’s the word used in the subtitle of his book).
Most of the people in this field have spent years learning what is in the textbooks. The stuff in the textbooks is wrong. That’s always the case when there is a “revolutionary” advance.
So intelligence and experience can actually be a drawback here. The more study a person has directed to the old model, the less capable he is of understanding the case for why it is wrong.
And the more of a motivation he has to convince himself that the new model is not a huge advance.
Please read the quote from Machiavelli that I put in the “People Are Talking” section of the site. He points out that it is very hard for new systems to gain a foothold. That’s because there are lots of people with an intense desire to keep the old system going (they built their careers around their knowledge of the now-discredited, old system) and not too many with an intense desire to push the new system (it’s hard to make any money promoting the new system until there are a good number of adherents to it).
Buy-and-Holders are today using their intelligence and industry to stop progress. They have become the thing they once opposed. People tried to stop Bogle once upon a time just as Bogle today tries to stop me.
It won’t work. It cannot work. The advance is too big.
The smart thing for someone like Bogle to do is to abandon Buy-and-Hold and promote Valuation-Informed Indexing. No one cares that he made a mistake. No one. What people want is investing advice that works. Bogle played as big a role as anyone in building the Valuation-Informed Indexing Model. Once he endorses it, he gets credit for his huge contributions.
And Valuation-Informed Indexing isn’t a dead thing, like Buy-and-Hold. Valuation-Informed Indexing is the future.
Once Bogle realizes that and says so publicly, lots and lots of other smart people are going to join the program. There’s an old saying that “the harder they come, the harder they fall.” It has been very, very hard to knock down Buy-and-Hold. But once it falls, it falls entirely and completely. The transition will be short because there is now a mountain of material showing the dangers of Buy-and-Hold and the wonders of Valuation-Informed Indexing.
My guess is that it will be the next price crash that will start the collapse.
Rob
The Deleted plop contributor says
The information has been out there for many years. People have had time to make considered opinions, Rob.
The only one needing to make the “I was wrong” speech is you.
Rob says
We certainly agree that the research we need to come to a better understanding of how stock investing works has been out there a long time, Deleted. It’s been 32 years!
The problem has not been a shortage of time to make considered opinions. The problem is a shortage of DESIRE to make considered opinions.
Say that there is a machine with a lever you can press. Say that we put it in the hands of the Wall Street Con Men. Each time they press the lever, they get $10. And each time they press the lever, $100 is taken out of the pockets of middle-class investors and destroyed.
How often do you think the Wall Street Con Men are going to press that sucker?
That’s the experiment that we have been running for 32 years now.
We KNOW that Buy-and-Hold cannot ever work for even a single long-term investor. ALL of the research ever done points to this finding. There is ZERO research pointing in the other direction.
But we ALSO know that Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind and that Get Rich Quick schemes possess great appeal to the weak humans. There has never in the history of personal finance been an “idea” with so much power to destroy middle-class wealth while enriching the Wall Street Con Men beyond their wildest dreams.
Now we know what happens when we put that sort of temptation before people!
We also know the solution to the problem.
Car makers would like us not to look at the price of cars we buy, just as the Wall Street Con Men like us not to look at the price of stocks we buy. How have we avoided the big mess we have in The Stock-Selling Industry from infecting The Car-Selling Industry? Why is it that the sleeziest used-car dealer in the country possesses ten times the ethics of the most respected stock-selling expert in the field today?
The difference is US!
There’s an old saying that applies here: “You Can’t Cheat an Honest Man.”
Car dealers know they cannot get away with what the Wall Street Con Men get away with. If some sleezeball car dealer were to say that he was run across some mystical, magical “research” showing that it is possible to get a good deal on a car without even taking price into consideration, we would as a society laugh him out of business.
That’s what we need to do when we hear some sleezeball investing “expert” tell us that he has a sneaky feeling that all of the rules that have governed stock investing for 140 years are going to be turned on their heads and that this is going to be the first time in history when a pure Buy-and-Hold strategy is going to end up working out well for one or two long-term investors.
Huh? I don’t think so. SHOW US THE URL.
If the Con Men really had a “study” showing that the smelly Buy-and-Hold garbage could work, they wouldn’t be shy about sharing the URL with us, Deleted. I mean, come on. There are billions of dollars to be made here. And you say they are holding back?
