I’ve posted Entry #165 for my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called How Much Do You Need to Retire? Perhaps Less Than You Think!
Juicy Excerpt: Risk reduces return. Buy-and-Holders don’t get this. Buy-and-Holders think of risk as a good thing. They believe that only risky asset classes can provide good returns. it follows that investors should seek out risk rather than avoid it.
I couldn’t possibly disagree more. I believe that investors should be perusing dual goals of always increasing return to the greatest extent possible while always also reducing risk to the greatest extent possible. Risk is bad. Where there is risk, there will eventually be losses. Losses are setbacks. You want to avoid setbacks. You want to avoid risk.
Now that we know how to reduce risk dramatically, we know how to increase returns dramatically. That follows.
So we can all use higher return assumptions on a going forward basis. If you are willing to take valuations into consideration when setting your stock allocation, you will avoid the losses that send others reeling backwards. Your higher portfolio amounts will compound more quickly. You will reach your retirement goals sooner.
Actually, buy and holders are more risk averse. We believe that it would be too risky to try and retire before having adequate savings or trying to do so while raising a young family. We think it is risky to retire when you are relying on an income stream from a side business that is not fully developed and is outside of your formal training. We think it is risky of that retirement doesn’t account for higher expenses in the future, such as kids college education, higher medical expenses when you are older and potential need for long term care. We also believe it is risky to rely on get rich quick schemes, such as market timing.
You’re the one going to prison, not me, Pink.
I would call playing a lead role in the biggest act of financial fraud in U.S. history pretty darn risky behavior.
It’s sure not anything that I want to be involved with in any way, shape or form. The reality is quite to the contrary. I am seeking to become known as the most severe critic of the 12-year cover-up of the errors in the Old School safe-withdrawal-rate studies alive on Planet Earth today. I would be grateful for anything you might be willing to do to help me spread the word.
I certainly wish you a new year filled with peace and prosperity and happy times in any event.
Rob
Cover up on SWRs? You must be talking about you as Wade has said that you are wrong on that issue and you have been trying to cover up Wades comments .
Your prison threats are old and tired and are all part of your lies and fantasies.
I’m the one who has been covering up the errors in the Old School safe-withdrawal-rate studies for 12 years now.
That makes perfect sense, Pink.
My best wishes to you and yours.
Rob
Rob, I find it odd that over the past week you’ve chosen to indulge whom you call the goons in their conversations while ignoring my more substantive questions about your philosophy.
I’ve asked those because I believe your philosophy demonstrates a fundamental misunderstanding of how markets and investing work, rendering your proposed solutions completely unworkable even if everyone wanted to implement them. You can dismiss them as “marketing slogans” but that doesn’t change reality.
I would think that someone who had invested so much time and effort into this pursuit would be interested in addressing and amending these obvious flaws. I guess not.
P.S. Don’t believe me? Shoot someone like Rob Arnott an email with your theory about stocks providing a risk free return of 6% for all eternity.
Rob,
Don’t blame me for your problem with SWRs. Take it up with Wade. It was he that said:
“And the further reality is that if I *did* lack personal integrity, I could have made this all stop just by saying the meaningless sentence you want so desperately to hear: “I think the errors in the traditional safe withdrawal rate studies must be corrected by using Rob’s analytically valid method.”
But I don’t believe that. I do not believe you have offered a valid correction to the safe withdrawal rate question. And I believe that retirement income strategies go much further than the question of a safe withdrawal rate. And so that is why I’ve had to endure your ongoing harassment for months on end now. “
Shoot someone like Rob Arnott an email with your theory about stocks providing a risk free return of 6% for all eternity.
You’re on the right track with this comment, Curious.
I am not going to shoot Rob that e-mail and I will say here that I do not know how he would respond if I were to shoot him that e-mail. He’s a smart guy and I have great respect for him. And I am saying here that I think it is possible that he would agree with you (at least at first) that the idea that stocks are a virtually risk-free asset class and the idea that it is possible just by opening the internet to honest posting on the research of the past 33 years to eliminate volatility in prices are crazy ideas.
I also think it is possible that it could go the other way. It is possible that Rob would agree with me.
A third possibility is that Rob would secretly agree with me but would keep quiet about it in public.
My personal guess is that Rob ‘s reaction would be some combination of all three of those possibilities. I think he would be highly skeptical of those particular claims of mine. And for perfectly good reasons. Those two are far-out claims. Any sensible person would be skeptical on first hearing them. I certainly would have been skeptical of such claims if I heard them on the morning of May 13, 2002.
Given Rob’s respect for me and for the materials that I have provided at this site, my further guess is that he would be willing to hear me out a bit re my rationale for believing in those two far-out ideas. I think that after hearing the rationale he would be partly, but only partly, convinced. So I think that, while his first reaction might be disbelief, his second reaction might be a healthy skepticism combined with a willingness to hear the ideas out and to listen in on discussions in which they were explored in more depth.
Finally, I think he would be hesitant to give voice to these reactions in public. So, while his genuine reaction might be along the lines of what I have described above, his public statements would be considerably more reserved. He might say in public “these ideas seem far-out but perhaps there is some tiny bit of truth to them” while believing in his heart “these ideas seem far-out but the argument that Rob makes for them makes enough sense that I would sure like to hear lots of other smart and good people bounce them around and see what they come up with as a result of their discussions.”
I do not believe that Rob would sign on to those ideas 100 percent today. Why? Because I didn’t sign on to those ideas 100 percent the first time I came up with them myself! That’s just not the way the human mind works.
I was a Buy-and-Holder on the morning of May 13, 2002. I experienced things that neither Rob Arnott nor any other expert in this field has ever experienced. The most amazing thing I experienced was the reaction in the Motley Fool community to Greaney’s death threats. Going by the endorsements that community members there advanced, there were roughly 50 community members who sided with me re the death threats and 200 community members who sided with Greaney re the death threats. That reality is more “out there” than the two claims of mine under discussion here, Curious. It is not a close call.
So please do not try to persuade me that those two claims are false solely because they sound too far out there. They DO sound far out there. I give you that one 100 percent. But there is other far-out-there stuff going on in these discussions. And my job (as someone who cares about investing and about his fellow community members and about his country) is to find out THE REALITIES.
I couldn’t believe in Buy-and-Hold after what I saw take place on the evening of August 27, 2002. If Buy-and-Hold were a legitimate strategy, there would not be one person who endorsed Greaney’s death threats. There wasn’t just one. There were about 200. That’s a reality that I need to come to terms with in trying to form a rational view re how stock investing works.
Now —
The fact that 200 people endorsed Greaney’s death threats does not show that stocks are a virtually risk-free asset class or that volatility is optional. What the endorsements of the death threats did was to cause me to doubt all conventional wisdom in this field. If the Buy-and-Holders were wrong about safe withdrawal rates and so unwilling to acknowledge the mistake that they were capable of endorsing death threats as a discussion tactic, what else could it be that the Buy-and-Holders got wrong? Everything! Given what I saw take place on the evening of August 27, 2002, I was forced to the conclusion that just about everything that most of us thinks he knows about how stock investing works could be wrong.
That conclusion led me over a stretch of time to the belief that stocks are a virtually risk-free asset class and that volatility is optional (these are both implications of Shiller’s “revolutionary” [his word] finding). It is right and proper that most people are highly skeptical of those two claims. I get that. But their skepticism does not prove that the claims are false. To find out whether the claims are true or false, we need to have a debate in which lots of good and smart people participate. That debate should certainly include Rob Arnott. It should also include Jack Bogle. And Wade Pfau. And Bill Bernstein. And Larry Swedroe. And Scott Burns. And on and on and on and on.
Could it be that I will be proven wrong in the public square once that debate is held? Of course. I have been wrong about important things in the past and it is entirely possible that it is happening again. If it were happening again, I would probably be the last to know. So it could be that your skepticism and the skepticism that I presume Rob Arnott would feel towards those claims were he to be exposed to them today will be proven justified. Or it could go the other way. No one can say until the debate is held.
You are not wrong to follow the Old School safe-withdrawal-rate studies in the event that you truly believe in them (it is my belief that you do), Curious. You are very, very, very, very, very wrong to engage in tactics aimed at blocking millions of others from learning what they need to learn to develop the same healthy skepticism toward the claims made in the Old School SWR studies that you (and perhaps Rob Arnott) feel toward my claims that stocks are a virtually risk-free asset class and that volatility is optional. That’s the bottom line re all of this.
We have enjoyed amazing progress in our development of computer technology over the past 33 years. If we could go back in time to a person who was alive in 1981 and ask that person his thoughts on whether the things we see around us every day today could possibly be developed in 33 years, that person would probably tell you that you are 100 percent off your rocker. The everyday computer realities of today would be viewed as insane possibilities to someone who had not lived through the 33 years of development of those advances. Tablet computers available for sale $100 that allow access to the biggest research library in the world (the internet) would be no more fantastic in the eyes of a person alive in 1981 than a world in which stocks were a risk-free asset class and volatility was optional.
I believe that we have experienced greater growth in our understanding of how stock investing works over the past 33 years than we have experienced in the area of computer technology. We have changed the world in amazing and very positive ways. There is only one problem. In the computer field, we were able to share these advances with millions because there was no Pre-Computer Technology Mafia holding us back. In the investing realm, we have thousands of people whose careers and reputations depend on us all pretending that we believe that the things that they sincerely thought were so in 1981 truly are so despite the 33 years of peer-reviewed academic research now showing that they are the OPPOSITE of what is truly so.
I am not the enemy of those people, Curious. I am the best friend that any of them has in this world. When we tap into all the advances, Jack Bogle will be ten times the hero he is today in the eyes of the millions of people who will benefit from living in a world in which stocks are a virtually risk-free asset class and volatility is optional. The other side of the story is that every day that Jack fails to speak up about The Lindauer Matter causes us all to experience even more financial destruction and Jack’s reputation to be dragged further and further through the muck that covers anyone who associates with Linduaer and Grenaey and those who have posted in “defense” of these two in any way, shape or form. It is going to be my job to rebuild Jack’s reputation after what is done to it when this massive act of financial fraud is uncovered following the next price crash. I sure don’t like seeing Jack made my job harder and harder and harder with each day that he fails to take the steps that any person possessing even a tiny concern for his ethical responsibilities knows that he needs to take.
