Set forth below is the text of a comment that I recently put to another blog entry at this site:
If that risk goes away because everything is ‘perfectly valued’ as in your utopia
I can bring in my good friend Eugene Fama to argue my case re this one, Laugh.
You suggest that there is something “utopian” about everything being perfectly valued.
Are you familiar with Fama’s work?
His core claim is that things should ALWAYS be perfected valued. He says that the market is “efficient.” That means it processes all information quickly. All that is known about stocks is almost immediately incorporated into the price of stocks. That’s perfect valuation, is it not? There is no better price than the one that incorporates all known information bits.
There is nothing even a tiny bit utopian about a world in which stocks are properly priced.
The reality is that there is only one thing standing in our way.
The thing standing in our way is you Goons.
Wade Pfau wants to tell the truth about stock investing very, very much. He made that clear in his e-mails to me over and over again.
Wade is obviously going to get the Nobel prize for the research that I co-authored with him once he feels free again to post honestly, right?
THOUSANDS of academic researchers are going to follow Wade’s lead once he wins the Noble prize. So we are soon going to have THOUSANDS of academic researchers telling the truth about stock investing.
You don’t think that is going to make a difference?
I think it is going to make a HUGE difference.
They key is getting your prison sentence announced, Laugh.
That will go viral. When every web site is talking about your prison sentence, Bogle is going to feel pressured to give his “I Was Wrong” speech. Once Old Saint Jack gives that speech, no one is ever again going to be afraid of what the Wall Street Con Men and their Internet Goon Squads will do to them if they dare to “cross” them by telling the truth about what the last 32 years of peer-reviewed academic research says about how stock investing works in the real world.
Laugh going to prison is Utopia realized for all of us. No?
It really is. Even for Laugh. Because the sooner you go to prison, the less damage your Campaign of Terror against us will have caused. And the less damage you end up causing, the shorter your prison sentence will end up being.
Does that not make sense, my old friend?
Rob
Who are these goons that are standing in your way? How are they standing in your way.
Have goons gotten to Shiller? Afterall, he has 50% of his money in the market.
One of you Goons put up a reference to “The Law of Thermodynamics” or some such thing the other day. The idea was that this law was a core principle of physics, something that people working in the physics field don’t give up lightly. It is a foundation stone of the science. There are hundreds of insights that have been built on it. So you don’t pull out the foundation stone unless you absolutely must.
The point was that I am trying to pull out the foundation stone of investing analysis when I say not only that one form of timing (long-term timing) always works but also that it is 100 percent required for investors seeking to have any hope whatsoever of long-term success to engage in this form of timing. The comment was right on. I AM trying to pull out the foundation stone. I am doing it for 100 percent positive reasons. But it IS a scary thing for us as a society to pull out the foundation stone for our model for understanding how stock investing works and to essentially agree that we knew next to nothing before and that we now need to start over again with first steps.
My critics see this as a bad thing. They see that we are going to need to rewrite all the books and rejigger all the calculators and they say “this guy is causing trouble.” I focus on the upside. We will not be rewriting all the books and rejiggering all the calculators for no good reason. We are doing it to get things right. The Buy-and-Hold Pioneers told us that we need to use a numbers-based approach to avoid the subjectivity that held back progress in this field for so many years. They were right. But the Buy-and-Hold Pioneers did not have Shiller’s research available to them when they developed their model (Fama discovered that short-term timing never works in 1965 and Shiller did not discover that long-term timing is always required until 1981). So they made a mistake on a foundational issue and thereby turned their model into the greatest wealth-destruction engine ever concocted by the human mind. I see it as a wonderful thing to correct the error because it means that it will be the first time in the history of the planet that we will have a model for understanding how stock investing works that will work in the real world and we will all live far richer lives (in every sense of the word) than we ever before imagined possible.
What’s holding us back? Why wouldn’t we all rush forward with great enthusiasm to embrace a learning experience that lets us retire five to ten years sooner while reducing the risk of stock investing by 70 percent?