They are not holding back.
There do not provide a URL for the magic study because the magic study does not exist.
Wade Pfau was right. Buy-and-Hold is garbage. Valuation-Informed Indexing works.
We need to get prison sentences announced for you Goons. Then Wade will feel safe doing honest research again. He and I will work together to get that research written up on the front page of the New York Times. Once everyone knows how they have been conned, I have a funny feeling that no one hoping to be able to get a job in this field is ever again going to want to be associated in any way, shape or form with Buy-and-Hold. I mean. come on.
My best wishes to you, old friend.
Rob, the Fellow Who Thinks We Should All Be Working Together to Bury the Smelly Buy-and-Hold Garbage 30 Feet in the Ground So That We Can Spread the Word About the First True Research-Based Strategy, Which Reduces the Risk of Stock Investing by 70 Percent
The Deleted plop contributor says
If the intelligent people don’t agree with you, then that means you will only have stupid people agreeing with you.
Rob says
The intelligent people DO agree with me, Deleted.
I didn’t discover the errors in the Old School safe withdrawal rate studies by myself, Deleted. I suspected on my own that there was something missing in those studies. But I wasn’t able to put my finger on what it was until I read Jack Bogle’s book. Bogle said in his book that Reversion to the Mean is an “Iron Law” of stock investing. If Reversion to the Mean is an Iron Law, there is obviously zero chance that the safe withdrawal rate could be the same number at all valuation levels. Hence, my May 13, 2002, post asking whether we had gotten this whole SWR thing wrong.
It’s not just Jack Bogle.
Bill Bernstein knows that Buy-and-Hold is a big pile of smelly garbage too.
So does Scott Burns.
So does Larry Swedroe.
So does Michael Kitces.
So does Wade Pfau.
So does Warren Buffett.
So does Robert Shiller.
So do lots and lots and lots of others.
There is no lack of intellectual knowledge in this field.
Our problem is a lack of courage.
There’s tons of money to be made pushing Get Rich Quick garbage. And Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind.
What we have to decide is — Is making a smelly buck in the short-term the only thing that matters?
Or does personal integrity have some value too? Does learning new things about the subject matter have some value? Does being straight with your readers and clients have some value? Does recovering from the economic crisis have some value? Does entering the greatest period of economic growth in U.S. history have some value? Does keeping your friends out of prison have some value?
I have zero problem with the goal of making a buck, Deleted. I expect to bring 500 million of the little green guys into my life on the day my settlement offer is accepted.
But I don’t buy the idea that making a quick, smelly buck is the ONLY thing that matters.
Honesty matters. Yes, even in the investing field. Yes, I really do believe that.
And, yes, I really do believe that the Wall Street Con Men will all feel 50 times better about themselves once they feel free to share their true beliefs about how stock investing works.
Get Rich Quick is the past. The first true research-supported strategy is the future.
I am sure.
Take care, man.
Rob the Sure
Questions says
“So intelligence and experience can actually be a drawback here. The more study a person has directed to the old model, the less capable he is of understanding the case for why it is wrong.”
We can see the same people you refer to have given thoughtful consideration to almost every other financial topic discussed. It is the intelligence and experience that compels them to challenge assumptions and give opinions based on all the data available. The only way to even agree with your assertion is to see a prior pattern for each and every one of these people to neglect available data and to form opinions that are contrary to the facts. We have no evidence of this case.
It seems that you want to offer up unlikely scenarios with each answer that does not fit your story.
Rob says
We can see the same people you refer to have given thoughtful consideration to almost every other financial topic discussed. It is the intelligence and experience that compels them to challenge assumptions and give opinions based on all the data available.
I certainly agree with all of these words, Questions.
The only way to even agree with your assertion is to see a prior pattern for each and every one of these people to neglect available data and to form opinions that are contrary to the facts. We have no evidence of this case.
I don’t agree with these words.
You are saying that we can never conclude that someone has made a mistake in one area unless he has a long history of making a mistake in every area he takes up. No.
The Buy-and-Holders are plenty smart. And they are hard working and good people.But they made a mistake. Now they need to fix it.
The problem is that the mistake has been so costly that it has caused the Buy-and-Holders to feel great shame. So they have become defensive.
