Set forth below is the text of a comment that I recently put to another blog entry at this site:
Seems like a vast conspiracy, Rob. Maybe you should contact Alex Jones (prison planet) and see if you can write a financial column.
It’s a Conspiracy of Ignorance, Anonymous.
Prior to 1981, we genuinely didn’t know how stock investing worked. Then we did. But the “revolutionary” (Shiller’s word) advance we achieved was so big that it came as a shock and was hard to take in.
When prices crashed in 2008, million of people were ready to consider new ideas. But the Buy-and-Holders feel embarrassed to acknowledge that the peer-revewed academic research revealing their errors has been around for over 30 years and they continued pushing Buy-and-Hold pretty darn hard all that time.
The cover-up can fairly be described as a conspiracy. I don’t have a problem saying that someone who fails to speak up about death threats and unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs is involved in a conspiracy to commit financial fraud. That’s why I often refer to “The Buy-and-Hold Mafia.”
But I am not aware of any evidence that the Buy-and-Hold Pioneers intentionally got anything wrong. I have seen a lot of evidence pointing in precisely the opposite direction. Why did Bogle include the words in his book that helped me understand the safe withdrawal rate issue if he was involved in a conspiracy? Why did Bernstein acknowledge that the numbers in the Old School studies are wildly wrong if he was involved in a conspiracy? Why did Swedroe get himself banned from the Vanguard Diehards board if he was involved in a conspiracy?
The reality here is that just about everyone in this field would like to see the Ban on Honest Posting lifted. I am confident that Bogle and Bernstein and Swedroe would. And I am confident that hundreds of others (probably thousands of others) would. I’ll let you in on a little secret. I think you Goons would like to see the Ban lifted. If you could go back in time, I think you would play things very differently.
The trouble we all are having is that the Buy-and-Holders painted themselves into a corner. They genuinely don’t know all the ins and outs of Valuation-Informed Indexing. They know that there are many holes in the Buy-and-Hold story. But they have never engaged in extensive discussion of what the last 33 years of research means. And so they really are pretty much in the dark re a large number of critically important investment-related topics. They tell themselves that it is okay not to speak out about the flaws in Buy-and-Hold so long as there is at least a chance that it might more or less work. And they continue to believe that it might more or less work because they have prohibited the sorts of discussions they would need to participate in to come to understand clearly why that is not the case.
How do we get the Buy-and-Holders out of the corner they have painted themselves into?
I gave it a very good shot. I suggested that we explain their lack of understanding of the research as a huge case of cognitive dissonance. That’s not a lie. Cognitive dissonance is a real phenomenon. And there is tons of evidence that it applies here. I was doing a great kindness to my Buy-and-Hold friends to put forward that suggestion. You cannot be held liable either civilly or criminally for mistakes you made when suffering from cognitive dissonance. I have put a good deal of effort into getting all of my Buy-and-Hold friends off the hook.
There’s one big problem casting a shadow over these efforts today. You cannot excuse death threats by citing cognitive dissonance. You cannot excuse unjustified board bannings by citing cognitive dissonance. You cannot excuse tens of thousands of acts of defamation by citing cognitive dissonance. You cannot excuse threats to get academic researchers fired from their jobs by citing cognitive dissonance.
So now we have a large number of people who will be going to prison following the next price crash. And now we have a large number of people who will be on the hook for trillions of dollars of financial losses following the next price crash.
That’s why I began mentioning the prison sentences a ways back. For a long time, I kept my mouth shut about them because I thought that mentioning your prison sentences would just inflame you Goons all the more. But you obviously were aware of the risk that you would be going to prison on at least one level of consciousness. Otherwise, you never would have threatened Wade. By the time that Wade and I had published our research, you had in your Goon minds already passed the point of no return. You were going to prison if the truth ever got out and so you had to do absolutely anything to stop that from happening. Even threatening an academic researcher was no longer beyond the pale if that was what it took to keep millions of middle-class investors from learning about the long cover-up of the errors in the Old School studies.
Once I knew that that was the reality, it made no sense to keep quiet about the prison sentences. People who are pretty darn certain that they are headed to prison once people learn the realities are not going to come clean. And, by keeping quiet about your prison sentences, I was encouraging others (like Wade) to engage in behavior that would end up with them going to prison as well. Being “diplomatic” re this point was causing lots of people to suffer in very big ways.
So I stopped that b.s.
Call it a conspiracy if that makes you happy in some twisted sort of way. It’s not a conspiracy in the way that people generally use the word. It’s a case where some wonderful people came up with some wonderful insights but messed up one one point (the need to engage in long-term timing) because we humans just aren’t born knowing everything. Now we know and we should all be jumping up and down at our good fortune. But instead we have been subjected to 12 years of ugliness because the most abusive poster in the history of the internet really, really, really, really, really, really doesn’t want to acknowledge getting the numbers wildly wrong in a retirement study posted at his web site.
I don’t call it a conspiracy. But I sure don’t intend ever to agree to post dishonestly on safe withdrawal rates and thereby participate in the cover-up myself and earn myself a prison sentence to match yours, Anonymous. Please try to find someone else re that one. Call me madcap. No can do.
I will continue posting honestly and you will continue posting abusively and we will meet somewhere on the other side on some future day.
I can wish you well. It’s not a felony to do that. So I feel comfortable offering you my best and warmest wishes.
And that’s where I get off the train. If there is ever a time when I can help you out in any way that does not involve me posting dishonestly re the numbers that my friends use to plan their retirements, I hope you will let me know. It would be cruel for me to suggest that there is any give whatsoever re the honest posting matter. So I won’t insult both of us by suggesting that there is even the tiniest chance that you will in 12 billion years see any change re that one.
That covers it, no?
Rob
Anonymous says
When prices crashed in 2008, million of people were ready to consider new ideas. But the Buy-and-Holders feel embarrassed to acknowledge that the peer-revewed academic research revealing their errors has been around for over 30 years and they continued pushing Buy-and-Hold pretty darn hard all that time.
The cover-up can fairly be described as a conspiracy.
These cover up folks are doing a pretty lousy job, given that you’ve recently admitted that most people do consider valuations when making asset allocation decisions, and there really are no Buy and Hold purists. And the fact that Shiller recently won a Nobel prize.
Now, not everyone has the discipline to alter their allocations when times get bad and stocks are cheap, (2008-09), but they do invest with valuations in mind.
Rob says
I agree with you that the cover-up folks are doing a lousy job, Anonymous. That’s why I don’t like to use the word “conspiracy.” The cover-up does possess many of the elements of a conspiracy. I am virtually certain that people are going to use that word to describe it following the next price crash. And I can to some extent see where they would be coming from in using that word. But I have never felt entirely comfortable using the word “conspiracy” to describe what is going on here. I prefer the phrase “cognitive dissonance.” I often say that I am okay with describing it as a “conspiracy of ignorance.”