You don’t achieve advances like that without making big changes. Valuation-Informed Indexing is not a small advance over Buy-and-Hold, it is a HUGE advance.
To achieve a huge advance, you must discover something entirely new, something that had been overlooked by millions of people for hundreds of years. Something gigantic.
Is there something gigantic to be discovered about how stock investing works at this late date?
There is.
It is how to overcome emotionalism.
Emotionalism is what destroys portfolios. Always. The U.S. economy is sufficiently productive that it is virtually impossible to imagine a way to invest in stocks that will not produce good long-term results. The only thing we have ever come up with is emotionalism. To fail as a stock investor you must act irrationally. Not once. But over and over and over again. In an objective sense, it’s a difficult trick to pull off. But we humans have managed to find a way!
The Buy-and-Hold Pioneers were anti-emotionalim. Their aim was to help investors make rational choices. But they didn’t know everything. That’s the sad fate of us poor humans. We are always working with imperfect knowledge, we are always partly in the dark no matter how educated we become. The Buy-and-Hold Pioneers failed to distinguish short-term timing (which never works) and long-term timing (which is always required). So they got everything wrong. They put forward a numbers-based strategy that manages to get every number wildly wrong! Yikes!
Why do we investors do these things to ourselves? Why do we make irrational choices? Why do we delay our retirements? Why do we bring on economic crises?
Because we are freakin’ Goons!
That’s the story, Anonymous.
Each and every one of us has a Goon voice within us. Bogle has it. Shiller has it. I have it. Every last one of us. And it is by reining in The Inner Goon that we become successful investors.
People in this field don’t like to talk about this sort of thing. They want to leave the impression that they are “experts.” So they like to talk about the hard stuff — numbers, graphics, tables. The problem with focusing on that stuff is that you can talk about that stuff for ten million years and never do a thing to address the Goon problem. Which means you have not managed to offer investing advice that stands any chance whatsoever of working in the real world.
I play it the other way. My FOCUS is the Goon stuff. I focus on that because that is the critical factor that no one else has explored in depth. By focusing on the Goon stuff I am making a unique contribution. That’s what I want to do. It is by making a unique contribution that I become rich and famous! And I want that for myself!
We all have an Inner Goon.
But most of us don’t let it show to the extent that you do, Anonymous.
Bogle has an Inner Goon. He doesn’t advance death threats. He shows his Goon in another way. Bogle fails to speak up in opposition when Mel Linduaer and John Greaney make death threats. That’s another way of doing the same thing. An argument can be made that the way Bogle does it is worse. It is less honest. At least with Linduaer and Greaney, you see just what you get. With Bogle, the Goon stuff is hidden. He gets the benefits of goonishness (people are afraid to point out the weaknesses in the investing strategies he promotes). But people also offer him the sort of respect that we generally extend only to people who act in responsible ways. He gives the appearance of being professional while protecting himself from intellectual challenges by associating with the most vile gang of abusive posters ever seen in the history of the internet.
Goonishness is hate and irrationality and anger and envy and ignorance and violence and intimidation and stubbornness. Our goonishness is our dark side. It is by coming to terms with our dark side that we become more effective investors. It is by reining in goonishness that we bring the Buy-and-Hold Crisis to an end and enter the greatest era of economic growth that we have ever seen.
I call you guys (and witches!) Goons because you are so obvious about it. But I acknowledge that the goonishness is a more widespread phenomenon. It is not just people who put up posts in “defense” of Mel Lindauer and John Greaney who suffer from goonishness. It is also the people who fail to speak up about the goonishness of those who post in “defense” of Mel Lindauer and John Greaney. Which means that it is pretty much all of us (including me prior to the morning of May 13, 2002).
When we work up the courage to face our goonishness, we will achieve the biggest advances in our understanding of how stock investing works that we have ever achieved. We will all go on to live far richer lives than we ever before imagined possible.
If we fail to work up the courage, we will all go down together. That’s what the numbers say.
