“Valuation-Infomed Indexing Is What Bogle INTENDED to Create When He Created Buy-and-Hold. I Have Made Jack Bogle’s Boyhood Dream Come True. When He Is Able to Work Up the Courage and Grace to Say “Thank You, Rob!”, We Will All Be in a Much Better Place.”

Set forth below is the text of a comment that I posted to the Out of Your Rut site:

Every researcher in this field should be looking at what we see on this thread and reporting on it.

Investing is not only a numbers game.

It is partly a numbers game. It is also an emotions game.

Get the emotions wrong, and you cannot possibly get the numbers right. Get the emotions wrong and you will direct all your energies to telling lies to yourself (and others).

Get the emotions right and the numbers part comes easy.

When Buy-and-Holders elected to ignore valuations, they elected to ignore emotions (all mispricing is caused by emotion). When Buy-and-Holders elected to ignore valuations, they insured that every number they produced from that point forward would be in error.

It’s a mess.

The good news is that, when we fix the error, we transform stock investing into something close to a risk-free endeavor.

The risky thing is the possibility that you might ignore the emotions.

The risky thing is the possibility that you might follow a Buy-and-Hold strategy.

When we bury Buy-and-Hold 30 feet in the ground, we bury investing risk 30 feet in the ground.

The future is bright.

It all starts with a group of us getting together and persuading our good friend Jack Bogle to stand on a stage and say the magical words “I” and “Was” and “Wrong.”

From that point forward, it’s downhill sledding.

We cannot learn anything without accepting the possibility that we did not know it all a long time ago. ALL learning experiences start with a willingness to acknowledge one’s fallibility.

Valuation_Informed Indexing is what Bogle INTENDED to create when he created Buy-and-Hold. I have made Jack Bogle’s boyhood dream come true.

When he is able to work up the courage and grace to say “Thank you, Rob!” , we will all be in a much better place.

And I will shake the man’s hand with great enthusiasm when he stops hating himself for having made a mistake and starts working to learn what he needs to learn to give far better investing advice in the future than he has ever given in the past.

Jack can thank me and move forward or he can spend the remainder of his days covering up a mistake that caused the greatest economic crisis in U.S. history.

I know which path I am hoping very much that my good friend will choose for himself (and for all of us).

Rob

Comments

  1. Evidence Based Investing says

    Buy and Hold captures the entire market return (minus it’s very low expenses). Always has, always will.

    There is no way that investors collectively can do any better.

  2. Rob says

    The claim made in your first paragraph is obviously 100 percent true.

    The claim made in your second paragraph is obviously 100 percent false.

    Any investor who looks at valuations to discover that virtually risk-free asset classes like TIPS and IBinds and CDs offer far higher long-term returns than stocks does better than “the market” by moving a portion of his allocation to the higher-return/lower risk asset class.

    You are confusing the terms “market” and “universe of investing possibilities.” Buy-and-Hold will always get you the return available from “the market.” There are times when that is a good thing and there are times when that is a bad thing. To know which sort of time it is, you need to identify the long-term return available from stocks and compare it to the long-term return available from non-stock investment classes.

    At some valuation levels, investing outside the stock market permits you to greatly increase return while greatly decreasing risk. On those occasions, you do yourself great and permanent harm by refusing to go with the strategy (Valuation-Informed Indexing) supported by the last 32 years of peer-reviewed academic research.

    My best wishes to you, Evidence.

    Rob

  3. Rob says

    There is no way that investors collectively can do any better.

    My strong hunch is that you are trying to play word games here. You are trying to suggest that the volatility of the stock market can never be changed by giving recognition to advances in our knowledge of how stock investing works. I don’t buy it.

    Prior to 1981, it is true that we were stuck in the Dark Ages re our understanding of how stock investing works. Stocks had always been a high-risk asset class until that time. And so it appeared on the surface that stocks would always remain a high-risk asset class.

    Shiller’s “revolutionary” (his word) finding changed all that.

    Stocks are now a virtually risk-free asset class for any investors willing to take the last 32 years of peer-reviewed academic research into consideration. This is obviously the biggest advance in the history of personal finance. Giving recognition to the advance means that we all get to live far richer and fuller lives than anyone living prior to 1981 even imagined possible.