Your point about Shiller winning the Nobel Prize is right on. That’s not evidence of a conspiracy. It’s strong evidence that this is NOT a conspiracy as that word is generally understood. And there is a lot more evidence pointing in the same direction. I learned about the errors in the Old School SWR studies by reading Bogle’s book. If there were a conspiracy, Bogle would be the leader of it. Why the heck would he be saying things in his book that help to expose the conspiracy? That makes no sense.
Similarly, Bernstein said a long time ago that anyone giving thought to using the Old School SWR studies to plan a retirement would have to be out of his or her mind. That’s not something that someone trying to cover up the errors in the Old School SWR studies would say. Again, it just makes no sense.
The other side of the story is that Bogle has for 12 years now not lifted a finger to help us get the Old School SWR studies corrected, despite what he wrote in his book. Nor has Bernstein, despite what he told us in his e-mailed response to Ataloss’s question as to whether Bernstein thought that the Old School studies were analytically invalid.
This isn’t precisely a conspiracy. But it is something There is a LOT of funny business going on. What is this cover-up about?
You are looking in the right direction when you note that few investors follow Buy-and-Hold strategies in a dogmatic fashion. Just about everybody (the exception is Eugene Fama!) acknowledges that valuations matter. Judging by that, you would think that we could all get along just fine, right?
But we are obviously NOT all getting along just fine. I hope you will give me that much.
Why? What the heck is the problem?
The problem is that the middle ground on which most investors live today does not make theoretical sense. Buy-and-Hold makes perfect theoretical sense if the market is efficient. Valuation-Informed Indexing makes perfect theoretical sense if valuations affect long-term returns. Splitting the difference (what you call “Strategy B”) makes no theoretical sense.
Splitting the difference possesses great appeal to most investors. Most investors don’t care about theory. They like Buy-and-Hold. The Buy-and-Hold principles sound entirely sensible to most investors. And most experts endorse Buy-and-Hold. So most investors believe that they should generally follow those principles. But they do not feel comfortable following them in a dogmatic way. They feel that valuations must matter. So they choose to tailor Buy-and-Hold to better fit what their common sense tells them is probably the full truth — They follow Buy-and-Hold principles generally but also occasionally ignore the theory to make small adjustments in their stock allocations as a result of concerns they hold about valuations getting out of control.
That’s the reality today. We do not disagree re the reality.
We disagree about what works.
I believe in the original Buy-and-Hold idea that investors should be rooting their investing strategies in the peer-reviewed research. There is no research showing that valuations kinda, sorta matter and kinda sorta don’t matter. The research shows that, if valuations matter, they matter a whole big bunch. If we really believed that valuations matter and weren’t just paying lip service to the idea while generally holding tight to out belief in Buy-and-Hold principles, we would be looking to the research to determine HOW MUCH to change our allocations in response to changes in valuations.
That’s Valuation-Informed Indexing. That’s what I am arguing for.
I don’t say that you are lying when you say that you consider valuations to a small extent. I think you do that. I think that millions of people do that. I agree with you that MOST investors do that.
I don’t think that’s what works.
I certainly agree that we should be investing with valuations in mind. But I also think that we should be using the historical return data and the peer-reviewed research based on that data to determine HOW MUCH to change our stock allocations in response to valuation shifts.
That’s where the “conspiracy” stuff comes in.
The Buy-and-Holders do not want millions of investors to find out what the research says on this point.
Why?
Because it makes them look really, really bad.
People should have been using the research to determine their stock allocations all along and millions of people have lost huge amounts of money because the “experts” in this field told them that that was not absolutely required or, heaven help us all, perhaps not even a good idea. Those experts understand that they are liable for the losses they caused. They pretend to be “experts.” But they are today 33 years behind in their reading of the peer-reviewed research. Huh?
And, in extreme cases like with you Goons, they are guilty of financial fraud and are likely on their way to prison following the next price crash. That group really, really, really does not want the word getting out about the 12-year (or 33-year if you count back to when Shiller published his breakthrough research) cover-up.
I cannot change these realities, Anonymous. And I sure don’t intent to lie about them. I like to think of myself as an honest person. And, even if I didn’t, there are Post Archives! Old Farmer Hocus being persuaded to tell lies about what has been going on for 12 years now is not in the card. It would help if you would get that foolish dream out of your head.
I have extended the hand of kindness to all my Buy-and-Hold friends. But I am not in a position to lie about what has been going on for 12 years now and I like to think that I would not be inclined to lie even if I were in a position in which doing so would benefit me.
You need to come clean.
Bogle needs to come clean.
J.D. Roth needs to come clean.
Mike Piper needs to come clean.
And on and on and on.
There is no other way.
I am telling you not just what is best for me and for the millions of middle-class investors. I am telling you what is best for you and for the Wall Street Con Men.
Everything needs to come out in the open. All the lies have to be acknowledged. All the Bans on Honest Posting need to be lifted. All the civil and criminal trials need to be held and brought to completion.
We need to put all this ugly stuff behind us so that we can move on to the wonderful learning experiences that we have been enjoying for 12 years now but that we have not thus far felt that we could share with the millions of middle-class investors because it would upset the Wall Street Con Men and their Internet Goon Squads too much for them to learn the realities. This field does not exist solely for the benefit of the Wall Street Con Men and their Internet Good Squads. It exists in part for the benefit of the millions of middle-class investors who need access to accurate and honest reports on what the peer-reviewed research says to be able to finance their retirements effectively.
Do you see?
What I am describing is what is best for ALL of us. We are all in the same boat. We need to knock off the funny business and begin moving forward TOGETHER.
There are things that can be done to make the transition less painful for the Wall Street Con Men and for you Goons. It makes sense for us to do those things. I am 100 percent happy to help out in any way possible.
BUT WE MUST OPEN UP THIS FIELD TO PEOPLE OF INTEGRITY. AND WE MUST BEGIN LETTING THE PEOPLE IN THIS FIELD WHO POSSESS INTEGRITY AND LONG TO EVIDENCE IT IN THE WORK THEY DO TO DO SO.
We MUST do this. This is NOT optional. This is 100 percent imperative.
Call the support of or indifference to dishonesty a “conspiracy” if that works for you. Call it “cognitive dissonance” if, like me, you are not quite able to accept that so many good and smart people could get themselves involved in so awful and damaging a conspiracy. The terminology you use is not what matters most here. What matters most here is that we bring the funny business to an end.
The funny business must come to an end. That’s the bottom line here. That must happen by the close of business today.
Can I count on your support, my old friend?
Rob
Anonymous says
The other side of the story is that Bogle has for 12 years now not lifted a finger to help us get the Old School SWR studies corrected, despite what he wrote in his book.
Right, this being a free country, you can’t force people to correct studies, or stand on their heads, or change books, or even views where you hold a different opinion. You can (respectfully, if you want others to respect and listen to you) argue your points, but that’s it.
Rob says
All of the evidence will be presented to the juries serving in the civil and criminal cases and the juries will render their verdicts.
That’s how our system works.
I naturally wish you all good things, Anonymous.
Rob
Anonymous says
All of the evidence will be presented to the juries serving in the civil and criminal cases and the juries will render their verdicts.