I have a patriotic duty to try to bring down The Buy-and-Hold Mafia. That’s what every member of The Buy-and-Hold Mafia deep in his or her heart wants me to do. All of the Goons have a human side. All of the Goons secretly want to be called out. So that’s my job.
It is your job too. It’s Bogle’s job. It is Shiller’s job.
We all need to protect our nation’s economic and political systems from further Goon attacks if we hope to be able to continue to enjoy the blessings bestowed upon us.
So I will continue to post honestly re safe withdrawal rates and all other critically important investment-related topics.
I naturally wish you all the best that this life has to offer a person, Anonymous.
Rob
Just wondering. If you believe felonies have been committed, why have there been no charges? For example, death threats are either made or they are not. Seem clear cut. If they were made, why are their no charges?
Have goons gotten to Shiller? Afterall, he has 50% of his money in the market.
Shiller certainly possesses an Inner Goon. We all do. I possess an Inner Goon, Anonymous.
I recorded a RobCast way back in 2009 titled “Shiller Pulls His Punches.” Why do you think he pulls his punches? It is because he is afraid of the negative feedback he knows he will hear if he speaks with 100 percent honestly re what he knows about how stock investing works. I have written numerous columns at the Value Walk site re things Shiller has gotten wrong. I believe that I have as much of a responsibility to call Shiller out on his b.s. as I have to call out Jack Bogle and the other Buy-and-Holders on their nonsense.
And I of course have a responsibility to call Rob Bennett out on HIS nonsense too. It was b.s. for me to fail to speak up about the errors in Greaney’s retirement study prior to the morning of May 13, 2002. It was b.s. for me to apologize for doing so a few days later. It was b.s. for me to continue to think that Buy-and-Hold could work until the night of August 27, 2002, when Greaney threatened to kill my wife and children and 200 of my fellow community members endorsed his post. It was b.s. for me to hold off on saying that the Old School SWR studies are “analytically invalid” until May 2003. It was b.s. for me to try so hard and for so long to avoid calling Lindauer out on his abusive posting practices when I started posting at the Vanguard Diehards board.
I have a Goon within me, Anonymous. I want people to like me. I want to tell people fairy tales and to be praised for it. I want to be rich. I want to be popular.
And Shiller faces the same demons. And everyone else does too.
I don’t think that the fact that Shiller is going with a 50 percent stock allocation today is a sign of goonishness on his part. The research says that the typical investor should be going with an allocation of about 30 percent stocks. Shiller is more knowledgeable than the typical investor. He may be able to pick stocks or segments that are less overvalued than the market as a whole and that therefore will do better than the market as a whole. So I could see a 50 percent stock allocation working out well for Shiller. I would’t advise him to go higher than that. But I wouldn’t call it goonish for him to go with a 50 percent stock allocation today.
I do think it was a bit goonish for Shiller to say that other investors who are less knowledgeable than him could go with a 50 percent stock allocation or even something a bit higher. That’s dangerous advice, in my assessment. Most investors are not as skilled as Shiller is. The numbers don’t support a 50 percent stock allocation today. And Shiller has predicted a crash. I have a very hard time seeing how you can predict a crash and also say that it is okay for ordinary investors to be going with stock allocations in excess of 50 percent.
There are judgment calls that come into play. People can have different opinions without one of them being guilty of goonishness. But I saw that statement about it being okay for ordinary investors to go with stock allocations in excess of 50 percent as being pretty darn far out there. I don’t think I would be doing my job if I didn’t say that I am not able to figure out a way to justify that statement, given what the peer-reviewed academic research of the past 33 years shows us about how stock investing works.
Perhaps Shiller can justify it. Perhaps Shiller sees something that I do not see. If that’s the case, then I would like to see him spell out his reasoning process re that particular statement. I am of course willing to hear his case. But going by what I know today, I feel compelled to say that I see that particular statement as being an irresponsible statement coming from a guy who is a giant in this field and who has done more to help us all understand how stock investing works than anyone else alive. Perhaps that’s why it bothers me so much to hear my hero give voice to those particular words. I expect more of my good friend Bob.