We need to help them get over their defensiveness. We don’t do this by covering up the mistake. That makes things worse. We need to put the Buy-and-Holders on the hot seat, we need to INSIST that they give direct answers to direct questions. We need to DEMAND that the entire internet be opened to honest posting on safe withdrawal rates and scores of other critically important investment-related topics. We need to point out to all our friends and neighbors and co-workers and fellow community members that the Buy-and-Holders have been engaging in death threats and board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs as part of their effort to keep the 11-year cover-up going. Those participating in the cover-up have committed multiple felonies and will be going to prison following the next price crash. We should want those prison sentences to be as short as possible. That means doing all we can to bring the cover-up to a close by the close of business today.
Make sense?
Rob the Sensible
Questions says
Rob,
Once again, we look at patterns and we see that these very smart people have given and continue to give considerable thought and study to each issue. Basically, we look at people’s track record in order to assign credibility. The same measure is applied to everyone, including you.
You have not presented a case that is credible.
Rob says
It seems that you want to offer up unlikely scenarios with each answer that does not fit your story.
If you had told me that the cover-up of the errors in the Old School safe withdrawal rate studies would continue for 11 years on the morning of May 13, 2002, when I put forward my first post, I would have said that the odds against such a thing happening were 1 billion to one.
So, yes, I guess it is fair to refer to what has happened here as “unlikely.”
Still, it happened, Questions.
It doesn’t help for us to let that paralyze us. We need to try to UNDERSTAND the factors that caused this unlikely turn of events.
Part of it is the money. There is a ton of money to be made in their field and people don’t want to give that up. So they rationalize that getting retirement numbers wildly wrong isn’t such a terrible thing.
Part of it is our litigious society. The Buy-and-Holders are afraid of being held liable for the financial damages they have caused to so many millions. Unfortunately, their fears make them all the less willing to admit mistakes. So the damages keep piling up higher and higher and higher. Perhaps we should seek congressional action to give those who truly just made mistakes some sort of amnesty from civil lawsuits. At least that would be constructive action.
Part of it is that the people drawn to this field tend to be good with numbers but don’t feel comfortable examining the effects of emotions. Well, let’s recruit new people to the field, people who have the skills needed to get the job done.
Part of it is that the advance we have achieved is so huge that it makes the Buy-and-Holder feel envious that they didn’t come up with it. Let’s praise the Buy-and-Holders for their many genuine achievements and invite them to help us come up with more powerful insights, many of which they can get their name on.
The are indeed unlikely events that have taken place, Questions.
That’s no excuse for not behaving in an ethical manner. We MUST behave in an ethical manner. And we must insist that our Buy-and-Hold friends do so as well.
Behaving ethically is the starting point. Without some minimal level of ethics in this field, all of the I.Q. points in the world count for precisely zero. We need to be smart. But we must also be honest.
I am sure.
Rob the Ethical Investing Advisor
Rob says
Once again, we look at patterns and we see that these very smart people have given and continue to give considerable thought and study to each issue. Basically, we look at people’s track record in order to assign credibility. The same measure is applied to everyone, including you.
You have not presented a case that is credible.
I disagree, Questions.
I put forward my famous post pointing out the errors in the Old School safe withdrawal rate studies on the morning of May 13, 2002. Not one of those studies has been corrected to this day. That tells the story.
There are two conclusions that can be drawn:
1) The uncharitable conclusion that the “experts” in this field are 100 percent corrupt; and
2) The charitable conclusion that the “experts” in this field are suffering from cognitive dissonance.
I believe that the second explanation is the right one (and I have seen a good bit of evidence supporting my conclusion on this point).
There’s only one way to bring the cognitive dissonance to an end. That’s to open every board and blog on the internet to honest posting on safe withdrawal rates and scores of other critically important investment-related topics.
We all learn by talking things over. So long as the “experts” don’t permit anyone who has not been taken in by their errors near them, they are never going to learn the realities. The ONLY way to take things to a good place is to launch a national debate on these questions.
That’s my sincere take, Questions.
Hang in there, man.
Rob
Questions says
Rob,
Again, you look for an answer to fit your story/desired outcome. You also ignore the fundamental point of credibility. As said before, if we see very intelligent people giving thoughtful and considerable thought and analysis of previous issues as well as continued issues, we must assume they have done so on the issue at hand. To believe your point, we would have to assume that each and every person has suspended such thought and consideration on your particular issue as part of a coordinated mass conspiracy that was pre-determined and carried on for longer than a decade, risking every shred of credibility as well as potential significant impact on their ability to continue their careers and earning capability.