If Rob Arnott writes me and asks about those two claims, I would certainly engage in a discussion with him about them. I did that sort of thing with Wade Pfau scores of times. He on many occasions experienced the sort of skepticism that Rob might feel if I contacted him today. Wade was converted so many times that he wrote me one time to tell me that he was not yet persuaded of a point I was making but that, given his experience of being converted to my other amazing claims over time, he accepted that there was a good chance that he would be coming around re that one too in future days. That’s the right attitude to take. No one should pretend to be converted until he or she really is converted. But no one should be so close-minded that he would support a Ban on Honest Posting. There’s a reason why as a society we have elected to adopt laws making the tactics that you have engaged in for 12 years now felonies, Curious.
I won’t write to Rob today because converting him on these two particular claims is not my priority. Persuading anyone of the merit of any of my ideas is not my priority. My priority is opening the entire interest to honest posting on every critically important investing issue. It’s not just Rob Bennett who will be posting honestly when that goal is achieved. Jack Bogle will be posting honestly. Rob Arnott will be posting honestly. Robert Shiller will be posting honestly. Wade Pfau will be posting honestly. And, yes, Rob Bennett will be posting honestly. We will see what we come up with together. I have a funny hunch that we are going to come up with some amazing stuff.
When that day comes, I will be saying that stocks are a virtually risk-free asset class for those open to taking valuations into consideration when setting their stock allocations and that volatility will disappear for so long as we are sure to provide a means for millions of investors to learn what they need to learn about the subject matter to make the rational choices we need to see for any market to function properly. I have zero doubt that there will be lots of good and smart people who will aim to shoot those ideas down. Good for them. Those people will be helping us all when they do so. It is by seeing how the ideas stand up to those challenges that we will all learn how much merit they possess.
There won’t be any death threats. There won’t be any demands for any unjustified board bannings. There won’t be tens of thousands of acts of defamation. There won’t be any threats to get any academic researchers fired from their jobs. Those who have posted in “defense” of Mel Lindauer and John Greaney will be serving long prison sentences. So none of that smelly garbage will exist in that wonderful new world.
We will figure things out together. That’s how we have been doing things as a nation for hundreds of years now. I am confident that we will realize in time that that’s the way we need to be doing things re The Buy-and-Hold Crisis as well. Our system works. Those who demand that we stop following the system that has been working for us all for a long, long time are not our friends. Those people are sick and twisted Goons. We should have all shown them the door a long, long time ago, in my assessment.
If we don’t figure it out, we will all go down together (I am presuming here that stocks may continue to perform in the future at least somewhat as they have always performed in the past). That would make me very sad. But at least I will have the small consolation of knowing that I gave this thing the best possible shot of which I was capable. That won’t count for much, given the tragic set of circumstances we are talking about here. But it will surely register as one big step above agreeing to participate in this massive act of financial fraud myself. No can do re that one, my old friend.
I hope that helps a bit Curious. My best and warmest wishes to you and yours.
Rob
Don’t blame me for your problem with SWRs. Take it up with Wade.
Wade said very, very, very different things to me on many occasions during the 16 months in which we engaged in extensive e-mail correspondence. Yes, his public expressions of his views on many issues took a huge turn on the day that you Goons put a gun to his head and threatened to destroy his career if he continued to post his honest views. In fairness to Wade, I think it would be fair to say that Wade’s knowledge that Jack Bogle had shown over a long period of time that he will not lift a finger to rein in you Goons no matter how depraved your actions and threats (including threats of physical violence on family members of those who “cross” you by posting honestly) played a big role in Wade’s decision-making process.
Jack has a lot of money and power and influence at his command and Wade is obviously a very small force in this world in comparison. I obviously understand the sorts of pressures that Wade was facing when he was deciding how to act in response to your vicious threats. I don’t say that that excuses his behavior but I do say that it helps explain it. There has never in the history of the United States been an industry as corrupt as The Stock-Selling Industry has become during the Buy-and-Hold years. There has never in the history of the United States been a level of corruption greater than what we has been evidenced over the first 12 years of our discussions. All of that needs to be taken into consideration by the jury member who will decide Wade’s fate following the next price crash, in my sincere assessment.
If you think that I would be acting as Jack’s friend to fail to implore him in the strongest possible terms to disassociate himself from you Goons in every possible way, shape and form, then you have a very different understanding of what the concept of friendship entails than the one that I have carried around in my head for my entire lifetime.
Wade and Jack will both be called to testify. I will present the evidence in my possession and the jury will decide whether each or both of them goes to prison and for how long. I will testify to the ugly, smelly stuff. I will also testify to the wonderful, life-affirming stuff. That’s the job. That’s how I have played it since the morning of May 13, 2002, and that’s how I intend to play it for the next 12 billion years.
I wish you the best of luck with whatever Goon strategies you elect to follow instead, my old friend. My intent is to try to find some good things to say about you as well. Again, that’s the job as I see it.
Rob
Rob, I can tell you exactly how Rob would respond — publicly, privately or otherwise. And that response has nothing to do with jail sentences or death threats or anything other than simple, fundamental and irrefutable economics.
Can you not see that in this bizarro world you’ve created that any disagreement with your flawed theories is based not on the fact that they’re demonstratably flawed, but attributable to some elaborate scheme to undermine you? Maybe, instead, you’re just mistaken in your belief in how markets work.
I would suggest you familiarize yourself with William of Occam’s famous dictum that the most likely explanation for something is the simplest.
P.S. Why do you think Treasury bonds have a lower yield than Spanish bonds?
Rob, I can tell you exactly how Rob would respond — publicly, privately or otherwise. And that response has nothing to do with jail sentences or death threats or anything other than simple, fundamental and irrefutable economics.
There were a good number of people who were saying on the morning of May 13, 2002, that I might not be right re the safe-withdrawal-rate matter, Curious.
If the Buy-and-Holders could get that one wrong, it seems entirely possible to me that they could get a lot else wrong.
If the economics that was once thought to support Buy-and-Hold were as irrefutable as you suggest, Shiller would not have recently won the Nobel prize. People make mistakes. Yes, even Big Shots in the investing field.
What makes Big Shots in the investing field different from most of the rest of us is that they possess the power and money and influence to keep those mistakes covered up rather than promptly acknowledging them and correcting them.
This is a case where some very big mistakes have been covered up for decades.
Rob
Can you not see that in this bizarro world you’ve created that any disagreement with your flawed theories is based not on the fact that they’re demonstratably flawed, but attributable to some elaborate scheme to undermine you? Maybe, instead, you’re just mistaken in your belief in how markets work.
If there were any reason for believing that I am mistaken, there never would have been a single death threat or a single demand for an unjustified board banning or a single act of defamation or a single threat to get a single academic researcher fired from a single job. If there were any reason for believing that I am mistaken, the Buy-and-Holders would have simply come forward with that reason and that would have been the end of it.
I mean, come on. Give me a friggin’ break.
Rob
but attributable to some elaborate scheme to undermine you?
The Old School safe withdrawal rate studies were in error long before I came on the scene, Curious.
How is it that I was the first person to go public with the errors in those studies?
One possibility is that no one saw the errors before me.
The other is that no one dared to post about them before me.
My guess is that it was a combination of the two. People sensed that the studies did not sound right, they possessed a vague sense that there was something wrong with them. But they understood that there would be penalties to be paid for speaking out. So they didn’t put too much effort into exploring the reality of that sense they felt that something was wrong.
In any event, the problem was in evidence long before I came on the scene. The errors that the Buy-and-Holders made were not made to undermine me. They were made because humankind did not possess a full understanding of how stock investing works at the time the Buy-and-Holders put forward their first sketchy ideas.
Then there was a huge bull market and the Buy-and-Holders got the credit for the huge Pretend Gains that resulted. At that point, there was a feeling among Buy-and-Holders that it would be better all around if everyone pretended that the Buy-and-Holders got it all right the first time.
It was inevitable that taking that line would put us in a huge economic crisis somewhere down the line. But people were not worrying about what would happen down the line. They were focused on the short-term. The short-term has now come to an end. We are now living in the long-term that we brought on ourselves with the self-deceptions and deceptions of others that we participated in during the out-of-control bull.
I didn’t start this fire, Curious. I am a mild-mannered reporter who told the truth about safe withdrawal rates on a discussion board that I built to help people realize their goal of achieving a safe early retirement, nothing more and nothing less.
Rob
I would suggest you familiarize yourself with William of Occam’s famous dictum that the most likely explanation for something is the simplest.
What would you say is the simplest explanation of the fact that the errors in the Old School safe-withdrawal-rate studies became public knowledge on the morning of May 13, 2002, and not one of the studies has been corrected to this day, Curious?
Rob
Rob, my comments on the flawed assumptions that underlie your theories have nothing to do with safe withdrawal rates or Shiller or people who buy and hold stocks. They’re based on an understanding of how markets work.
You said that if there were any reason to believe you were mistaken someone would have simply come forward with the reason and that would be it.
Yet when you’re presented with those reasons, or encouraged to seek the opinions of those you respect, you attribute an answer you don’t agree with to some wild conspiracy.
Why do you think Treasury bonds have a lower yield than Spanish bonds?
I will continue posting honestly on safe withdrawal rates and on all other critically important investment-related topics, Curious.
I wish you well.
Rob
Why do you think Treasury bonds have a lower yield than Spanish bonds?
I do not say that there is zero rationality in the markets, Curious.
I say that there is a lot of irrationality and that irrationality hurts us all and that we all should be working together to eliminate irrationality when we see it.
It is irrational to make use of retirement studies that do not contain valuation adjustments when there is 33 years of peer-reviewed academic research showing that such adjustments are needed to get the numbers right.