    There’s one thing that stands in our way today, Evidence. We all need to join together to persuade my good friend Jack Bogle to stand up on a stage and to say the words “I” and “Was’ And “Wrong.” Once he does that, there will be no more death threats or board bannings or tens of thousands of acts of defamation or threats to get academic researchers fired from their jobs.

    I think it would be fair to say that I am Jack’s biggest fan alive on Planet Earth today. No one else has worked as hard as I have to see that Jack’s boyhood dream come to fruition. But for me to accomplish my goals, I need Jack to acknowledge that he is not the first human ever born who is incapable of error. If Jack’s dream is going to come true, he is going to need to say those three words.

    We need to bring the intimidation tactics that have caused the biggest economic crisis in U.S. history to a full and complete stop. We all should be working together to bring the economic crisis to an end and to bring on the greatest period of economic growth in U.S. history.

    That includes my good friend Jack Bogle.

    That includes my good friend Evidence.

    That includes Mel Linduaer (Grrrrr….).

    That includes John Greaney (Ruff! RUFF!).

    That includes everyone.

    Please take good care, my long-time abusive posting friend.

    Rob

  4. Evidence Based Investing says

    Any investor who looks at valuations to discover that virtually risk-free asset classes like TIPS and IBinds and CDs offer far higher long-term returns than stocks does better than “the market” by moving a portion of his allocation to the higher-return/lower risk asset class.

    The only way an investor can move “a portion of his allocation to the higher-return/lower risk asset class.” is by selling the stocks to another investor. If the selling investor manages to achieve results better than the market then the buying investor will receive results worse than the market.

    My claim was “There is no way that investors collectively can do any better.” That claim is 100% true.

    No matter how much investors trade stocks and bonds and CDs and other investments back and forth between each other they cannot improve on the total return provided by those assets.

  5. Rob says

    “No matter how much investors trade stocks and bonds and CDs and other investments back and forth between each other they cannot improve on the total return provided by those assets.”

    This statement gets to the heart of it, Evidence. I say that you are wrong.

    Say that you were buying a car and that Edmunds.com said that the fair-value price is $20,000 and that the dealer said that he would charge you $60,000. And that you felt tempted to walk out of the dealership and he said: “No matter how many miles car buyers drive or walk to other dealers, they cannot improve on the cars they will all end up purchasing.”

    That is simply not so.

    By walking out of the car dealership you impose price discipline on the car-buying process.

    When Valuation-Informed Indexers refuse to pay insanely inflated prices for stocks, they impose price discipline on the stock-buying process.

    When we open the internet to honest posting on the last 32 years of peer-reviewed academic research in this field, we will transform the process by which stocks are purchased into a true market. It is impossible to overstate how big an advance that will be.

    The statement you are making here is similar to the statements that Communists made when they said that government officials should control what is sold and at what price rather than the millions of people who purchase the millions of consumer goods. A market permits those people to vote with their feet as to the products that will be made available to them and as to the profits that will be awarded to those seeking to serve their needs. That’s a market. Markets are about the transmission of millions of information bits. It is the proper transmission of those millions of information bits that make all U.S. markets other than the one for stocks work so effectively.

    The stock market is the only one re which we today have in place a ban on what information can be provided to the consumers of the product being purchased. Once that ban in lifted, we will have a real, functioning market and we will all be a far richer (in every sense of the word) people.

    Permitting investors to know when they need to trade overpriced assets for properly priced assets would bring about a HUGE increase in the return on ALL of those assets. It will be the biggest advance in the history of personal finance. EVERYONE would benefit, including the Wall Street Con Men.

    Rob

  6. Evidence Based Investing says

    I say that you are wrong.

    That is because you don’t understand stock investing.

    Permitting investors to know when they need to trade overpriced assets for properly priced assets would bring about a HUGE increase in the return on ALL of those assets.

    Your lack of understanding of stock investing is profound.

    No matter how many times you and I trade assets back and forth between each other, the return from those assets will not be improved.

  7. Rob says

    That is because you don’t understand stock investing.

    That must be it.

    Your lack of understanding of stock investing is profound.

    My lack of confidence in pure Get Rich Quick strategies certainly runs deep. I think that much would be more than fair to say, Evidence.

    No matter how many times you and I trade assets back and forth between each other, the return from those assets will not be improved.