That’s how our system works.
No, I’m afraid that would only happen if there were real fraud, or a real conspiracy, not just the one in your head.
If you’ve got real evidence, show it to a DA or federal prosecutor and let him convene a grand jury. If you can’t, or they won’t, then your claims have no merit.
And that, in reality, is how our system works.
Rob says
We have to wait for the next price crash to bring things to a resolution, Anonymous.
People’s views re Get Rich Quick investing schemes CHANGE after they lose most of their retirement money.
Do you see?
Rob
x says
From “Seeking Alpha”:
While the EMH helps us understand how markets work, in terms of investment strategy it really doesn’t matter whether markets are efficient or not. The only thing that really matters is whether you can exploit inefficiencies persistently, after the expenses of the effort. That has proven to be extremely difficult – so difficult in fact that even the behavioralists, who poke holes in the EMH by identifying persistent mistakes that investors make, recommend acting as if the market were efficient.
Richard Thaler, one of the “fathers” of behavioral finance, in an interview with The Wall Street Journal in which he was discussing market inefficiencies, conceded that most of his retirement assets are held in index funds, the very industry that Fama’s research helped to launch. And despite his research on market inefficiencies, he also conceded that “it is not easy to beat the market, and most people don’t.”
Now listen to Daniel Kahneman, a Nobel Prize winner for his work in the field of behavioral finance. “Investors shouldn’t delude themselves about beating the market. They’re just not going to do it. It’s just not going to happen.
The bottom line is this: It’s clear that markets aren’t perfectly efficient. In fact, I’m not aware of anyone who claims they are.
[however] the EMH, while failing all the other tests of efficiency, passes the most important one – the odds of risk-adjusted outperformance, after the expenses of the effort, are so low that it simply isn’t prudent to try… the market is efficient enough to prevent the vast majority of investors from being able to persistently exploit, after the expenses of the effort, any inefficiencies.
http://seekingalpha.com/article/2163883-the-efficient-market-hypothesis-fact-or-fiction-part-4
Anonymous says
We have to wait for the next price crash to bring things to a resolution, Anonymous.
Huh? If I kill my wife, a prosecutor doesn’t have to wait until a price crash to arrest the guilty party. That makes no sense! There was either a crime or there wasn’t.
People’s views re Get Rich Quick investing schemes CHANGE after they lose most of their retirement money.
People lost half their stock investments in short order in 2008/09. From what I can tell, valuations were openly and respectfully discussed on Bogleheads in the same manner, both before and after that date. Didn’t see a bit of change.
Rob says
the market is efficient enough to prevent the vast majority of investors from being able to persistently exploit, after the expenses of the effort, any inefficiencies.
Have the people who say this seen the Bennett/Pfau research, X?
Have they studied it?
Have they participated in conversations held on discussion boards and blogs?
Have they pondered the points made in those discussions?
Have they seen the write-ups on the front pages of the New York Times and the Wall Street Journal?
Have they benefitted from the feedback of thousands of people offering their different takes on it?
That’s how we learn.
Smart and good people say the things you are quoting them as saying. That much is so.
But what will those same people say after we open the entire internet to honest posting on SWRs and scores of other critically important investment-related topic?
We won’t know the answer to that one until as a society we work up the courage to take on you Goons.
That’s when everything changes.
That’s when we put the last piece of the investing puzzle into place.
That’s when we develop an approach to Buy-and-Hold that works in the real world.
That’s when we put all this nasty intimidation and deception stuff behind us and enjoy the greatest learning experience ever enjoyed in the history of personal finance.
I wish you all good things, X.
Rob
Rob says
Huh? If I kill my wife, a prosecutor doesn’t have to wait until a price crash to arrest the guilty party. That makes no sense! There was either a crime or there wasn’t.
Was Bernie Madoff brought to justice on the first day that he engaged in the crime of financial fraud, Anonymous?
He wasn’t.
He was brought to justice when his Ponzi scheme collapsed.
It’s in the nature of Ponzi schemes that people feel good about them for so long as they are being successfully tricked. It is when they lose their money that they get angry and demand that charges be brought against the people who tricked them.
Thinking realistically, how could it be done any other way? Do you expect to people to demand prosecution of a Ponzi scheme that they still believe in?
Rob
Rob says
Didn’t see a bit of change.
I saw a HUGE change. I saw Taylor Larimore being called out on his nonsense by a good number of posters there. I never saw that in pre-crash days no matter how dishonest he was. And this was with the Ban on Honest posting still generally in effect. Holy moly!
I expect to see another huge change following the next price crash.
I expect the next huge change to be enough to swing the door open wide.
But we are both going to have to wait to see how it goes, no?
Rob
Anonymous says
I saw a HUGE change. I saw Taylor Larimore being called out on his nonsense by a good number of posters there. I never saw that in pre-crash days no matter how dishonest he was.</i.
Oh. If someone making a forum post is your idea of huge change, you probably found it. If you idea was prison sentences and your $500M payday, you of course didn't.
I think that much is fair to say.
Anonymous says
Was Bernie Madoff brought to justice on the first day that he engaged in the crime of financial fraud, Anonymous?
Alas, a single guy cooking the books at his company is in no way comparable to to massive financial fraud in very visible books and academic papers.
I can claim you committed financial fraud when you opened your mail yesterday, and site Madoff when you tell me I’m crazy. But analogies don’t make the original claim valid.
Rob says
If someone making a forum post is your idea of huge change, you probably found it. If you idea was prison sentences and your $500M payday, you of course didn’t.
The first sort of thing has to happen before the second sort of thing happens, Anonymous.
I would say that the door was 10 percent open prior to the 2008 crash.
Following the crash, it’s perhaps 35 percent open. That’s a big change.
Following the next crash, I expect it to swing to 60 percent open.
At that point, there will be so much momentum in the right direction that it won’t be possible to stop it.
But you’re not going to believe it until you see it.
I’m telling you what I sincerely believe. I can do no more and I can do no less.
Rob
Rob says
a single guy cooking the books at his company is in no way comparable to to massive financial fraud in very visible books and academic papers.
Death threats are evidence of fraud.
Demands for unjustified board bannings are evidence of fraud.
Tens of thousands of acts of defamation are evidence of fraud.
Threats to get academic researchers fired from their jobs are evidence of fraud.
All of those things are as much evidence of fraud as the cooking of books.
A jury will decide the matter.
Rob
Rob says
a single guy cooking the books at his company is in no way comparable to to massive financial fraud in very visible books and academic papers.
The latter type of fraud hurts many more people.
Had it not been for the death threats and the demands for unjustified board bannings and the tens of thousands of acts of defamation and the threats to get academic researchers fired from their jobs, all of those books and academic papers would have been corrected a long time ago.
Those books and academic papers took in a lot more people than Bernie Madoff’s cooked books ever did.
It’s not a close call.
Rob
Anonymous says
But you’re not going to believe it until you see it.
We’re certainly in agreement re: that one Rob. You said about a year ago that this should happen in the next three years, so we won’t have to wait long to find out. See you in two years.