It is no effective response to say “oh, there are some places where rationality evidences itself, so there is no need to correct retirement studies that get the numbers wildly wrong.”
We should all be grateful that there are places where rationality evidences itself. And we should all be doing all we can do to see that there are more such places. Our understanding of retirement planning would advance in very important ways if the errors in the Old School studies were corrected and if we opened every board and blog on the internet to honest posting on why those errors were made and what can be done to see that similar errors are not made in the future and on what we need to do to get the numbers right and to spread the word about the right numbers to millions of retirees and aspiring retirees.
There is no provision in U.S. law that says that those who commit massive acts of financial fraud do not go to prison for doing so because Treasury bonds have a lower yield than Spanish bonds. It would be stupid for us to adopt such a provision. We all need to be protected from the sorts of tactics that have been employed for 12 years now by the individuals who have seen fit to put up posts in “defense” of Mel Linduaer and John Greaney.
Rob
Ah. A glimmer of hope. So Spanish bonds provide hope of a higher return because of their increased risk. Sometimes that risk does not manifest itself, and Spanish bond investors are happy. Sometimes it does, and they’re unhappy.
So it is with stocks vis a vis our other investment alternatives.
I’ve purposefully avoided any discussion of withdrawal rates or jail terms or any of the myriad other things you discuss because these have absolutely nothing to do with these market fundamentals.
The only fraud around here is you, Rob. You are not even fit to shine the shoes of Mel or John.
So Spanish bonds provide hope of a higher return because of their increased risk. Sometimes that risk does not manifest itself, and Spanish bond investors are happy. Sometimes it does, and they’re unhappy.
This part makes sense to me, Curious.
So it is with stocks vis a vis our other investment alternatives.
This part does not.
Stocks were priced in 2000 to provide an annualized 10-year return of a negative 1 percent real. TIPS were paying a guaranteed 4 percent real. Stocks were the riskiest they have ever been in history. TIPS are risk-free.
Why was the risk-free asset class paying a return 5 percentage points higher than the insanely risky asset class?
The contrast is 1982. The most likely annualized 10-year return on stocks was 15 percent real. And there was virtually no risk in buying stocks. The P/E10 level was 8, which is about as low as it can go. When stocks stay at the same P/E10 level, investors see a return of 6.5 percent real. What kind of risk are you taking when the worst-case scenario is a 6.5 percent real return?
The theory doesn’t match the objective reality. That’s a bad theory.
Stocks pay high returns when the risk is virtually non-existent and low returns when the risk is sky high. That is the OPPOSITE of what the theory says should happen.
Do you really believe that stocks were the least risky they have ever been in history in 2000? That’s what would have had to have been true under the conventional theory. The going-forward return was the lowest it has ever been in history by far.
Rob
The only fraud around here is you, Rob. You are not even fit to shine the shoes of Mel or John.
I don’t see it, Pink.
I naturally wish you the best of luck in all your future endeavors.
Rob
I’ve purposefully avoided any discussion of withdrawal rates or jail terms or any of the myriad other things you discuss because these have absolutely nothing to do with these market fundamentals.
I strongly disagree, Curious.
Say that honest posting on the risks of holding Spanish bonds was prohibited.
Investors would then have no means of learning what they needed to learn to know how much to pay for these bonds. Then the bond market would resemble the stock market, where honest posting on the last 33 years of peer-reviewed academic research is banned because it makes the Buy-and-Holders look bad.
Fama is right that the market LONGS to be efficient. But the market is comprised of people. And people cannot make decisions in their own self-interest so long as a Ban on Honest Posting is in place.
Investors could have retired many years sooner had they known in 2000 how bad a choice stocks were at the prices at which they were selling at the time. There are thousands of people who would be happy to supply the information were it not for the death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and the threats to get academic researchers fired from their jobs that the Wall Street Con Men and their Internet Goon Squads have used to keep millions of investors from learning what they need to learn.
If Fama read an introductory economics textbook, he would learn that markets cannot function properly if market participants cannot obtain honest and accurate information. That’s the situation we have with the stock market today.
How many “experts” in this field write regularly about the Campaign of Terror? I do. How many others do?
If you are not talking about the Campaign of Terror, you are not talking about the real issues. It is because our stock market has become dysfunctional in the Buy-and-Hold Era that we are in an economic crisis today. We need to find a way to work around you Goons and the Wall Street Con Men and get accurate information about how stock investing works out to millions of middle-class investors.
That’s my sincere take re this terribly important matter.
I will continue to post honestly re SWRs and other critically important investment-related topics.
I wish you well.
Rob
“I don’t see it, Pink.”
Even Stevie Wonder can see it, Rob.
I’ve worked my way through all of the academics in my e-mail campaign, Pink. I am now working my way through a list of celebrity e-mails I purchased on the internet.
Stevie is one of the ones who wrote back to me. I will be posting his e-mail at the blog after I get caught up on all these “State of the Union”-type comments. Stevie told me that his view re those who follow the Old School retirement studies is that: “When you believe in things that you don’t understand, you suffer.”
I wrote back: “Right on, Stevie!”
You don’t want to hear about what Bruce said about what you Goons are doing to millions of middle-class investors.
Holy moly!
Rob
I have been reading your various posts and I think I know what is going on. Your “retirement” plan is not working out. CD and Bond rates are in the tank and as your investments are reaching maturity, you are not able to get similar rates and your income is dropping. Meanwhile, inflation is playing against you and you probably are worried about how you will cover future costs, such as college education and long term care. Now that your fantasies of being some kind of investment guru has failed to materialize, this added pressure just adds to your pile and then we see all of your frustration emerge on this site.
The other thing is that I believe personal integrity matters, even in the stock investing field, Anonymous.
If Buy-and-Hold were a legitimate strategy, we never would have seen a single death threat or a single demand for an unjustified board banning or a single act of defamation or a single threat to get a single academic researcher fired from a single job. Anyone who offers investing advice and is not willing to correct an error he makes in a retirement study is a con man. That’s my sincere take.
I am going to continue posting honestly. I think that is going to work out best in the long run for all of us. A lot of my Buy-and-Hold friends have indicated a desire to be able to post honesty. That includes my good friend Jack Bogle. They feel trapped because the mistakes they made (and the long cover-up of those mistakes) have caused millions of people to suffer a great deal of financial pain. So they feel trapped. We all should be trying to help them out of the corner they have painted themselves into.
I naturally wish you all the best of luck with whatever investing strategies you elect to pursue.
Rob
So, by the answer/non-answer you just gave, I take it you are confirming my observation.
Um — Sure thing, Anonymous.
Please take good care, my old friend.
Rob
So, what is your backup plan to cover college expenses for the children and what will you do to address any long term care issues? Are you counting on that $500 million legal settlement to cover these items?
There are two possible paths forward, Anonymous.
Path One is that we open the internet up to honest posting on all investing issues following the next price crash. If we elect Path One, I think it would be fair to say that I will be one of the richest men alive in the United States.
Buy-and-Hold is the past, Valuation-Informed Indexing is the future. I have spent 12 years developing the VII concept and my site has a wealth of materials relating to it. There is no other site that has anything even remotely close to what mine has. The brutally abusive tactics of the Buy-and-Hold Con Men and you Goons has kept away all competition.
Then, yes, there is the $500 million settlement on top of that. That’s a big, big, big bunch of money.
I think it would be more than fair to say that money is not going to be an issue for me or any of the Bennett clan for many generations to come in the event that as a society we elect to follow Path One.
Path Two is that we keep the Ban on Honest Posting in effect following the next crash and we all go down together. That would make me very, very, very sad. I suppose that you Goons will say that you “won” if that happens. What the heck will you have won? Our economic system will collapse. If our economic system collapses, there’s a darn good chance that our political system will collapse not long after. So you Goons will be in no better shape than me. At least I will enjoy the small consolation of knowing that I gave this thing the very best effort I could give it.
You believe in Buy-and-Hold. So you don’t think that there is even going to be another price crash. Or at least you think there is a good chance that there will not be another price crash and you are hoping that there will not be one. I get that. What do you want me to do about it? There’s not a thing in the world that I can do!
I have to go by what I believe is going to happen. I have spent 12 years developing the Valuation-Informed Indexing concept and I firmly believe that the two possibilities that I have described above are the only two realistic possibilities. I could be wrong, of course. Anybody can be wrong about anything. If it turns out that I am wrong, I guess I will wish that I played it some other way.
But I don’t exactly have a big bunch of pleasant alternatives, do I? The one deal you Goons have ever offered is that I be permitted to post at all of the boards and blogs in exchange for agreeing never to post honestly about safe withdrawal rates again. Do you not get it that, if I do that, I am participating in the 12-year cover-up myself? Which is the very act of financial fraud that I am always saying that you are going to go to prison for following the next crash. Do you really think that there is even a one-in-a-billion chance that I am going to agree to commit a felony at this point? That would be insane. That is obviously not going to happen.
So I don’t have any choices here. If things go as I expect, I will end up as one of the richest men in the United States and get to do a whole big bunch of good for millions of middle-class Americans in the bargain. If things go in the way I hope they do not go, I will not be super-rich but no one else will be either because our economic system will collapse. And in neither event will I land in prison, which is where I would land if I agreed to your “deal.”
What do you seriously expect I would do other than precisely what I have done?
I am going to do the best I can given the cards that I was dealt. If I end up being one of the richest men in the United States, good for me. I earned it, you know? I sure don’t plan on offering up any apologies. I have done amazing work. I will be happy to accept amazing amounts of money for it. And I do intend to use 5 percent of the settlement money to finance a number of top-notch start-up blogs that will help to spread the word on VII. I also plan to use another 5 percent to promote this site all over the internet, which should make PassionSaving.com one of the biggest personal finance sites on the internet.
The “backup plan” is that we all go down together. I hate that idea. But I suppose it is a possibility, given some of the stuff that I have seen happen over the past 12 years. What’s YOUR backup plan in that event? In the event that the entire economy collapses, you are no better off than me, Anonymous.