In short, there is no way your position is not even plausible. By continuing to push such claims, further hurts your credibility and has made you a target of ridicule.
Rob says
It’s a fact that the Old School safe withdrawal rate studies have not been corrected for over 11 years, Questions. The discredited findings of those studies were reflected in thousands of articles in personal finance magazines and web sites and so on. Millions of retirements are likely to fail as a result of the errors that were made in those studies and as a result of the 11-year cover-up of those errors.
You are saying that the only way that such a thing could happen is through what you refer to as a “coordinated mass conspiracy.” You’re wrong.
If humans were 100 percent rational creatures, you would be right. But they are not.
Black people could not drink our of water fountains reserved for whites in the pre-Civil-Rights South. Was that the result of a “coordinated mass conspiracy”?
It was the result of a social policy that was reflected in state laws.
There were LOTS of people in the South who had problems with those laws and with that social policy. Most of those people were afraid to speak out. So they rationalized. They told themselves “this is just the way it is, you can’t fight City Hall, this can never change and so it is not worth fighting it, this is not my battle.”
That’s what the MANY people who see problems with Buy-and-Hold tell themselves. They say: “It’s not my fight.” And, once they come to rely on that rationalization, they come to prefer NOT adding to their understanding of the issues. They don’t want to feel bad about themselves. So they intentionally keep themselves in the dark re the most important topics relating to stock investing.
The people you refer to ARE risking their careers, you have that one right. But the part you are leaving out is that they see a more immediate threat to their careers if they give voice to their honest beliefs. Wade Pfau LOVED learning the realities of stock investing. He was like a kid on Christmas morning, jumping up and down with each new discovery. When he did his honest research, he knew that he was doing the thing he had been in training his entire life to do. But when he learned that people like Jack Bogle and Bill Bernstein and Larry Swedroe and Scott Burns would not say a word to help him while his career was destroyed, he flipped. He has financial responsibility for two small children. He told himself that it was more important that he provide for those two small children than that he be a hero by publishing the honest research that would bring the economic crisis to an end.
Wade was not the first person who was intimidated out of doing honest research in this field. Rob Arnott asked at a conference how many of the researchers believed in the Efficient Market Theory. Only a tiny number of hands went up. Then he asked how many of the researchers would be basing the research they would be doing when they got back to the office on a belief in the Efficient Market Theory. Nearly every hand in the room shot up. No academic researcher wants his peers to think that he believes that Buy-and-Hold can work. He would be thought a fool if anyone came to think that he truly believed that. But no academic researcher dares to do honest research so long as the Buy-and-Hold Mafia makes clear that it will destroy the career of any researcher who does honest work. They all need to make a living and they all know that doing honest research is not permitted today. It’s a CLM, a Career Limiting Move.
That needs to change, Questions.
We need Jack Bogle to stand up on a stage and say words that make clear to everyone working in this field that the Buy-and-Hold Era has come to an end and that there will be no more punishments for those who tell the truth about what the last 32 years of peer-reviewed academic research says about how stock investing works in the real world. When people hear a figure as widely known as Jack say that in clear language, they will feel safe again to say what they honestly believe. From that day forward, each day will look brighter than the one that came before it, the opposite of what we have been experiencing in the early years of this economic crisis.
Rob
Questions says
Again, you are trying to make the explanation fit your desired outcome. Read my points again. Your points are not rational and the analogy to civil rights seems very odd and misplaced. You also fail to address the fact it would require mass conspiracy as well as the disregard by all with respect to their individual levels of respect and credibility.
It seems that you have convinced yourself that this is reality and have suspended rational thought and reason.
Rob says
I don’t think it requires mass conspiracy, Questions.
It involves a huge advance in our understanding of how stock investing works, an advance so big that people cannot come to terms with it without first being permitted to talk it through a bit. And it also involves a lot of money. It is always hard to move from one system of thought to another. It is harder than usual when making the transition requires that lots of powerful people give up (temporarily –but still) some of their power and their ability to generate huge sums of money for themselves.