Rob says
Fair enough, Anonymous.
Take good care, man.
Rob
Anonymous says
The only one talking about prison is you Rob. I think that speaks volumes as to how silly the topic is.
Rob says
I hope to see many more people talking about it in coming days, Anonymous.
The sooner that happens, the better, so far as I’m concerned.
I see it as the first step we need to take down a path that will lead to us all seeing lots of amazing stuff happen in our collective future.
We’ll see.
Rob
Anonymous says
I know you want to see it because you want revenge on those that have kicked you off the boards and have humiliated you. You need to get over the hurt feelings as this silly prison fantasy is really not mentally healthy.
Rob says
If I say that I believe that the Old School SWR studies are analytically valid, then I am committing financial fraud myself, Anonymous. Then I go to prison too.
Not wanting to go to prison and seeking revenge are very different things.
I don’t personally gain anything by seeing you go to prison. I don’t really care one way or the other. It just doesn’t affect me.
But the announcement of your prison sentence changes the world of investing analysis in a profound way. That announcement will go viral on the internet. Once your prison sentence is announced, no one is going to want to play these stupid games. There will be honest posting at every board and blog. THAT’S what I want to see. It is to achieve an end to the Ban on Honest Posting that I want to see you go to prison.
I don’t know what you want from me.
My sense is that you come here to get me to agree to something along the lines of what Wade Pfau and many others have agreed to. You want me to stop saying that Buy-and-Hold has been discredited by the peer-reviewed research. That’s the line you don’t want to permit anyone to cross.
And there is a sense in which I don’t even feel a need to say that Buy-and-Hold has been discredited. If I could post honestly about what the research says, that would be fine. I would be happy to keep things 100 percent positive and never even mention Buy-and-Hold.
But OTHERS always mention it. If I were to say “the SWR is x today because the P/E10 level is y,” some Buy-and-Holder will jump on the thread and say: “The studies show that the SWR is always 4 percent.” And then we are off to the races again.
I did not create this crazy situation. I cannot change it by myself.
I REFUSE to post dishonestly. Please get that one through your head. Comments that have my name on them are going to express my sincere beliefs. There is zero give re that one. Nor should there be.
That’s all I care about. It is OTHERS who bring up all the other stuff.
If someone says “the SWR is always 4 percent,” I need to explain why Buy-and-Hold has been discredited by 33 years of research to make my case for an SWR that VARIES with changes in valuation levels. There is no other way to make the case. So I have been FORCED into criticizing Buy-and-Hold.
And when I do that, you Goons come along with all your abusive trickery and I am forced to note the Goon problem. Again, not something that I want to be spending my time doing. But something that I MUST do if I am to post honestly about my views on investing and respond to challenges to what I say in an effective manner.
I don’t have any running room. I haven’t had any running room since the morning of May 13, 2002.
You can say “Seek mental help” 10,000 more times and it doesn’t change these basic realities.
I REFUSE to post dishonestly. I will NOT do it.
And everything else that has followed has followed because I posted my sincere views.
And I have no power to change this stuff. I have tried to seek help from lots of people. I have not gotten the help I have sought.
But I still REFUSE to post dishonestly re the numbers that my friends use to plan their retirements.
This other stuff is financial fraud under the laws of the United States. So it seems to me that the answer is to have you put in prison. I cannot do it today. But it sure seems to me that it would be doable following the next crash. So that seems to me to be the way to go.
If you don’t think it will happen, then you don’t think that it will happen. We are back to things that I cannot control. You think what you think.
But it seems to ME that it will happen and that it will solve all the problems. That’s my belief. My actions are based on my beliefs.
Given that I REFUSE to post dishonestly, that’s the path that makes the most sense for me at this point in the proceedings. If you have something to suggest that makes sense given the core reality here that I REFUSE to post dishonestly, I am all ears. But I’d be grateful if you would try to keep that core reality in mind when making any suggestions.
Unless you come up with something that impresses ME (not just YOU), I am going to continue living my life according to the things that I believe about the world around me.
I think honest posting is WONDERFUL. I don’t just think that it should be permitted. I think that it should be ENCOURAGED.
I believe that lots of others feel that way. I know it.
I believe that those lots of others will elect to put you in prison following the next crash. And that’s probably the best that we all can hope for at this stage in the proceedings.
I get it that you say that you don’t believe this.
I believe it.
That’s why I am going to continue saying it and continue urging the many millions of people whose lives have been affected in a negative way by the Ban on Honest Posting that getting to work on that one is the obvious way to proceed here.
I hope that makes some sense to you, Anonymous.
Please remember — I REFUSE to post dishonestly re SWRs or any other critically important investment-related topic. That one is not up for discussion. That one is SETTLED.
I naturally wish you all the best things that this life has to offer a person.
Rob
Anonymous says
Rob,
You have always been an odd person. However, you really seem to have turned yet another corner to even greater insanity. Take a look at the theme of all your posts over the last couple months. What happened to make you really go off the deep end. Is there something that happened to make you go even more wacky?
Rob says
The silencing of Academic Researcher Wade Pfau caused me to give up hope that we can overcome our economic problems without bringing the corruption that has come to dominate The Stock-Selling Industry out into the open.
I know that the Buy-and-Hold advocates are smart and good people. There are people who will question this following the next crash. But I have been watching things closely for a long time and I have seen a lot of evidence supporting my belief re this matter. So I am confident that we are dealing with smart and good people. That’s Step One in the logic chain.
The Bennett/Pfau research showed that the advance that we are on our way to achieving is absolutely huge. A 10 percent reduction in risk would be a big deal. 70 percent? That is just flat off the charts. There’s never before been an advance that big.
And it’s not just Rob Bennett who sees that. Wade expressed that thought over and over in his e-mails to me. Wade is a neutral party. He started out with no bias. He liked my stuff. But he also believed in what he learned from the Ph.D. program at Princeton. His e-mails show that, after studying these issues in depth, be became 100 percent convinced that the shift from Buy-and-Hold to Valuation-Informed Indexing is the biggest advance in the history of personal finance. So we are dealing with something that is positively huge. That’s Step Two in the logic chain.
Opening the internet up to honest posting would bring on the biggest advance in our understanding of how stock investing works ever achieved in our history. And the people who determine whether the internet will be opened up or not (The Wall Street Con Men) are good and smart people. On the surface, those two realities seem to add up to only one possible conclusion — We are going to see a quick opening up of the internet to honest posting.
Yet we have not seen this happen for 12 years now.
So we are missing some piece of the puzzle. There is something going on here that is not obvious, What is it?
It is that the delay in the opening of the internet to honest posting has already gone on too long. Bogle and all the others would LOVE to make the shift to Valuation-Informed Indexing if it could be achieved without anyone incurring huge financial liabilities or going to prison. But things are already too far gone for that.
The Wall Street Con Men and their Internet Goon Squads WANT to help investors. But they can’t. Not without seeing either themselves or their friends incur huge financial liabilities or go to prison. And they just cannot accept taking the path that leads to those events. So they rationalize continuation of the cover-up.