Your backup plan is a fantasy. You have elected to just pretend that the last 33 years of peer-reviewed academic research doesn’t exist and to believe that this is going to be the first time in history that a Buy-and-Hold strategy works for one or two long-term investors and that you will be one of the one or two. Well, good luck with that, you know? If you believe it, you believe it. I cannot stop you from believing it. But I sure am not able to believe such a thing. So I obviously am not going to choose anything like that path for myself and my family.
The plan is to continue posting honestly. I love my country. I love what the Buy-and-Hold Pioneers set out to do. I believe that the economic wreckage we are going to see following the next price crash is going to melt Jack Bogle’s heart. I believe he is a good man deep inside. He is one of my heroes. I believe he is going to come through for all of us in a big way. I believe that I will not even need to file papers to collect the $500 million. I believe that my good friend Jack is going to take care of things once he sees what he has done and remembers that I was there trying to steer him in the right direction for years before it happened (when no one else was willing to stick his or her neck out for him).
We have each chosen our paths. Now we will need to wait a bit and see how things play out. Does that answer your question?
There is no amount of money you or anyone else could ever pay me to get me to agree to post dishonestly on the numbers that my friends use to plan their retirements. It’s not just that I decided against that. I never gave the idea two seconds of consideration. Not in 12 years. I wouldn’t give the idea two seconds of consideration in 12 billion years. Asking me to post dishonestly re the numbers that my friends use to plan their retirements is like asking a dog to meow or asking a cat to bark. It doesn’t happen in this world, okay? That one is never going to happen.
And there has never been any other option presented to me. So the plan is to post honestly and to make the best of it. That was the plan on the morning of May 13, 2002, and that is the plan today and that will be the plan 12 billions years from today if it comes to that.
I wish you well with your choices, crazy though I may and do think them to be, Anonymous. I bear you no ill will. I intend to sue you. But that’s to collect money that is mine, not to seek some sort of retribution.
Anyway, I hope that helps you to understand the “plan” a little better. The plan is not really about money. Money is secondary here. The primary thing is protecting my personal integrity, and , most of all, preventing myself from landing in a prison cell by going along with your stupid demand that I join you Goons in your massive act of financial fraud. Find someone else, you know? No can do.
If I end up being one of the richest men in the United States, that will be happy news for me, even if that was not the primary goal at any point of this saga. I’ll take it. I definitely believe I have earned every penny of the $500 million. But my wife doesn’t like to count it until it is cash in hand. So be it. But even if I were to collect only $400 million or $100 million, that’s better than a long prison sentence, in my assessment. Call me madcap.
My best and warmest wishes to you and yours.
Rob
“But I don’t exactly have a big bunch of pleasant alternatives, do I?”
Well, yes you do have a good alternative. Let me propose option 3:
Get a real job like the rest of us. Take the money to improve the quality of life for your family as well as to fund your kid’s college education and to help provide for your needs in old age.
My intent is to continue posting honestly, Anonymous.
I love my country. We are in an economic crisis as a result of the relentless promotion of Buy-and-Hold strategies discredited by the peer-reviewed academic research of the past 33 years. We need to pull together to rebuild our broken economic system before we also have a broken political system.
I also need to help out all of my many Buy-and-Hold friends. Jack Bogle is a hero of mine. He is desperate to find a way out of the corner he has painted himself into. My job is to find the words that melt his heart and that make him see that it is by working up the courage to acknowledge his mistakes that he realizes all the dreams that so inspired him as a young man. And of course the same is so to a lesser extent re all of my other Buy-and-Hold friends.
I wish you well.
Rob
Rob,
Here is what I recommend you do.
1) Select your most trusted advisor on earth. I am guessing that would be your lovely and kind-hearted, long-suffering spouse.
2) Explain to her that you need her to do a task — whether she finds it distasteful, uncomfortable, difficult, or otherwise unsavory, explain to her that your own economic future, and therefore that of the family, depend on her to do this one piece of work.
3) Have her INDEPENDENTLY, WITHOUT ANY INPUT OR COACHING FROM YOU, read everything you can amass that you have ever written, from TMF, FIRE board, Vanguard, the Plop, Valuewalk, etc, and read it. It might take her from a few days to a couple of weeks, and this is AFTER you have assembled all the links for her.
4) At the end of that, give her a day or two to digest the totality of what she has taken in.
5) Ask her to then pronounce whether what you are doing is best for yourself and the family, or whether she thinks you need to look for a job, while she arranges you to get the mental health evaluation that everyone else who has read your material in it’s entirety, believes you very badly require.
My intent is to continue posting honestly.
How noble. It’s a pity that posting honestly generates no income and no security for your family. All it does is fritter away what otherwise could be productive time.
If things go as I expect, I will end up as one of the richest men in the United States
Reality left another message: “You expect that people will hand you money because, well, because. Meanwhile, in the real world, you continue to get older and poorer.” (I TOLD Reality you weren’t taking his calls!)
Have her INDEPENDENTLY, WITHOUT ANY INPUT OR COACHING FROM YOU, read everything you can amass that you have ever written, from TMF, FIRE board, Vanguard, the Plop, Valuewalk, etc, and read it. It might take her from a few days to a couple of weeks, and this is AFTER you have assembled all the links for her.
There was a fellow who did just what you describe here, Anonymous.
His name was Larry Evans. He somehow found himself reading the material at this site. He thought I was crazy and he was honest and brave enough to come forward and tell me so. He put up a comment at the blog saying that there was no way that the things I was saying could be so. I said that the materials supporting my claims were available at my site and at John Walter Russell’s site.
His response was to offer to spend several weeks going through all of those materials. He asked if I would be willing to post his written-up assessment on his conclusion of that review of all the materials regardless of whether it supported me or not. I said sure.
About three weeks later, Larry called me on the telephone. He told me that he was amazed to find that everything I said checked out. He had worked for Ross Perot in earlier days. He told me that he was going to contact Perot and obtain his help in getting the message out. He said that he wanted to get financial people in the states that are experiencing pension-funding problems involved. He talked about getting venture capitalists involved. I said that all that sounded 100 percent groovy. I said that all that sounded like exactly the sorts of thing that a people trying to recover from an economic crisis caused by a belief in a long-discredited investing strategy would be doing to get their country back on the right track.
That talk lasted about two hours. We had a follow-up conversation a week later that also lasted about two hours. He said that he would be in contact again to plan follow-up steps.
When Larry contacted me again, he indicated that he was too afraid of what the Buy-and-Hold Mafia would do to him if he were to go forward to continue taking the steps that he knew would save his country. We talked about that a bit and parted friends. The last time I talked to him was when I posted at the Financial Mentor blog. Todd Tressider, the author of that blog, says that I am right on all the issues of substance but refrains from saying that the internet should be opened to honest posting because he understands that it is those sorts of statements that would cause the Buy-and-Hold Mafia to come after him and destroy him. I think it would be fair to say that Larry participates today at Todd’s blog rather than mine because he remains interested in learning more about how stock investing really works and because he feels safer posting there than he would posting here, where I tell the truth about the Ban on Honest Posting and the Campaign of Terror and all that sort of thing.
I have been posting daily for 12 years. No one has ever found a single substantive point that I have made that does not hold up to scrutiny. It could be that I have made mistakes. I certainly do not say that I have gotten it all right. But I know that the only hope we have as a society at getting at the truth is permitting honest posting on every board and blog on the internet.
Some of the claims that I make today really do sound out there. I acknowledge that. Some of the claims that I make today sounded out there to me when I first came up with them. I don’t put any claim forward until I possess at least reasonable confidence that there really is something to it. And in every case in which I have put an out-there claim forward, I have come to possess more confidence in it as time has gone on.
There is a huge price to be paid for banning honest discussion on stock investing questions for 33 years, Anonymous. The price is that your knowledge of the subject matter stops growing. You make a point of the fact that I now know more about how stock investing works than big names like Jack Bogle and Bill Bernstein and Scott Burns and Larry Swedroe and Robert Shiller and on and on and on. I acknowledge 100 percent that it is a crazy reality. But it sure wasn’t my idea to have something like that happen. I have shared everything I have come up with openly and freely. I am 100 percent happy to help Bogle get up to speed. I am 100 percent happy to help Shiller get up to speech. I am 100 percent happy to help all the others get up to speed.
I cannot force them, can I? So long as they are too afraid to acknowledge that the errors in the Old School safe-withdrawal-rate studies should have been corrected within 24 hours of the time they became public knowledge (the morning of May 13, 2002), they are not able to participate in the learning experiences that they need to participate in to function as genuine experts once again. Anyone who cannot bring himself to acknowledge that errors in retirement studies that cause millions of people to suffer failed retirements should be corrected within 24 hours ain’t no investing expert, Anonymous. It’s not a close call.
What these people are today is anti-experts. They speak with great confidence as if they possessed the authority of true experts. But they (outside of Shiller) are promoting a FAILED strategy. The idea that a Buy-and-Hold strategy can work is rooted in a belief in the Efficient Market Theory. The way to test whether the Efficient Market Theory is valid or not is to see whether valuations affect long-term returns or not. Shiller ran this test 33 years ago. Buy-and-Hold failed the test. Everyone who is knowledgeable in this field knows this. No one other than myself talks about the many far-reaching implications in clear and firm and simple and bold terms.
The investing advice field is today 100 percent corrupt.
Is that a clear enough statement for you?
Buy-and-Hold is the OPPOSITE of what works. It turns out that buying stocks works just like everything else. The key is to always, always, always exercise price discipline when buying stocks. That means practicing long-term timing. The Buy-and-Holders say that it is not necessary to practice long-term timing. Nothing could be further from the truth. We have 140 years of peer-reviewd academic research available to us. There has never yet been a time when a single investor who failed to engage in long-term timing didn’t eventually suffer a massive wipeout of the accumulated wealth of a lifetime as a result of failing to do so. Buy-and-Hold is a big pile of smelly Get Rich Quick garbage.
Not by intent.