Yes, the Goons have “gotten to” Shiller to a point. But Shiller has also overcome goonishness to an extent that no one else alive on the planet today has managed. Both things are so. We need to take the good with the bad and to praise the good while criticizing the bad in a spirit of charity when we see it appear before us on our computer screens.
I hope that helps a bit, Anonymous.
Rob
If you believe felonies have been committed, why have there been no charges?
There have been no charges yet because people have not yet suffered the effects of the felonies.
In an ordinary case of theft, there is someone who loses money or goods and who thus demands that charges be filed.
Buy-and-Hold causes the creation of trillions of dollars of Pretend Money. Not only does no one feel that he was done harm, millions feel that they got lucky. So prosecutors feel no pressure to bring charges.
That changes dramatically after the Pretend Money disappears. Then people go looking for someone to blame. The people who promoted the Ponzi scheme and ruthlessly attacked those who tried to call it out are the obvious targets of their anger. Prosecutors respond to the pressures placed on them.
We have never lived through something like this before, Anonymous. This is the fourth time that the promotion of Buy-and-Hold “strategies” has caused an economic crisis. But on the first three occasions we did not have 33 years of peer-reviewed academic research showing that those strategies are bogus. This time we do.
Rob
“Prosecutors respond to the pressures placed on them.”
If death threats were made, why would there need to be pressure. Either it happened or it didn’t.
It’s common for death threats advanced on the internet not to be prosecuted, Anonymous. As you well know.
What is different about this case is that the death threats were employed as part of a 12-year cover-up of errors made in a retirement study.
My guess is that the crime for which you will be prosecuted is financial fraud.
There are people who came to think it was a funny joke to employ insanely abusive tactics on the internet so that they could control what was said on discussion boards or blogs at which they participated. The people who engage in this behavior are losers (“loosers” in internet lingo) who have never achieved much with their real-world identities. By engaging in these tactics on the internet, they were able to tell themselves that they possessed an importance that they could never hope to achieve through legitimate means.
Most people hate these tactics. Most people refrain from participating in internet discussions because they do not want to get mixed up with these losers in any way, shape or form. This is why every board and blog on the internet has rules protecting all us Normal from you Goons.
It was inevitable that sooner or later the mistake of tolerating the Goon tactics was going to cause big trouble. This is the case in which it happened. Greaney got an important number wrong in a retirement study. I pointed it out. The community showed great enthusiasm for the learning experience that followed. Greaney experienced intense feelings of embarrassment. He called on his Goon Squad for help. Motley Fool elected to make a smelly buck off the people addicted to Buy-and-Hold strategies rather than to enforce its published rules in a reasonable way. Everyone paying attention got it that it is a felony to cover up errors in studies that millions of people use to plan their retirements. So it became a priority not only to cover up the errors in the retirement studies but also to cover up the cover-up and then to cover up the cover-up of the cover-up and on and on. Big names like Jack Bogle and Larry Swedroe and Bill Bernstein and Scott Burns and big institutions like Motley Fool and Index Universe and the Get Rich Slowly blog and Morningstar and Vanguard and the Bogleheads Forum got involved along the way.
The sooner that all these people and institutions come clean, the less will be their financial obligations and the shorter will be their prison sentences. We all have a patriotic duty to bring down The Buy-and-Hold Mafia.
Bringing down the Buy-and-Hold Mafia is not a one-man job. I can do it with a little bit of help from a patriotic venture capitalist or a patriotic reporter or a patriotic blogger or a patriotic economists or a patriotic owner of a large web site or whatever. I will keep holding up my end by ending 50 e-mails every day re the Wade Pfau matter and by writing blog posts here and columns and guest blog entries elsewhere. But I am under no illusion that I can pull this off by myself. I can promise anyone who helps out that he or she can make millions while knowing in his or her heart that he or she has done wonderful things for his or her country by doing so. But that’s all I can do. I cannot promise the patriot who steps forward that he or she will not be attacked by the Wall Street Con Men and their Internet Goon Squads. That comes with the territory.