This has obviously been going on since before I came on the scene. I certainly didn’t know it on the morning of May 13, 2002. But the reaction to my famous post revealed the reality. We saw a huge positive reaction from those who hadn’t thought things through and thus liked the idea of enjoying a learning experience. And we saw a huge negative reaction from those who sensed where permitting honest posting on a single topic would lead and who wanted no part of it.
Nothing on the substantive side can change this.
We cannot do any better than showing how to reduce investing risk by 70 percent. That’s the biggest advance in the history of personal finance. No one is ever going to top that.
So worrying about what happens on the substantive side is a little silly at this point. Anyone in this field who achieves a major advance is going to be threatened with career loss by The Buy-and-Hold Mafia. The members of The Buy-and-Hold Mafia are in so deep than they just cannot permit fully honest posting on any important topic.
They are not just engaging in a cover-up at this point. They are engaging in a cover-up of a cover-up of a cover-up of a cover-up. So they are not going to pay attention to reasoned arguments. Things have gone way past the point at which that is possible.
What’s left?
What’s left is to prosecute the financial fraud.
We can elect as a society to do that, permitting us all to move forward together to a world in which we know much more about how stock investing works than we ever have before.
Or we can go over the cliff together following the next price crash.
Those are the only options at this point.
There is no longer any need to prove anything on the substantive side of things because everything that we need to prove has been proven 10 times over.
We won’t be heard because the interests of the millions of middle-class investors and the interests of the Wall Street Con Men and their Internet Goon Squads are now viewed by the Wall Street Con Men and their Internet Goon Squads as being diametrically opposed. The Wall Street Con Men don’t want the millions of middle-class investors learning what the last 33 years of peer-reviewed research says and they are not going to tolerate efforts to get the truth out in an effective way. And that’s that.
But we have laws that we adopted to protect us in these sorts of circumstances.
When we enforce those laws, we all move forward together.
So that’s what matters at this point. We need to enforce the laws of financial fraud against those who use abusive tactics to keep the millions of middle-class investors from learning what they need to learn.
I cannot see into the future. But I remain optimistic. If Shiller is right, we will be seeing another price crash within the next year or two or three. The 2008 crash opened the door A LOT. So there is every reason to believe that the next crash will open the door a lot MORE. That will get us to where we need to go. Once we have enough people concerned enough about where our economy is headed to stand up to you Goons, we are home free. The work on the substantive side is top-notch. Once we have the courage we need to possess to move forward on the process side, it’s all downhill sledding.
I am still going to do what I can to help people understand what the research says. The substantive side is the side that really matters in an ultimate sense.
But I don’t pretend anymore that we can achieve what we need to achieve on the substantive side without first bringing the corruption that has come to dominate this field during the Buy-and-Hold Era out into the open. Things have to be done in a certain order.
We need lots of people reporting honestly what the research says for the millions of middle-class investors to gain confidence in what works. And we are not going to see lots of people speak in honest and clear and informed ways until we do something to rein in the intimidation and deception tactics of the Buy-and-Holders. These issues are confusing enough to a lot of people that they just are never going to be able to make sense of things until we decide as a society to hold the Buy-and-Holders to the same ethical standards that we hold all other people doing work in all other fields of human endeavor.
Exposing the corruption is Job #1. Lots of good stuff will follow from that. But the good stuff cannot come first. Exposing the corruption must come first. The good substantive stuff will come second, after we have reassured people like Wade Pfau that they can do honest work in this field without seeing their careers destroyed by the sorts of individuals who have put up posts in “defense” of Mel Lindauer and John Greaney (and my good friend Jack Bogle?).
That’s why I write about the themes that I write about today, Anonymous. The 12-year saga has taught me that those are the themes that matter most. The substantive stuff matters most in an ultimate sense. But the process-oriented stuff needs to be worked out for constructive discussions on the substantive stuff to begin.
We are working at cross purposes, Anonymous.
The thing that you most do NOT want to see is a discussion of the corruption issues.
That’s the stuff that I MOST want to see at this point in the proceedings. I no longer believe that we can move forward together until the corruption stuff has been publicly examined to the point necessary for us to be able to put it behind us.
I want to see everyone posting honestly. I don’t mean just Valuation-Informed Indexers. I want to see Buy-and-Holders post honestly too.
Jack Bogle doesn’t possess full confidence in Buy-and-Hold. If he did, he would have disassociated himself from the sorts of individuals who have put up posts in “defense” of Mel Linduaer a long, long time ago.
I don’t know what level of confidence in Buy-and-Hold Jack possesses. Perhaps he believes that there is an 80 percent chance that it can work. Perhaps he thinks that the odds are 50-50. Perhaps he believes that there is only a 20 percent chance that Buy-and-Hold can work. I don’t know. But I WANT to know. And I know now that Jack is not going to tell us until he comes to the conclusion that continuation of this massive act of financial fraud is a bad idea. So the focus of all of us who want to bring this to a successful conclusion has to be to bring the Ban on Honest Posting to a full and complete stop by the close of business Monday afternoon.
That’s the difference you are seeing in my posting habits. That’s why I have “gone off the deep end,” in your terminology.
I want everyone on the planet to learn how to reduce the risk of stock investing by 70 percent. The finding of the Bennett/Pfau research is the most important finding in the history of personal finance and I want to spread the word far and wide.
My many Buy-and-Hold friends don’t want that. They feel that they will be held accountable for the 12-year cover-up if the truth comes out now.
I love my Buy-and-Hold friends. I want to see them in a better place.
But I believe that continuation of the cover-up will only put them in a worse place than where they are today.
So I want to bring the cover-up to a close.
That means talking about the corruption, not avoiding the subject.
Even many people who believe in the principle of Valuation-Informed Indexing are avoiding the subject today. They care about the Buy-and-Holders as I do and they don’t want to see them hurt. I think that they are choosing a bad path. I believe that continuation of the cover-up just makes things worse and worse and worse as times goes on.
I hope that helps a bit, Anonymous.
Please take good care.
Rob
Anonymous says
Whew, that was one jumbo sized helping of crazed conspiracy theory hocomania! I don’t think I’ll even have room for dessert!
Rob says
Okay, Anonymous.
I’ll continue to do my best to get the word out. And you will continue to do your best to stop me. And we’ll meet someday on the other side of the river and laugh about things that went down back in the good old days.
I wish you well, my old friend.
Rob
Anonymous says
I’ll continue to do my best to get the word out.
You do that Rob. I can see how it feels better to live in a dream world where you’re about save civilization from itself rather than face the reality of being an aging, unemployed dude sitting forgotten in your basement surfing the net all day.
Your $500M payday is coming, Rob. It’s right around the corner! Keep checking that mailbox. Fingers crossed.
Rob says
Every important advance in the history of humankind was led by PEOPLE doing the right thing, Anonymous. There is no other way it can be done.