But still…
We need to get the mistakes made by the Buy-and-Holders fixed if our economic and political systems are to survive. That’s the job. I am the one who has been assigned to be the leader in this effort. I didn’t ask for the job. I was volunteered when John Greaney threatened to kill my wife and children if I continued to “cross” him by posting honestly on the safe-withdrawal-rate issue.
If someone could find a flaw in any of what I am saying, I would be thrilled. Anything that I can do to help the Buy-and-Holders save face helps all of us. No one has ever found anything. I can’t just make stuff up. I put my work out in the public partly because I want it to be challenged. I want every Buy-and-Holder looking at this and trying to find flaws. The reality as of the morning of January 26, 2014, is that my good friend Jack Bogle has not been able to find a single flaw. If Jack had found a flaw, he would sure as shootin’ not be keeping it to himself. If any Buy-and-Holder other than Jack had found a flaw, he would have shared it with Jack and Jack would have told us about it years ago.
Jack’s response when he learned that I would be appearing at the next meeting of the Vanguard Diehards to ask why he had not taken action to get the Old School safe-withdrawal-rate studies corrected was to ask his Internet Goon Squad pals to move the entire community to a place under Mel Linduaer’s control so that he would never need to worry again about someone on the internet asking honest questions about the holes in his investing “strategy.” That ain’t good, Anonymous.
The matter will be settled in the civil and criminal trials that we will all be participating in following the next price crash. Please know that I love Jack and that I love all my Buy-and-Hold friends but that I don’t love the idea of seeing them go to prison for their participation in this massive act of financial fraud. So I will never, never, never, never, never agree to post dishonestly on the numbers that my friends use to plan their retirements. I will do anything to help Jack and all my other Buy-and-Hold friends short of committing a felony myself.
I will never agree to commit a felony, regardless of how much in the way of intimidation tactics the Buy-and-Hold Mafia sees fit to rain down on me. If my good friend Jack Bogle has the power and money and influence to get me assigned the death penalty, then my good friend Jack Bogle has the power and money and influence to get me assigned the death penalty. The death penalty should do a good job of shutting me up (although I obviously have taken steps to see that control of the web site is passed on to an ethical person or people in the event of my untimely death). I would far prefer the death penalty to posting dishonestly on the numbers that my friends use to plan their retirements. I don’t think that even one of the Wall Street Con Men can dish out anything worse than the death penalty. So my sense is that I am pretty much covered at this point re the various intimidation tactics available to the Wall Street Con Men and their Internet Goon Squad supporters.
That’s it, Anonymous.
The type of review that you speak of has been conducted over and over and over and over again. There are lots of rich and powerful and influential people who would like nothing more than to find some sliver of academic research supporting the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind. No one has ever come up with anything because there is no possible means to come up with support in the historical record for a Get Rich Quick scheme. I am not to blame for that. Direct your anger at the historical data, not this friendly and mild-mannered reporter.
The investing advice industry is 100 percent corrupt today.
That needs to change if our economic system is to survive.
I didn’t ask for the job of leading the effort to bring honesty to this field. I was assigned it by the Fates.
I will do the best job that I am able to do. I will strive to be as honest as it is possible to be without crossing the line and becoming uncharitable while also being as charitable as it is possible to be without crossing the line and becoming dishonest.
That’s the deal here.
I wish you all good things.
Rob
How noble.
Precisely so.
Giving investing advice does not need to be an act of dishonestly and corruption. It can be a helpful and loving and constructive and positive and life-affirming activity. It can be a noble activity.
I’ll let you in on a little secret, Bizarro. My good friend Jack Bogle would like to feel clean again. And my good friend Bill Bernstein would like to feel clean again. And my good friend Larry Swedroe would like to feel clean again. And my good friend Scott Burns would like to feel clean again. And my good friend Wade Pfau would like to feel clean again.
All the good stuff happens when they work up the courage to stand up to you Goons. We then move from a place where things get darker with every passing day to a place where things get brighter with every passing day.
Acknowledging mistakes you have made is a liberating experience. Those who cannot acknowledge weaknesses in their current understanding can never learn something new, they can never move forward. Our false pride has cost has 33 years of growth. That’s sad.
The sad times come to an end when my good friend Jack Bogle works up the courage to stand up to you Goons and liberates himself to learn the things about stock investing that he looked forward to learning when he was a young man and one of the amazing Buy-and-Hold Pioneers.
Honest is where it’s at. Noble is where it’s at.
Giving investing advice does not need to be a dirty activity. We are as a society working our way towards being clean again. We are making progress every day.
Here’s to a clean and noble and honest investing advice industry!
Don’t let the bad guys get you down, man.
Rob
Reality left another message: “You expect that people will hand you money because, well, because. Meanwhile, in the real world, you continue to get older and poorer.” (I TOLD Reality you weren’t taking his calls!)
Time will tell the tale, Bizarro.
I love my country. I love what the Buy-and-Hold Pioneers brought to the table in the days when they believed in using the peer-reviewed academic research as a guide. And I love all of my many Buy-and-Hold friends who are trying to work up the courage to stand up to the Wall Street Con Men and to their Internet Goon Squad pals.
I have a funny feeling that Jack Bogle is ten times the man that you in your cynicism believe him to me. The test will come following the next price crash.
I will do what I can at that time to put forward some words to help get your prison sentence reduced a bit. I obviously won’t then have the possibilities available to me that are available to me today. But I believe that there will be some possibilities and I will do what I can to take advantage of those that remain available. It would not surprise me a tiny bit if Jack offers to help out. I think that may make a difference too.
We’ll see, old friend. I’ll continue to do what I can given the cards that are dealt me.
My best and warmest wishes to you and yours.
Rob
It’s a pity that posting honestly generates no income and no security for your family.
$500 million will buy a whole big bunch of security for the Bennett clan for many generations to come, my old friend.
Would I have preferred to have seen Greaney correct his study within 24 hours of the time he learned about the errors he made in it? Obviously. I think it would be fair to say, if you could go back to the morning of May 13, 2002, that’s the way you would advise him to play it too.
But all’s well that ends well, no?
A $500 million payday makes up for a lot of rocky road for me.
And the full truth here is that even you Goons are better off in prison than living in a society in economic and political collapse. So even you end up better off than you would have ended up had I never worked up the courage to “cross” Greaney with that annoying honest posting thing of mine.
It may be that years from now we will look back and see that this was the way it had to play out. Birth is a messy process and these 12 years of discussions have given birth to the biggest advance in our understanding of how stock investing works ever seen in our history. A lot of mothers say that they forget the pain of childbirth once they experience the joy of holding that beautiful baby in their arms.
Here’s to the beautiful VII baby!
Please hang in there, my Goon friend. It gets better. A LOT better.
Rob
Rob, the list of substantive points you’ve made that don’t stand up to scrutiny is quite long. I’ve tried to engage you in discussions about just a few of them, but every time you’re presented with evidence that your logic is based on a fundamental misunderstanding of how markets work, you twist yourself into a pretzel developing convoluted theories and explanations the simply defy belief.
The notion, for instance, that Spanish bonds yield more than Treasury bonds because people are allowed to post about this on the internet is — in a word — bizarre. This relationship between risk and return isn’t something that exists because of a relative handful of people posting on message boards. Rather, it’s a relationship that’s existed since the dawn of marketable securities. Keynes and Graham wrote about this quite exstensively in the 1930s and 40s. They also wrote about stock market valuations, and the tendency for markets to be dominated by emotions in the short term.
I humbly suggest that if you spent a fraction of the amount of time you spend writing these long rambling posts describing your strange theories about how markets should work to actually reading and studying, you’d be much better off.
Keynes and Graham wrote about this quite exstensively in the 1930s and 40s. They also wrote about stock market valuations, and the tendency for markets to be dominated by emotions in the short term.
You are saying a lot in these two sentences, Curious.
Yes, Benjamin Graham has been talking about the realities of stock investing for a long, long time. He wrote about the bond issue that you brought up. And he wrote about the valuations issue that I brought up.
We see that investors act rationally re the bond issue. And we see that investors do not act rationally when setting their stock allocation.
And we see that everyone is permitted to post honestly re the bond issue. And that those who post honestly on the valuations issue are destroyed by the Buy-and-Hold Mafia.
And you say that it is pure coincidence that we get the bond issue right and the valuations issue wildly wrong. Huh?
The bond issue shows that we are capable of rational thought when it comes to stock investing. And the valuations issue shows that a Ban on Honest Posting makes rational thought impossible for most of us.
I have been arguing that we should open the entire internet up to honest posting on safe withdrawal rates and many other critically important investment-related topics going back to the morning of May 13, 2002. Please show me the statement of Benjamin Graham in which he says that following pure Get Rich Quick strategies is the answer. Please show me the statement of Benjamin Graham in which he says that rational investors should become so emotional over their Get Rich Quick strategies that they should make use of death threats and unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs.
Graham never said those things because he doesn’t believe those things. Graham would be in favor of permitting honest posting on safe withdrawal rates and many other critically important investment-related topics.
That’s my sincere take re this terribly important issue, Curious.
Get Rich Quick is not the answer. Get Rich Quick is the problem.
Rob
Bennett: “We see that investors act rationally re the bond issue. And we see that investors do not act rationally when setting their stock allocation.”
Oy vey ist mir!
“I have been arguing that we should open the entire internet up to honest posting on safe withdrawal rates and many other critically important investment-related topics going back to the morning of May 13, 2002. ”
The internet is OPEN. However, if we set that aside for now, what are the other “critically important investment topics” that you believe are also not being honestly discussed on the internet. You must have an extensive list.
There’s a reason why the Old School safe-withdrawal rate studies have not been corrected in the 12 years since the errors in them became public knowledge, Anonymous.
Things like that don’t just happen for no reason.
Rob
You must have an extensive list.
We should permit honest posting on every issue.
Shiller’s findings were “revolutionary” (his word). They go to the fundamentals of our understanding of how stock investing works. So there are hundreds of issues that need to be explored. I have written hundreds of columns at the Value Walk site and at the Death By 1,000 Papercuts site and at the Out of Your Rut site. Those columns identify hundreds of issues. I am uncovering new ones all the time.