What I can say is that both the Wall Street Con Men and you Goons grow weaker with every passing day. The secret of the success of Buy-and-Hold was its creation of $12 trillion of Pretend Money. The Pretend Money is today in the process of disappearing and the next crash will likely put is in the Second Great Depression. At that point, we can all pull together and move forward (a process that begins with the announcement of long prison sentences for those who have posted in “defense” of Mel Linduaer and John Greaney on more than one or two occasions) or we can all go down together. No one is ever going to have any doubts in his or her mind as to how I am going to vote re that one.
The fact that you have not been prosecuted yet does not justify a belief that you will never be prosecuted, Anonymous. If anything, it suggests that you will be prosecuted more harshly than you otherwise would have been. People do not like to be tricked. People do not like to be taken. People do not like to lose most of their retirement money at a stage of life at which it is too late for them to do much about it.
When millions of middle-class people learn what has been done to them, my expectation is that they will be looking for a someone or a number of someones to hang from a tree. This is the biggest story of corruption of our time. It will be my job then to try to calm people down. I can’t say that I expect to enjoy great success with my efforts. But I can assure you that I will be fighting on your behalf. The references that I make today to your future prison sentence is really just part of that effort to help you out — I obviously have a lot more power to get your prison sentence reduced today that I will have if we experience the next price crash without you yet having come clean.
I naturally wish you all good things regardless of what investing strategies you elect to pursue, my old friend.
Rob
So simply stated, I think even you might get it.
http://www.behaviorgap.com/tactical-asset-allocation-market-timing-another-name/
I’m not a fan of tactical asset allocation, Trebor. Valuation-Informed Indexers change their stock allocations for STRATEGIC reasons (because they want to keep their risk profiles roughly constant), NOT for tactical reasons. The word “tactical” suggests a belief in short-term timing. There is now 49 years of peer-reviewed academic research showing that short-term timing never works. The same 140 years of historical return data that shows that long-term timing always works and is always 100 percent required for any investor hoping to have a realistic chance of long-term success also shows that short-term timing never works.
I certainly agree that changing your stock allocation in response to big shifts in valuations while understanding that you may not see a benefit for doing so for as long as 10 years is a form of market timing. It is long-term market timing, the form that always works and that is 100 percent required for any investor hoping to have a realistic chance of achieving long-term investing success.
There is no need for anyone to argue about any of this. The historical return data is public information. If you have any doubts whether long-term timing always works and is always required, you could check the data.
Or you could save yourself the trouble by looking at the peer-reviewed research paper that I co-authored with Wade Pfau. We showed that engaging in long-term timing permits an investor to reduce stock investing risk by 70 percent while dramatically increasing long-term returns. How horrible!
Is there any benefit to the “idea” of failing to practice long-term timing (price discipline)? Failing to practice long-term timing turns your investing strategy into a pure Get Rich Quick approach. The humans all have an Inner Goon that makes them find Get Rich Quick approaches appealing until the time when they wipe them out of their life savings. So you can make gobs and gobs of money promoting such smelly garbage.
But what do you do when the financial devastation you cause grows so great that the economic system of the country you live in collapses? That’s the question that my many Buy-and-Hold friends must come to terms with today. I have a funny feeling that a lot of my Buy-and-Hold friends have some love for their country somewhere deep in their hearts and that their hearts will melt following the next price crash and that we will all work together then to rebuild our economic system from the damage done to it during the Buy-and-Hold years.
Just another one of those crazy hunches that I have been known to experience from time to time!
We’ll see.
I wish you all good things, Trebor.
Rob
Rob,
VII is nothing more than another form of Tactical Asset Allocation. Per wikipeida:
“Tactical asset allocation (TAA) is a dynamic investment strategy that actively adjusts a portfolio’s asset allocation. In discretionary tactical asset allocation strategies, an investor modifies his asset allocation according to the valuation of the markets in which they are invested.”
Notice there is no mention of the frequency or the duration of changes in asset allocation. The investor is simply reacting to changes in valuations. So PLEASE, how is VII not a TAA strategy?