I have had thousands of people respond to my work with insanely kind comments. I am grateful to each and every one of them. We all should be grateful to every one of them. Not every one of them has been brave enough to speak up in opposition to you Goons. People don’t like having the lives of their family members threatened by the sorts of individuals who have put up posts in “defense” of Mel Linduaer and John Greaney. But they helped out by putting up kind posts. And we should all acknowledge that.
I have sent e-mails to the 30,000 names on the Social Science Research Network list. I heard many kind comments from those researchers and academics as well. Many wanted to know how they can help. I told them that they can help by letting their friends know about the 12-year cover-up and about the great amount of human misery caused by you Goons and by the Wall Street Con Men who either encouraged you or failed to speak out in opposition to you. Neither you Goons nor the Wall Street Con Men possess any power over us except what we grant to you by our cowardice in the face of your brutal intimidation tactics.We all should be grateful for the kindness and intelligence evidenced by all those fine people as well.
And we should all be grateful for the wonderful work done by the Buy-and-Hold Pioneers. Many Buy-and-Holders have behaved shamefully in recent years. But we wouldn’t have learned how to reduce the risk of stock investing by 70 percent had the Buy-and-Hold Pioneers not first done the fine work that they contributed in earlier days. So I certainly intend to be sure that they get all the credit they merit while also of course insisting that they acknowledge the mistake that they made that has brought on the greatest economic crisis in U.S. history.
You Goons live in hate. I obviously get that. But I believe that there is a part of you deep inside that at some point in your life wanted to do good for others. I believe that it is your shame over your behavior over the past 12 years that holds you back from coming clean today. And, while I of course wish that you would come clean before you do more damage, I think that the shame you feel does point to some measure of good that remains alive within you. I hope that that measure of good grows stronger with time. I believe that it will following the next price crash, when you will no longer be able to deny how much damage the pure Get Rich Quick approach has done to so many human lives.
Yes, I will keep looking for the $500 million settlement payment. As I have noted before, I don’t believe that I will need to file papers to collect that payment. I believe that my good friend Jack Bogle will take care of it when he sees the harm he has done by failing to take action on the Lindauer matter. If he doesn’t, he is not the man that I have long believed him to be. If I must file papers to get the money, I will file papers. But my personal belief is that that is not even going to be necessary.
I’m grateful that I was offered this opportunity “to save civilization from itself.” Few of us are ever offered such an opportunity and I certainly had no expectation that my May 13, 2002, post was going to lead us all to such a wonderful place. Except I think it would be more honest to say that I am permitting civilization to save itself rather than helping to save it from itself. I didn’t develop all the genuine breakthrough insights in the Buy-and-Hold concept that really have stood the test of time. And I didn’t publish the 1981 research showing the need for a correction of the foolish (we now see this!) “idea” that stocks are the only thing available for sale in this world re which we are not required to exercise price discipline.
I stood up to you Goons and demanded that the magical Learning Experience proceed despite the great pain you experienced while we all went further and further and further ahead in our understanding of how stocks work in the real world. But I obviously couldn’t have done any of it without the help of thousands of other fine and kind and smart and hard-working and generous people. Even you Goons came forward with points that turned into helpful RobCasts on one or two occasions!
Hate dies out in time. It creates nothing. It is a purely destructive force.
Love is where its at. Love heals. Yes, even in the investing advice field!
Love can take the worst economic crisis in U.S. history and turn it in to something good.John Walter Russell once told us that we were going to see good things happen as a result of our efforts to get the Old School SWR studies corrected that we could not even imagine on the morning of May 13, 2002. I think it would be fair to say that John has been proven right 20 times over. He possessed an intelligence that is only ever evidenced by those who feel a deep love in their hearts. I think it would be fair to say that the day when we all will be following John’s injunction to have big bunches of fun draws closer and closer!
Hang in there, my bruised and battered (by your own hate-filled impulses!) friend. It gets better. A lot better.
Rob
Anonymous says
“I have sent e-mails to the 30,000 names on the Social Science Research Network list. I heard many kind comments from those researchers and academics as well. Many wanted to know how they can help. I told them that they can help by letting their friends know about the 12-year cover-up and about the great amount of human misery caused by you Goons and by the Wall Street Con Men who either encouraged you or failed to speak out in opposition to you.”
People by nature are polite. However, tell us how many actually do what you ask to “help” you? Isn’t that really the sign of people that are accepting what you say?
Anonymous says
How is Jack going to help you get $500 million and how did you come to that amount?
Rob says
Most people do not accept what I am saying to the extent necessary to inspire significant action on their part. I can give you that one, Anonymous.
However, the kind comments are not solely the result of a desire to be polite. That probably plays a role. But I have seen enough responses in enough different sorts of circumstances to know that there is more behind their responses than just that.
People are curious about these issues. Most people believe that Buy-and-Hold makes sense. But lots of people have a nagging sense that it does not all hang together. They have doubts. When they see someone exploring the reasons for those doubts and pointing in a new direction, they are interested in hearing more. There is a genuine interest out there in these ideas.
The problem that I face is that the valuation issue is such a big deal. It is 80 percent of the game. People don’t like extreme jumps. People would be perfectly happy with Valuation-Informed Indexing if it represented a small change from Buy-and-Hold. It doesn’t. It represents a huge change. People don’t like that. It doesn’t ring true to them. The size of the change is a turn-off to people.
One of the reasons why I know this is that I had these same feelings myself. Back in the early days, you Goons would often demand that I say what the true SWR is. I didn’t know. I knew that a study that doesn’t account for valuations cannot get the numbers right. But knowing that did not tell me what the right number was. At one point, you kept pressing me so hard that I took a guess.
I said that at the highest possible valuation levels I thought that the SWR might drop to as low as 3 percent. I acknowledged that I didn’t know, I was just guessing. But what made me guess that number?
I didn’t dare to go with a lower number because I viewed that number as shockingly low. A CD that provided a zero return would have an SWR of 3.3 percent (because you could make that withdrawal for 30 hears before running out of money). When I guessed that stocks might have a SWR of 3 percent when valuations are super high, I was guessing that stocks might be a worse choice for a retirement account than an asset class proving a return of zero. That’s pretty darn counter-intutive. It was a guess that in many ways was shocking on the low side.
But when we looked at the data we found that it was not nearly low enough!
The correct number for retirements beginning in 2000 was 1.6 percent. That’s about half of my shockingly low guess!
It’s this distance between what Buy-and-Hold (which is endorsed by many good and smart people) tells us and what Valuation-Informed Indexing tells us that causes people to be skeptical of Valuation-Informed Indexing. People get the logic. People have no problem with the logic. Valuations matter. Everyone gets that. It’s not a problem.
But how much do valuations matter?
That’s the next thing we need to know after we reach a point where we acknowledge that valuations matter. When we look at the data for guidance on answering that question, we come up with some pretty darn shocking stuff.
It’s not bad news. It’s good news. The extent of the learning experience we end up enjoying determines how much we can reduce risk and how much we can increase returns. So we should want the difference between BH and VII to be huge. The bigger the advance, the better off we all will be tomorrow compared to where we stand today.