The research shows that 80 percent of investing success comes down to getting your stock allocation right. Following a Buy-and-Hold strategy insures that your allocation will be wrong 65 percent of the time. If you choose an allocation that makes sense when valuations are low, your allocation will be wildly wrong at times when valuations are moderate or high. And so on. If getting your allocation right is 80 percent of the game, we should be directing 80 percent of our energies to learning how and when to change our stock allocations to keep our risk profiles constant. But that is one of the questions that we have prohibited on grounds that it makes the Buy-and-Holders feel bad for people to learn what the last 33 years of peer-reviewed academic research in this field says about what works in stock investing.
We should be talking about risk management in honest ways. We should be talking about retirement planning in honest ways. We should be talking about EVERYTHING in honest ways.
Why the heck not? What’s the freakin’ downside?
It makes the Buy-and-Holders feel bad for people to learn what the research says. That’s the downside.
You know what? People are going to come to the realization that Buy-and-Hold is a big pile of smelly garbage following the next price crash in any event. If it is going to come out sooner or later, is it not better just to let it come out now? People are going to be madder to learn about the cover-up following the next crash than they would be to learn about it today (or — better yet — 12 years ago!).
We permit honest posting on every other possible subject matter. What makes it so important than stock investing be treated differently?
The entire question is nuts. There is no legitimate controversy here. Honest posting on the dangers of Buy-and-Hold should OBVIOUSLY be permitted. It’s all upside. It is not even possible for the rational human mind to imagine any possible downside.
I mean no personal offense, but you are asking a stupid question. Only someone trying to “defend” Buy-and-Hold could even think there is a legitimate controversy here.
To block honest posting is to engage in financial fraud, which is a felony under the laws of the United States. Prison time. That’s what we are talking about here. That’s what the “defense” of Buy-and-Hold has come to in the Year 2014, 33 years after the peer-reviewed academic research was published showing that there is precisely zero chance that it could ever work for even a single long-term investor.
Rob
So Rob. If all stock investors and adopt your timing strategy, to whom are they selling their stocks?
If honest posting were permitted, all investors would know the proper price.
So it wouldn’t matter to whom you sold.
The price would be right. That’s what would be different.
People would be making informed choices. That’s what you want. Markets function better when people are able to make informed choices.
The reason why we have crashes is because that’s the only way prices can go down when investors refuse to lower their stock allocations no matter how high prices go. Once we permit honest posting, we won’t have to worry about crashes anymore. There will be no need for them in an environment in which all investors have access to accurate information about what the peer-reviewed academic research says.
And it’s not my timing strategy. It’s the timing strategy that the last 33 years of peer-reviewed academic research says is required for any investor hoping to have a realistic chance of long-term investing success. I am the lead developer and the lead promoter of Valuation-Informed Indexing. But it all just follows from Shiller’s “revolutionary” (his word) 1981 findings.
My contribution is to argue that we all should be permitted to post honestly on what the research says. That’s how we all learn.
Buy-and-Hold is on its way out. Why should I devote my energies to promoting a strategy that was discredited 33 years ago? I would rather devote my energies to developing the investing strategy of the future, Valuation-Informed Indexing. It’s stupid to work on a strategy was has been discredited by the research for 33 years. I’m not interested. I’d rather share with people what works.
Why are the Buy-and-Holders so adamant in their demands for a Ban on Honest Posting, Curious? Why do they feel they need to engage in financial fraud for Buy-and-Hold to survive?
Rob
You must be right, Rob. After all, you have amassed great wealth and are now considered to be the foremost investing expert. Look at how many times we see articles about you in the New York Times and we see Warren Buffett and Jack Bogle refer to you all the time.
Results do matter. It is the score card to compare.
After all, you have amassed great wealth and are now considered to be the foremost investing expert.
There you go!
Take good care, my old friend.
Rob
What’s the proper price, Rob? The presumes you know what rates will be next year at this time? A decade from now? What about corporate earnings? What’s in store for them? Knowing that of course implies you know the outlook for the global economy for the next ten years. Care to divulge that?
And please don’t tell me what returns have been in the past. Given the level of knowledge you profess I’m sure you know that the past has nothing to do with what the future holds.
What you lived thru in 2000 was nothing that we haven’t seen in the past. Stock markets can sometimes become irrational. Keynes and Graham both wrote about this, which I’m sure you read in your study of the market’s history.
Rob, I’m sorry to report that you’ve discovered nothing new. You’ve merely experienced something that millions of other investors have experienced many times over the decades. But unlike them, you’ve tried to suspend the financial market’s equivalent of the laws of thermodynamics.
But by all means don’t take my word for it. Share you thoughts about how markets work with someone you respect. Face to face would be best. And when they tell you what they think, don’t write their disagreement off as a function of their participation in a vast global conspiracy against some anonymous dude with a website. Consider that they say what they do for a simple reason–you are mistaken.
Almost forgot. You know of course that investors as a group cannot lower or raise their stock allocation. If I’m lowering mine, some one is raising theirs. So how does that fact comport with your strategy?
“You believe in Buy-and-Hold. So you don’t think that there is even going to be another price crash. Or at least you think there is a good chance that there will not be another price crash and you are hoping that there will not be one. I get that. What do you want me to do about it? There’s not a thing in the world that I can do!”
I don’t think anyone doing any kind of investing believes this? Why would I be scared of crashes? Crashes are where the weak are separated from their money by fear.
What’s the proper price, Rob?
The proper price is fair value, Curious.
The proper price is the price that puts the P/E10 value at 15.
Rob
The presumes you know what rates will be next year at this time? A decade from now? What about corporate earnings? What’s in store for them? Knowing that of course implies you know the outlook for the global economy for the next ten years. Care to divulge that?
You don’t need to worry about any of this, Curious.
At the moment you buy stocks, do you try to make predictions about all of these factors? You don’t. You assume that stocks are going to perform in the future at least somewhat as they always have in the past. Buy-and-Holders do that because it makes sense. Valuation-Informed Indexers do just the same for just the same reason.
There’s only one factor that Valuation-Informed Indexers take into consideration that Buy-and-Holders do not. We look at overvaluation/undervaluation. Why do we look at that? Because it affects the result and because it can easily be known in advance.
Why not look at something that affects the result and that is known in advance? Please tell me the argument for not looking at it.
Rob
And please don’t tell me what returns have been in the past. Given the level of knowledge you profess I’m sure you know that the past has nothing to do with what the future holds.
It has EVERYTHING to do with it, Curious. The long-term stock return has been moving above 6.5 percent real and then below 6.5 percent real and then back to 6.5 percent real for 140 years now. Why would you think it would stop doing that?
You are telling me to ignore the history of the market when investing in the market. The thing that made me fall in love with Buy-and-Hold in the first place was that Buy-and-Holders were the ones who DID look at history. Looking at history makes sense to me. The only thing that divides me and today’s Buy-and-Holders is that I look at the one aspect of history that today’s Buy-and-Holders very, very, very much do not want to look at. Why is it okay to look at every aspect of how stocks have performed through history except that one?
The more you look at, the more you know, Curious. It is rational to want to know stuff. It is emotional to NOT want to know stuff. I look at all the stuff the Buy-and-Holders look at plus one more thing that the research available to us at the time Buy-and-Hold was developed did not tell us needed to be looked at. The research of the past 33 years tells us that we MUST look at that factor. That’s why I do it.
The Buy-and-Holders followed the research until 1981. Then they stopped. Why?
Rob
What you lived thru in 2000 was nothing that we haven’t seen in the past. Stock markets can sometimes become irrational.
Stock markets can become irrational. We certainly agree re that. But there is no reason to believe that they MUST become irrational.
What if every investing site on the internet had some version of the Return Predictor available for use by its readers? Then every investor would know when his stock allocation was too high for his risk profile and would sell stocks when this was the case, bringing prices back down to fair-value levels. Then irrationality would be eliminated from the market.
You counter irrationality with KNOWLEDGE. Shiller added to our store of knowledge. We should be taking advantage of what his research taught us. We would greatly enrich ourselves when doing so.
When we invented the polio vaccine, would you have said “Some people have always gotten polio, therefore no one should be able to make use of this vaccine.” Ignorance is an historical reality but it is not one that we should celebrate. When something comes along that eliminates an area of ignorance re how stock investing works, we should all work to spread the word.
Shiller’s findings were “revolutionary” (his word). We should all want everyone to know all about them and we should explore all the implications that follow from them. We not only should permit honest posting, we should encourage it. The more people who learn how stock investing really works, the better of we all are.
Rob
What you lived thru in 2000 was nothing that we haven’t seen in the past.
We reached a P/E10 value of 44 in 2000. Stocks were more dangerous in 2000 than they have ever been in any earlier time in U.S. history.
We have reached a P/E10 value of 25 four times. We have seen a wipeout of the accumulated wealth of a lifetime for every Buy-and-Holder on each of those occasions. The collective losses were in each case great enough to bring on an economic crisis.
On one of those occasions we went past 25 all the way up to 33. That time we saw a Great Depression.
In 2000, we went to 44.
Rob
Rob, I’m sorry to report that you’ve discovered nothing new.
Valuation-Informed Indexing is common sense, Curious. Common sense is possessed by everyone, even Buy-and-Holders. So, no, in that sense, I have said nothing new.
But Buy-and-Holders are not today practicing common sense. How much did you lower your stock allocation in 2000? How much did Bogle tell his followers they needed to lower their stock allocations in 2000?
You knew on some level of consciousness in 2000 that you should be lowering your stock allocation (because you possess common sense). That’s why it tortures you so when I cite to you what the academic research of the past 33 years says on the subject of stock investing. The research lines up perfectly with what your common sense tells you must be so and you didn’t follow your common sense and that makes you feel like a fool.