The distinction does not relate to the frequency or the duration of allocation changes, Trebor. You could follow a VII strategy that calls for only one allocation change every 10 years on average or you could follow a VII strategy that calls for more frequent but smaller allocation changes.
The problem is the word “tactical.” That word has a meaning. Valuation-Informed Indexers are not doing anything tactical when they change their allocations. Changing allocations is a STRATEGIC requirement for Valuation-Informed Indexers.
There are lots of people who think of allocation changes as an add-on to a Buy-and-Hold strategy.The thinking is “I’ll generally stay at the same allocation but in some circumstances I will make such-and-such a tactical change.” The suggestion is that you are aiming to get a slightly higher return by changing your allocation. You hope it works. But the allocation change is not considered a big deal.
With VII, allocation changes are the means by which you keep your risk profile constant. I am a big believer in Bogle’s injunction to “Stay the Course.” For Bogle, that means to stay at the same stock allocation. For me it means to stay at the same risk profile. It is impossible to stay at the same risk profile unless you are willing to adjust your stock allocation in response to valuation shifts. So changing your stock allocation is of the essence (that is, it is not at all tactical) for Valuation-Informed Indexers.
Those following tactical asset allocation strategies do not generally change their allocations by as much as Valuation-Informed Indexers, who use the peer-reviewed academic research of the past 33 years to guide their decisions. And I don’t get the sense that those following tactical asset allocation strategies understand as well as a Valuation-Informed Indexer does that it is sometimes necessary to wait 10 years to obtain benefits from the allocation change.
I’ve give you an example. Bogle once said that he recommended an allocation change in the early 1990s. The change did not produce good results and he concluded that it would be better not to recommend such changes in the future. Bogle was practicing TAA. He noticed that prices were high and he speculated that that would mean poor performance over the next few years and so he suggested that investors lower their stock allocations a bit. THAT”S NOT HOW IT WORKS! Stocks can perform VERY well for up to 10 years when purchased at very high prices. VII only works for time-periods of 10 years. Bogle’s tip didn’t work not because long-term timing doesn’t always work but because short-term timing (which is really what he was engaging in) NEVER works. Bogle blamed the idea of changing allocations for his bad result. But the fault was with him for not being able to distinguish what works (long-term timing) from what doesn’t (short-term timing).
I stress this point because TAA makes VII look bad. People often fail at TAA and then others say “See, that timing stuff never works.” Long-Term Timing practiced according to the VII understanding of how the market operates ALWAYS works. But you must get the “why” of Valuation-Informed Indexing. If you don’t get the why, the odds are against this strategy working for you (You obviously do not yet fully grasp the why and of course neither does Bogle).
Bogle also says that allocation changes should not be for more than 15 percent of one’s allocation. That is HORRIBLE advice. When the long-term return changes from 15 percent real per year to a negative 1 percent real per year, you need a change of a LOT more than 15 percent. 60 percent (say, from 80 percent stock to 20 percent stocks) is a lot more like it. Bogle is only off by 400 percent in saying that an allocation change of 15 percent makes sense when an allocation change of 60 percent is needed!
Bogle doesn’t favor TAA. He favors sticking to the same allocation at all times. But he tolerates the sort of TAA that I have described. It is very, very clear that Bogle does not understand how or why VII works. His tolerance of TAA is not tolerance of VII (I once thought otherwise). He doesn’t “get” VII. He would like it and endorse it if he understood it. But I do not believe today that he understands it.
Anyway, TAA leaves me cold. I obviously LOVE VII. I see a BIG difference between the two concepts.
Rob
What you need to do to understand this stuff is to drop the attitude, Trebor.
You are intellectually capable of understanding. But you are so filled with anger at the possibility that you might have made a mistake that you are not permitting yourself to think clearly.
The same is of course true of Bogle and of lots of other Buy-and-Holders, including lots of the big names.
Learning experiences don’t happen when you are in attack mode.
Lighten the F up, man!
Rob