But the usual emotional reaction is not to feel excitement over how much we are in the process of learning. The usual emotional reaction is to feel shock over how little we know today. It scares us to see how big the gap is between BH and VII. And so we close our minds to the new findings. This is the greatest thing that ever happened in the personal finance field. But we don’t want to know about it. Most of us have a hard time letting in the good news.
People are not just being polite. People care about the answers to these questions. But people are scared because the change is so big. So people are reluctant to offer quick or easy acceptance of VII.
There’s nothing wrong with that. Skepticism re a big change is natural and healthy.
However, there IS something wrong with cutting off the learning process before it gets going.
We need to let people learn what they are interested in learning. We cannot force them to accept new ideas too quickly. That will never work. But we have to stop shutting down their opportunities for learning about the new ideas and gradually becoming more comfortable with them.
You are capable of becoming a Valuation-Informed Indexer. You don’t see it today. But if lots of people whom you respected started talking about it in positive ways, there would come a day when you would buy into the concept. But you are not going to go there for so long as it is only me pushing the idea. We need to get other people on board. We need to get other advocates of VII participating in our discussions.
We need to encourage such discussions.
Everyone should be encouraged to express every bit of skepticism that he or she feels. The process won’t work if people hold back.
But the ugly stuff has to be put to a stop. Intimidation is anti-learning. Communities in which intimidation is a dominant factor are communities in which learning does not take place. People need to feel free to say just what is on their minds for a learning experience to take place. We need to all join together in a demand that the funny business comes to a full and complete stop.
People are interested in learning more about the ideas. There is a mountain of evidence showing this.
But people are skeptical and unsure and possess less than an intense conviction about the merit of the new ideas. We need to let their confidence grow gradually. We need to let them say both positive and negative things as they please so that they can test out different possibilities in their heads and over time figure things out for themselves.
There is huge interest in the ideas. There are millions of people who today possess a desire to learn more.
But very few today possess confidence in the merit of the new ideas. Confidence can only grow slowly and gradually and in a step-by-step manner.
People care about this stuff. But their default belief is that the experts must know what they are talking about. They don’t. The experts are not dumb and the experts are not evil. But they have made a mistake. And they have elected to rationalize the mistake rather than to correct it. That compounded the problem. Now we have to figure out how to get out of the trap we find ourselves in.
We do it through conversation.
We need to stop the attacks. We need to stop the ridicule. We need to stop the deception. We need to stop the intimidation.
We need to try to learn. We need to abandon dogmas and re-examine first principles. We need to open our minds to all sorts of possibilities.
We should retain our skepticism. That’s natural and healthy. But we hurt ourselves when we let our skepticism become evidenced in defensiveness. If the conventional beliefs are right, they will stand up to scrutiny. If the conventional ideas are faulty, that is something that we all very much need to learn as soon as possible.
Not many people fully buy in to what I am saying today. You are right about that. But it is a minority that is 100 percent unwilling even to entertain discussion of the new ideas. Most people are happy to see the discussions proceed so long as they are conducted in a civil and reasoned and friendly and warm way.
That’s my sincere take re these terribly important matters, in any event.
Rob
Rob says
How is Jack going to help you get $500 million and how did you come to that amount?
Jack will help by getting everyone involved and by seeing to it that the matter is handled properly.
People who give investing advice need to have the confidence and trust of the millions of middle-class people who turn to them for guidance. They obviously need for the the field to be accepted as one in which ethical behavior is both permitted and encouraged.
We now have a situation in which academic researchers do not feel comfortable doing honest work. That is obviously 100 percent unacceptable. Jack obviously wants that to change. When he goes to influential people in the field and suggests a settlement, they obviously are going to want to help work something out.
I came up with the figure through a two-step process.
Things had reached a point a few years back where I knew that I needed to come up with a figure. I remember seeing an article reporting that Jason Werth received $170 million from the Washington Nationals when he was signed as a free agent. Someone made the point that he was being rewarded for a lifetime of work. I related to that comment. My settlement amount is not for one incident. It is compensation for a lifetime of work. It’s not even just for the last 12 years of work. There were many years of preparation (going to law school, studying psychology in college, gaining experience as a journalist, coming to a deep understanding of politics while working on Capitol Hill, figuring out how internet communities work in the days before I posted on investing, etc.) that made my achievements over the past 12 years possible.
So my first thought was to round off the $170 million figure to $200 million and put forward that figure. I don’t remember where I put that number forward. I have a vague recollection that it was at the column at the Death by 1,000 Papercuts site but perhaps it was just in a comment posted at this blog. I just don’t remember. As soon as I saw the $200 million figure in print, I knew that it was too low. It sends the wrong signal for me to accept an amount not much bigger than the amount that was paid to an outfielder who was a solid player but not really a superstar. So I knew that I needed either to double or triple that figure. I decided to go halfway between a doubling and tripling and have stuck with the $500 million figure ever since.
The proper way to do it is to calculate damages suffered. But that would be an insanely high number. The $500 million number is obviously a very big number for an individual to receive. But this is a case where my work is changing the history of personal finance. Had there not been abusive posting (or had there been abusive posting and had people like Bogle taken action to rein it in), the insights that I have developed at this site would have stopped the economic crisis from taking place. That obviously would have been worth trillions, not millions. I could have protected millions of middle-class people from suffering failed retirements had I been able to publicize the errors in the Old School studies. The market for an investing strategy that reduces risk by 70 percent while increasing returns enough for people to retire five to ten years sooner is obviously off the charts. That would have brought in billions in earnings by itself had it not been for the abusive stuff and for the tolerance for it by Big Shots in this field.
$500 million is a huge number, viewed from an individual perspective. But it is a very modest number viewed from the ordinary way in which legal damages are calculated. I felt that I didn’t want to go higher than that because I wanted to send a signal that I want to do everything possible to get the nasty stuff behind us and to move on to the exciting exploration of the new ideas. But I also didn’t want to go so low as to send a signal that as a society we don’t place sufficient importance on getting the numbers used in retirement studies and to make asset allocation decisions right.
I view the $500 million number as high enough but not too high. I view it as roughly right and I am confident that all my Buy-and-Hold friends will agree once they come around to appreciating the magnitude of the advance we are achieving as we make the transition from Buy-and-Hold to Valuation-Informed Indexing. We ALL benefit from this. It is a win/win/win/win/win. It’s rare to be able to achieve such an advance without some segment of society having to pay a price (for example, there’s a price to be paid for lowering the budget deficit). This is all good stuff, with no possible downside.
I want the number to be high enough to signify widespread acceptance of that reality. I also want it to be low enough to insure that making the payment does not impose enough of a burden on anyone to cause them to hold back on agreeing to it. I am looking for a no muss/no fuss settlement with my Buy-and-Hold friends.
It’s the stuff that happens AFTER the settlement payment is made that will be truly exciting. We are looking at the biggest economic surge in our history. We are showing people that our free-market economic system works for everyone, not just Big Shots. I want to get to the place where we are all enjoying the benefits of these powerful insights as quickly as possible. I want to bring an end to The Debate About Having a Debate and move on to the debate proper. It’s exciting to think how close we are to some amazing advances. I intend to make sure that all of my Buy-and-Hold friends are presented with opportunities to participate in the good stuff that follows from this in a very big way.