    The average long-term return for stocks is 6.5 percent real. You seem to think that it follows that a good number of investors obtain that return. Nothing could be further from the truth. Most investors buy when prices are high and sell when prices are low. Those investors (MOST investors) are obtaining returns far, far lower than 6.5 percent real. Let’s say that their long-term return is 3 percent real. That makes a big difference when you consider the effect of compounding returns.

    For the Valuation-Informed Indexers, it is just the opposite. If the Get Rich Quickers are obtaining returns far LESS than 6.5 percent real, there must be some group of investors obtaining returns far GREATER than 6.5 percent real for 6.5 percent real to be the average long-term return. The group getting the far higher return is the group following research-based strategies, the Valuation-Informed Indexers.

    The Wall Street Con Men are not your friends, Evidence. Their aim is to get a buck out of your pocket and to place it in their own. Get Rich Quick is not the answer. There is now 32 years of peer-reviewed academic research showing that in fact Get Rich Quick is the PROBLEM.

    I naturally wish you all the best of luck with whatever investing strategies you elect to pursue.

    Rob

  8. Rob says

    An easy way to see this is to look at what happened to the people who thought that Greaney’s retirement study was accurate and honest.

    In 2000, the safe withdrawal rate was 1.6 percent. Greaney’s study said it was 4 percent. Look at what happens to an investor who falls for Greaney’s trickery.

    He goes bust. His retirement portfolio goes to zero and he is left homeless.

    Now look at what happens if he follows research-based strategies.

    An investor following research-based strategies would use an accurate safe withdrawal rate when planning his retirement. Would he experience the same bear market as the Get Rich Quicker? He would. BUT HE WOULD NOT EXPERIENCE THE SAME RESULT.

    The investor following research-based strategies would not go bust. And, remember, the highest returns are always available after the Get Rich Quickers all go bust. The investor following research-based strategies would not only not go bust. He would have huge amounts to invest in stocks at times when they are paying returns of 15 percent real and higher. You get rich very, very quickly earning an annual return of 15 percent real.

    So one investor who starts with a huge portfolio ends up going bust and another ends up creating so much wealth that he doesn’t know what to do with it. Both invested at precisely the same time-period and experienced precisely the same conditions. Why the huge difference in results?

    One followed a pure Get Rich Quick approach (Buy-and-Hold) and the other permitted himself to be influenced by the last 32 years of peer-reviewed academic research.

    That makes all the difference in the world.

    Don’t let the bad guys get you down, Evidence.

    Rob

  9. Evidence Based Investing says

    The group getting the far higher return is the group following research-based strategies, the Valuation-Informed Indexers.

    It looks like you are beginning to understand. This may have been a worthwhile exchange.

    It IS possible for a subset of investors to get returns that are higher than the market. It is not possible for investors COLLECTIVELY to receive those higher than market returns.

    If your desire is to see that a small subset of investors get returns higher than that delivered by the market the your market timing voodoo might be the answer.

    If you desire is to see that the overwhelming majority of investors capture the maximum possible return from the market then the only investment approach that you should be supporting is the buying and holding of index funds.

  10. Rob says

    It is not possible for investors COLLECTIVELY to receive those higher than market returns.

    On a risk-adjusted basis, it is, Evidence.

    Buy-and-Hold pushes volatility up to it highest possible level. Valuation-Informed Indexing pushes volatility down to its lowest possible level.

    Also, the economic crises that inevitably follow from the heavy promotion of Buy-and-Hold “strategies” cause huge losses for everyone. Tens of thousands of businesses failed in the Buy-and-Hold crisis. Millions of middle-class people lost their jobs. We will be seeing millions of failed retirements in days to come and the increase in the Federal budget deficit that will result will hold back productivity for many years to come.

    I continue to doubt that heavier promotion of Get Rich Quick strategies is the answer to our troubles.

    My best and warmest wishes to you and yours.

    Rob

  11. Evidence Based Investing says

    Buy-and-Hold pushes volatility up to it highest possible level.

    It is rapid buying and selling that increases volatility, not buying and holding.

  12. Rob says

    So you say, Evidence.

    I say otherwise.

    I say that, if we permitted honest posting, millions of middle-class investors would be able to see through the smelly Get Rich Quick garbage pushed so relentlessly by the Wall Street Con Men.

    Investors who are informed are capable of acting in their self interests and stock prices are self-regulating in a world in which it is possible for millions of middle-class investors to become informed as to what the last 32 years of peer-reviewed research says about how stock investing works.

    Take care, man.

    Rob

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