I like the civil rights analogy. But there are lots of other analogies that could be used. When Galileo discovered that it is the earth that revolves around the sun rather than the other way around, there were lots of powerful people who tried to shut him down. The first reaction of established orders to challenges to their pre-eminance is to attack those bringing the challenges. That’s just the way it is with those darn humans.
I think YOU are the one suspending rational thought, Questions. You are the one going to prison, not me. The fact that you have placed yourself in circumstances where you will be going to prison because some fellow you don’t even know personally happened to post honestly about the numbers that millions of middle-class people use to plan their retirements should tell you something. The idea that stock investing is a 100 percent rational endeavor has certainly been disproven in your case. No?
I say that it is not just you. It’s fair to say that you are an extreme case. But I believe that all of us humans are subject to the same influences. During the Buy-and-Hold years, we haven’t been doing anything to address the effect of those influences on our long-term investing returns. The peer-reviewed academic research shows us that, if we start doing that, we will be able to reduce the risk of investing by 70 percent. I say we should go for it. That sounds like very good news indeed to my ears.
Please take good care, my old friend.
Rob
Questions says
Rob,
For each to do the same thing, yes, it would require a mass conspiracy. What are the odds that each would act in similiar fashion on their own accord. The odds of that happening are astronomical.
Aslo your analogy, anyone can pull any event in history and draw comparisons. That does make it a suitable comparison.
As to your comment:” You are the one going to prison, not me. ” this further demonstrates the weakness of your position. Once you feel you can longer debate this from a reasoned out discussion, you decide to change tactics and issue a threat.
Rob says
There obviously is no mass conspiracy. That is obviously a 100 percent silly idea.
But you are wrong when you say that the odds are against large numbers of people acting in a similar manner. When there are huge incentives for people to act in a certain manner, it should not be even a tiny bit surprising to find that most elect to take advantage of those incentives.
To understand what is going on, you must understand how stock prices are set. There is no governing body that has to approve a price increase. It is 100 percent up to investors to determine whether prices go up.
Now —
How many of the humans benefit from an increase in stock prices? We ALL seem to benefit! Every last one of us. The Stock-Selling Industry is happy with a price increase because they sell more stocks. Investors are happy because they appear to be closer to financing their retirements. The newspapers are happy because more people want to read the business pages. More books are sold. Politicians are happy because people are more satisfied with their lives and more likely to vote for incumbents. Clothing stores are happy because people have more money to spend on clothes. And on and on and on.
Is that a conspiracy?
Not in the usual way in which that word is used. It is a case where everyone has an incentive to do the same thing — push stock prices up. It’s a case of all incentives pointing in the same direction.
The answer is to provide equally strong incentives pushing people to act to keep from stock prices getting out of hand. The way to do that is to permit honest posting on the peer-reviewed academic research of the past 32 years. People can retire many years sooner if they follow a research-based strategy. But they have to know about it first! So we must open the internet to honest posting.
That’s the story, Questions.
There is no conspiracy. There is an unhealthy lack of balance to the incentives being provided to investors and investing experts.
Cigarette companies once advertised the health benefits of smoking. Why do you think they did that? It helped sell cigarettes. And there was no downside. To change that situation, we imposed a downside. We adopted laws and regulations that made clear to the cigarette companies that their top executives would go to prison if their companies continued to make false claims about the health benefits of smoking.
The Stock-Selling Industry is today where the tobacco industry was in the days when cigarettes were promoted as a boon to good health. We need to send people to prison when they make false safe withdrawal rate claims and then respond to those pointing out the falsity of the claims by threatening to kill their family members. When these people go to prison, all the others making false claims will notice and will stop making false claims themselves.
That’s how it works.
All the incentives today are encouraging people to talk nonsense about stock investing. The result is that we are in the worst economic crisis in our history. To change that, we need to provide disincentives to promote Buy-and-Hold strategies and incentives to promote Valuation-Informed Indexing strategies.
My warmest wishes to you.
Rob
Questions says
“There obviously is no mass conspiracy. That is obviously a 100 percent silly idea.”
You admit that there is no mass conspiracy, yet that is what it would take to make your case plausible. The rest of your post is just a distraction.
Your legal points are laughable. If you ever brought it to court, you would soon learn the meaning of “dismissed upon summary judgement”.
Rob says
Okay, Questions.
I naturally wish you the best that this life has to offer a person regardless of what investing strategies you elect to pursue.
Rob