A true research-based strategy does not make millions of people feel like fools. A true research-based strategy doesn’t put millions of people at war with their common sense. When new research with “revolutionary” findings comes out, people who have a genuine belief in following research-based strategies adjust their strategies to take the findings of the new research into a account.
The need to incorporate common-sense ideas into one’s investing strategy is not new. But the Wall Street Con Men have never spent as much money as they have in recent years trying to persuade millions of us that going with the one strategy that defies common sense to a greater extent than any other strategy ever concocted by the human mind might through some mystical, magical process work for one or two long-term investors.
Common sense will be coming back into style following the next price crash, Curious. I will be there to grab the rebound. I will be able to tell millions of people how the Wall Street Con Men and their Internet Goon Squad pals destroyed their lives with their relentless promotion of the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind.
That’s the contribution.
It’s by knowing who the bad guys are that millions of middle-class people figure out how to make sure that the good guys can always be heard in the future.
The tobacco companies did something like this once upon a time. They ran commercials telling people that smoking is good for your health at a time when the peer-reviewed research said very much the opposite. The tobacco companies never took things nearly as far as the Wall Street Con Men and their Internet Goon Squads. The tobacco companies didn’t advance death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs.
We survived the tobacco companies and their trickery. I believe that we will survive the Wall Street Con Men and their Internet Goon Squads as well. There is a reason why we elected to make the crime of financial fraud a felony.
The people of this country will know what was done to them and by who. I will see to it.
The millions of people whose lives have been destroyed by you Goons will decide how long your prison sentence will be, Curious.
I wish you the best of luck with it.
Rob
you’ve tried to suspend the financial market’s equivalent of the laws of thermodynamics.
What you refer to as “the financial market’s equivalent of the laws of themodynamics” has precisely zero research papers supporting it.
Wade Pfau holds a Ph.D. in Economics from Princeton. He knows how to search the literature. He spent a good bit of time searching to find a single paper supporting the “idea” that long-term timing is not required. He was not able to find one.
He was so amazed by his finding that he went to the Bogleheads Forum to see if anyone there had ever heard of a single research paper supporting the Buy-and-Hold “idea.” Jack Bogle had never heard of a single one. Bill Bernstein has never heard of a single one. Larry Swedroe had never heard of a single one. Rick Ferri had never heard of a single one.
Numerous Buy-and-Holders responded to the paper that Wade and I co-authored by saying that it was so impressive that it caused them to question their belief in Buy-and-Hold for the first time. The response of you Goons was to threaten to get Wade fired from his job if he continued to produce honest research and to discuss it on the internet.
All of this will come out following the next price crash.
I have a funny hunch that there is just a wee bit more support in the literature for the real rule of thermodynamics. I have another funny hunch that the real rule of thermodynamics is not supported through the use of death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs.
Where do these odd ideas that strike me from time to time come from, I wonder?
Rob
And when they tell you what they think, don’t write their disagreement off as a function of their participation in a vast global conspiracy against some anonymous dude with a website.
Here’s what a fellow who holds a Ph.D. in Economics from Princeton told me when he spent 16 months of his life exploring my ideas in great depth and co-writing with me the most important research paper published in this field in the past three decades:
1) “If you read Rob Bennett’s stuff carefully, I think he did provide an important contribution in terms of describing a way for PE10 to guide asset allocation for long-term conservative investors. I also think he was right on the issue of safe withdrawal rates.”
2) “I am also extremely grateful to Rob Bennett for motivating this topic and contributing his experience and encouragement.”
3) “You deserve much of the credit as the whole idea of Valuation-Informed Indexing belongs to you.”
4) “I definitely need to cite some of your work as the founder of Valuation-Informed Indexing, as I have not found anyone else who can lay claim to that. Shiller pointed out the predictive power of PE10 but never discussed how to incorporate it into asset allocation, as far as I know.”
5) ”Any data mining that I am doing is in favor of buy-and-hold, not in favor of market timing.”
6) “The findings for “market timing” are so robust anyway, that it hardly matters how we do it.”
7) “What you see in the top part of the graph for each year is the amount of wealth accumulated after 30 years for someone following Buy-and-Hold against someone following Valuation-Informed Indexing….Valuation-Informed Indexing provides more wealth for 102 of the 110 rolling 30-year periods, while Buy-and-Hold did better in 8 of the periods.”
8) “I will take steps in my final paper to test a wide variety of assumptions about asset allocation, valuation-based decision rules, whether the period is 10, 20, 30, or 40 years, lump-sum vs. dollar-cost averaging, and so on, and to show that the results are quite robust to changes in any of these assumptions.”
9) “On a risk-adjusted basis, market-timing strategies provide comparable returns as a 100 percent stocks Buy-and-Hold strategy but with substantially less risk. Meanwhile, market timing provides comparable risks and the same average asset allocation as a 50/50 fixed allocation strategy, but with much higher returns.”
10) ”If everyone increased exposure after a market fall and vice versa, then this would dampen out the big swings in the market aggregates, and we might get shallower boom/bust cycles.”
11) “Yes, Virginia, Valuation-Informed Indexing Works!”
12) “I wrote up the programs to test your Valuation-Informed Indexing strategies against Buy-and-Hold, and I must say that the results look very promising…. I am quite excited about the findings so far. As you say in the podcast, Valuation-Informed Indexing should beat Buy-and-Hold about 90 percent of the time, and I am getting results that support this for various strategies.”
13) ”It makes complete sense to have an equity allocation that is in some way flexible. Having a completely inelastic demand for equities is a bit bonkers; no-one acts that way with life’s other important commodities.”
14) “I have been toying with the idea of sending the paper to the Journal of Finance, which is the most prestigious journal in academic finance.”
15) “Now that I am accounting for risk, I am even more amazed by how well Valuation-Informed Indexing works.”
16) “My idea is to show many different tables with results over the whole period for returns and risks. Valuation-Informed Indexing always provides more returns for often less risk.”
17) “No matter what I try, Valuation-Informed Indexing will still perform better in 85-95% of cases for 30 years.”
18) “The traditional approach to retirement planning (as described on pages 10 and 11 of The Bogleheads’ Guide to Retirement Planning, for example) is counterproductive and possibly damaging.”
19) “Retirees now frequently base their retirement decisions on the portfolio success rates found in research such as the Trinity study…. This is not the information that current and prospective retirees need for making their withdrawal rate decisions.”
20) ”Though I was only trying to do an Old School safe-withdrawal-rate study, all that I ended up doing was showing in a different way what you had been saying all along: the safe withdrawal rate changes with valuations.”
21) “Valuations are the driving factor. ”
22) “Naturally, I am finding that Valuation-Informed Indexing can allow you to reach a wealth target with a lower savings rate, use a higher withdrawal rate, and also have a lower “safe” savings rate, than a fixed allocation.”
23) ”I think I should stay publicly quiet for a while, as I really don’t want anyone sending messages about any topics to officials at my university.”
24) “I don’t want them [the Goons] working behind the scenes to derail me.”
25) “I did warn the editor of the Journal of Financial Planning that they may receive some ‘hate mail‘ after I mentioned your name in the safe savings rate paper.”
The jury that decides the length of your prison sentence will be hearing all those words, Curious.
My best and warmest wishes to you.
Rob
Almost forgot. You know of course that investors as a group cannot lower or raise their stock allocation. If I’m lowering mine, some one is raising theirs. So how does that fact comport with your strategy?
If there are one million investors each holding one share of stock priced at $2 and one of them sells his share for $1, the value of every one of the million shares is reduced to $1. If the real value of the shares is $1 rather than $2, it only takes that one sale to set things right.
That’s how it works on the way up and that’s how it works on the way down.
That’s how it will work in the next crash. There are a small number of people having grave doubts about Buy-and-Hold today. There will sometime within the next few years be some catalyst that will cause them to sell. That small number of sales will cause millions of shares to be repriced at much lower levels. We will see a wipeout of trillions of dollars of wealth as a result of that small number of sales and the loss of trillions of dollars in consumer spending power will bring on an economic collapse.
Your focus on who buys shares and who sells shares is misplaced. Your focus should be on what props up the price. The answer is — human psychology.
Why do you think it is that people don’t speak up when they learn how they have been tricked re safe withdrawal rates? They desperately don’t want to hear about the realities. You will see a crash when the polarities of that physic power are reversed. The thing that causes a crash is when people go from desperately not wanting to know the realities to desperately wanting to know them. Then all the b.s. gets washed away and we begin a rebuilding process.
This is why I advocate you coming clean today rather than following the next crash. I’ll put in a good word for you following the crash just as I would today. But will anyone be willing to listen at that time?
Rob
Why would I be scared of crashes? Crashes are where the weak are separated from their money by fear.
You could cut the brakes out of your car and use a crash to help you stop when you get to a toll booth.
That makes as much sense as wishing for price crashes and the economic collapses that inevitably follow from them.
Please put me down as “anti-crash.” Please spread the word everywhere on the internet that Rob Bennett is that crazy fellow who is anti-crash.
Don’t let the bad guys get you down, Laugh.
Rob
you’ve tried to suspend the financial market’s equivalent of the laws of thermodynamics.
The idea that we suspend the financial market’s equivalent of the laws of thermodynamic when we show that long-term timing is required of every investor seeking to have a realistic hope of long-term investing success is not just Goon Talk. There are millions of good and smart people who believe this with their hearts, minds and souls.
I don’t see that as a bad thing. I see it as a good thing. It indicates the massive scope of the opportunity presented to us. The peer-reviewed research-paper that I co-authored with Wade Pfau shows us all how to reduce the risk of stock investing by 70 percent. That’s discovering the Fountain of Youth! That’s the biggest advance in the history of personal finance. We all are on the verge of living richer lives than we ever imagined possible in earlier times.
Changing our understanding of how stock investing works in a fundamental way is a wonderful thing. The only thing holding us back is that the people who built their careers promoting the understanding of how stock investing works that was dominant before we learned what we needed to learn to know what really works feel human emotions of embarrassment at having gotten some important things very, very wrong.
We need to be doing all we can to make those people feel better. We do that by pointing out how they built the foundation that made these huge advances possible. There would be no Valuation-Informed Indexing today if it had not been for the contributions of Bogle and Bernstein and Burns and Swedroe and all the others.
We do NOT make these people feel better by ignoring acts of financial fraud in which they are involved. That makes them feel worse! We must hold these people to the standards that they would be holding themselves to were they capable of thinking clearly about these matters today.
And we must all pull together to launch a national debate on these issues. The Buy-and-Holders have important things to teach us. We must provide them a means to make their points in civil and rational ways. The Valuation-Informed Indexers also have many important things to teach us. We must provide them a means to make their points in civil and rational ways as well. And then we must listen with open minds to the wonderful back-and-forth discussions that will follow when everyone feels safe about giving voice to his or her sincere views.
We’re on the one-yard line. We need to see the owner of one major investing site to work up the courage to open his site to honest posting on safe withdrawal rates and many other critically important investment-related topics. Then it’s over. Then all the ugliness is behind us and we find ourselves on the other side of The Big Black Mountain, the place where we all deep in our hearts have been longing to find ourselves for a long time now.
Then it (the good stuff) begins.
We are the luckiest generation of investors ever to walk Planet Earth. We should start tapping into the amazing wealth of investing insights that has been bestowed on us and that we have been reluctant for a time to talk about because it all seemed just too good to believe.
My take.
Rob
There’s so much that’s mistaken about so much of the above, but I’ve exhausted my interest in trying to get you to make sense.
I will leave you with this, per your last comment. All investors cannot time the market together, Rob. Surely you recognize that. Investors as a group maintain the same allocation.
Second, how do you reconcile your theory with the fact that roughly 80% of all stocks are held by non-indexers, the majority of which are not buy and holders?
Finally, if you have a single instance of an academic or professional agreeing with your claim that 1) your strategy is one that can and should be adopted by all stock investors; and 2) that once that happens stocks will provide a fixed real return of 6.5% year after year, I for one would live to see it.
All investors cannot time the market together, Rob. Surely you recognize that. Investors as a group maintain the same allocation.
All investors can engage in long-term timing at all times, Curious.
All that long-term timing is is the exercise of price discipline. All buyers of bananas exercise price discipline when buying bananas. All buyers of cameras exercise price discipline when buying cameras. The stock market is the only market in which the idea has ever been raised that price discipline might not be needed at all times and that was because of a mistake that was made back in the days when we did not have the research available to us that we needed to make proper sense of things.
Rob
how do you reconcile your theory with the fact that roughly 80% of all stocks are held by non-indexers, the majority of which are not buy and holders?
It is the idea that the Buy-and-Holders have put forward that there might be some magical, mystical alternate universe where long-term timing is not required that caused the economic crisis, Curious. There are millions of people who don’t index who believe that there is something to this idea. There are millions of people who don’t follow other elements of the Buy-and-Hold strategy who believe that there is something to this idea.
If you took a poll and asked “Is there today 33 years of peer-reviewed academic research showing that every investor must always engage in long-term timing to have any hope of achieving long-term investing success?” my guess is that 90 percent of respondents would say no. That 90 percent of the population has been taken in by the huge marketing campaign that the Wall Street Con Men have financed to persuade us all that a pure Get Rich Quick approach really is best. There is ZERO research supporting this marketing gimmick.
All of the other elements of the Buy-and-Hold Model are gold. It’s that one idea that has caused all the trouble, both for those who follow all the other elements of the Buy-and-Hold strategy and for those who do not. The Buy-and-Holders are responsible for this error because they are the ones who have been saying for 33 years since the idea was discredited that there is some mystical, magical research (which they never supply a URL for) that supports this 100 percent loony-tunes “idea.”
If you want to say that it is really the idea that long-term timing is not required that is the problem, that’s fine. But that “idea” did not become popular by accident. The Wall Street Con Men have spent billions of dollars promoting the “idea.” And you Buy-and-Hold Goons have for 12 years now been advancing death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs to keep the millions of middle-class investors who need to know the realities from being able to learn them.
So naturally you are the ones who will be going to prison for this massive act of financial fraud following the next price crash.
I wish you all good things.
Rob
if you have a single instance of an academic or professional agreeing with your claim that 1) your strategy is one that can and should be adopted by all stock investors; and 2) that once that happens stocks will provide a fixed real return of 6.5% year after year, I for one would live to see it.
There are many big names who agree with me that investors should take price into consideration when buying stocks just as they do when buying anything else. It would not be possible to list the names of all these people. Some of the lead proponents of this idea are: Rob Arnott, Andrew Smithers, Jeremy Grantham, and Ed Easterling. You will on many occasions even find big-time Buy-and-Holders like Jack Bogle and Bill Bernstein and Larry Swedroe mixing in honest and accurate stuff in with the smelly Buy-and-Hold garbage for which they are better known. I learned about the errors in the Old School safe-withdrawal-rate studies by reading one of the honest and accurate research-based passages in Bogle’s book.
I am not aware of anyone else ever saying that volatility in stock prices will go away once we open the internet up to honest posting on the peer-reviewed academic research of the past 33 years. I think it would be fair to describe that one as being a Rob Bennett original.
It does follow. But it doesn’t obviously follow. You need to spend some time thinking about this stuff to see how it follows. I have been working through how Valuation-Informed Indexing works for 10 hours per day and seven days per week for 12 years now. So I have had the opportunity to think about thing that no one else in this field has yet been able to think about. I am very proud of all that I have come up with as a result of putting so much sustained effort into the project. It’s largely because I keep finding exciting new implications to Shiller’s “revolutionary” (his word) 1981 insight that I keep drilling down deeper and deeper. Developing powerful new investing insights is what it is all about, in my assessment.
I think it’s possible that there is someone else out there who today possesses a vague understanding of this insight but who has not yet developed it fully enough to feel comfortable going public with it or who is afraid to go public with it because he knows how the Buy-and-Hold Mafia will react if he does. I have wondered at times whether Shiller has already written a sequel to Irrational Exuberance and is just holding back on publication of it until he feels that it would be safe to share more of what he understands about how stock investing works with the rest of us.
That’s speculation, of course. It is possible that Shiller and all others have told us all that they know. I certainly did not have that insight right off the bat. It came to be after lots of work trying to understand and explain to others the implications of Shiller’s findings.
Insights don’t just pop out of nowhere, in my experience. They come about sort of in the way in which songs come to songwriters. If you spend all of your days trying to write new songs, you might go a long time without having one come to you. Then one day something just clicks. It works that way with investing insights. If I stopped working this ground, I doubt that I would experience more insights. It is by forcing myself to come to terms with the sorts of challenges that people like you put to me that I cause my mind to go over lots of ideas and form them into new combinations and see things that follow from them.
It’s work. When the insight comes, it seems easy and obvious. But you never get to that point unless you work it and work it and work it, preparing the ground. One of the reasons why I engage with you Goons (lots of people think I am nuts to do so) is that I want to be challenged. I obviously don’t approve of the manner in which you present your challenges. You make things ten times harder than they need to be for every single person involved by the manner in which you choose to interact with me. But there’s some sort of legitimate point being made in perhaps one in twenty of the Goon posts. The insights that I can develop as a result of responding to that one genuine point can often make it more than worth my time to endure the ugliness and smelliness of the other nineteen comments.
I would flip it on you. You point out that there is no one else who has said that volatility would go away if we were to open the internet to honest discussion of the implications of Shiller’s “revolutionary” (his word) findings. It’s a fair point. But it is also a fair point for me to note that there is no Buy-and-Holder in 12 years who has been willing to make a case for why this insight is not a legitimate one. Why not?
The Return Predictor lets investors know what stock allocation is in their best interests. If every investor had access to a tool like the Return Predictor, why would all investors not ACT in their best interests? If all investors acted in their best interests, you could never again have a situation like the one we had in 2000, where stocks were paying a likely annualized long-term return of a negative 1 percent real and a risk-free asset class (TIPS) was paying a positive 4 percent real. Stock will never again reach those valuation levels once we supply a means for investors to apply the brakes to runaway overvaluation. Please point out to me the weak link in the logic chain if you see one.
If you want to say that there will always be some overvaluation and some undervaluation, I won’t argue with you. That could well be. But it seems to me that we are going to see a very big change once we supply investors with the tools they need to act in their best interests. If volatility is not eliminated altogether, it is certainly going to be diminished to a very big extent.
Is this a huge change? It is. I acknowledge that.
But have we not seen huge changes in other fields of life endeavor? I mentioned the introduction of the polio vaccine above. Was that not a huge change? Was the ending of slavery not a huge change? Were the advances we have seen in recent decades in computer technology not a huge change? Did the introduction of the birth-control pill not bring about huge changes? Did the harnessing of electricity not bring about huge changes?
If you want to be skeptical of claims re huge changes, that makes perfect sense. There are probably 20 claims of huge changes for every legitimate huge change. I have zero problem with a healthy skepticism. But death threats? Unjustified board bannings? Tens of thousands of acts of defamation? Threats to get academic researchers fired from their jobs? I have huge problems with that sort of thing.
There are two possibilities.
One is that I am wrong re my claim that price volatility will become a thing of the past once we open the internet up to honest posting re the findings of the last 33 years of peer-reviewed academic research. If I am wrong, smart people will obviously be able to say why without engaging in abusive practices. So I will come off looking like a fool. I have more than a little bit of a hard time thinking that that would break your heart, Curious.
The other possibility is that I am right. In that event, we are looking at achieving the biggest advance in our understanding of how stock investing works in our history. That’s pretty darn exciting stuff.
So there’s huge potential upside in permitting honest posting and zero potential downside. I wonder how we should play this one.
Anyway, no, I am not aware of anyone else saying today that price volatility will disappear once we open the internet up to honest posting on the last 33 years of peer-reviewed academic research and the implications that follow from it. But I sincerely believe that to be the case and I will continue to say that that is what I believe when the question is put to me.
My best wishes to you, Curious.
Rob