Rob
Anonymous says
The problem that I face is that the valuation issue is such a big deal. It is 80 percent of the game.
Here’s what a team of Vanguard PhDs and CFAs say:
Figure 2 reveals that the predictability of valuation
metrics has only been meaningful at the 10-year
horizon. Even then, P/E ratios have explained only
approximately 40% of the time variation in real
stock returns.
https://personal.vanguard.com/pdf/s338.pdf
Uh oh.
Rob says
I view the Vanguard paper as being highly supportive of Valuation-Informed Indexing principles. At one point it states that “returns are better stated in a probabilities forecast” and that in the short term returns are not predictable at all. That’s Valuation-Informed Indexing! That’s what I have been saying over and over again since the first day. That’s what the Return Predictor shows. So I have not until now been able to figure out why you keep bringing up this paper.
I re-read your comment above and it hit me. I say over and over again that valuations are 80 percent of the game and the paper says that P/E ratios explain only 40 percent of the time variation in real returns. You are viewing the difference between the 80 percent number and the 40 percent number as a discrepancy.
I am NOT saying that valuations are responsible for 80 percent of the return in any given year. I stand by my statement that understanding and acting on valuations is 80 percent of the strategic stock-investing game.
There are two broad types of factors that affect returns: (1) rational factors; and (2) irrational factors.
The rational factors are all the things that should and do affect stock prices, all of the things that affect the profitability of the underlying businesses. Fama showed that all of these factors are quickly incorporated into the price of stocks. The Valuation-Informed Indexer does not dispute this finding. We endorse it. The Vanguard study is saying that all of these factors added together comprise 60 percent of the price.
The irrational factors are the emotional factors that cause mispricing (overvaluation or undervaluation). These factors are non-business, non-economic factors. They are emotional factors. The significance of these factors at any given point in time is signaled by the P/E10 value.
As an investor there is nothing you can do about the 60 percent of rational factors. So no strategic considerations come into play. If rational factors determined 100 percent of the market price, the market would be efficient (because there would be no emotional factors throwing things off) and Buy-and-Hold would be the ideal strategy. If there were no emotional/non-rational factors to take into consideration, risk would be constant. The investor would always be justified in having an expectation of a long-term return of something near 6.5 percent real.
There IS something you can do about the 40 percent emotional factors.
This study (and every other study that has looked at the question in an even remotely reasonable manner) shows that the market is NOT efficient and that RISK is variable, not constant. Buy-and-Hold does NOT make sense. Investors MUST change their stock allocations in response to big valuation shifts to have any hope whatsoever of keeping their risk profiles roughly constant over time.
The 40 percent of the total return that depends on the P/E10 level is the only portion of the total return to which the investor can respond in a strategic way. The logical response is to increase one’s stock allocation when prices are low and risk is low and to lower one’s stock allocation when prices are high and risk is high. That’s Valuation-Informed Indexing. That’s the entire concept. That’s the approach that lowers stock investing risk by nearly 70 percent, according to the famous Bennett/Pfau research paper (the only research paper so compelling that it caused the Buy-and-Holders to threaten to destroy the careers of the two authors of the paper so desperate was their desire to keep millions of middle-class investors from learning about its findings).
Valuations are not 100 percent of what determines the market price. Rational, economic factors obviously play a huge role. But there is nothing that the investor can do about those factors. They are a given.
The investor MUST change his stock allocation in response to the 40 percent of emotional factors. So far as allocation changes go, valuations are 100 percent of the game. There is no other factor that permits a high degree of predictability, according to the research. So I believe that valuations are the ONLY factor that an investor should be looking at when making the necessary allocation changes.
I reason why I don’t say that valuations is 100 percent of the game is because there are considerations other than getting one’s stock allocation right that come into play. For example, it makes sense to limit one’s fees. If one company has lower fees than another, that will affect the investor’s long-term level of success. That is a non-valuation factor. Another example of a non-valuation factor that matters is that most investors should be going with index funds rather than picking individual stocks. Failing to go with indexes is not a fatal mistake. But I do believe it is a mistake for all investors except those who possess the skill and willingness to do research needed to win at the stock-picking game.
My claim is that getting your stock allocation right is the most important thing (80 percent of the game). And that the investor MUST take valuations into consideration to get his stock allocation even roughly right. If you ignored valuations, you might have gone with a 74 percent stock allocation in 2000 (the Greaney study identified this allocation as “optimal” at all times). If you considered valuations, you probably went with an allocation of about 20 percent. That’s a big difference and getting that one right is going to pay off big time in the long run if valuations are indeed responsible for 40 percent of the market price (that is, if stocks continue performing in the future anything at all as they always have in the past).
The Vanguard study shows that the valuations factor is huge. It is the ONLY significant factor to which the investor can respond in an effective manner. All he needs to do is to look at the P/E10 value and make the required allocation changes. If he fails to do that, he hurts himself big time.
There is no excuse for any investment advisor to fail to stress the importance of valuations in the year 2014. A factor that determines 40 percent of the market price is far too important a factor to be ignored. I would go so far as to say that it is financial malpractice for any advisor to ignore the valuations factor (responsible for 40 percent of the market price according to Vanguard!) in the year 2014. Shiller did not publish his revolutionary research last week or last month or last year. He published it in 1981. That’s 33 years ago!
There are legitimate differences of opinion as to HOW MUCH one should change one’s allocation in response to valuation shifts. That’s why we need a national debate on these questions. We need to get all viewpoints re these matters aired! But the issue of whether valuation-informed allocation changes are required for those seeking to have some realistic hope of long-term investing success has been settled beyond any reasonable dispute. Even Vanguard (the lead promoters of Buy-and-Hold investing strategies) is on board! Bogle hasn’t given his “I Was Wrong” speech yet but the company he founded has published research showing why he needs to make it to come clean about false and deceptive claims he has made in earlier days which have done great financial harm to millions of middle-class investors.
Come clean, Old Saint Jack!
Do it before the close of business tomorrow!
Don’t worry about Mel Lindauer! I will take over the Bogleheads Forum and I will protect you from him!
Rob
Anonymous says
Rob, for your opinions need to be valid, all of these financial experts either need to be lying, part of a mass conspiracy or not smart enough to have figured things out……………or………….you are wrong.
Rob says
It’s a combination of those, Anonymous.
We didn’t make a serious effort to figure things out until the mid-1960s. In earlier days, different people had different opinions on how the stock market worked. But it was generally not the subject of sustained and systematic academic study. The Buy-and-Hold Pioneers had the most important breakthroughs in the mid-1960s. It’s only from that point forward that it became reasonable to refer to the study of stock investing as any sort of science.
The Buy-and-Hold Pioneers got one important piece of the puzzle wrong. They showed that short-term timing never works and then jumped to the hasty, false conclusion that long-term timing also does not work. It wasn’t until 1981 that that question was tested by research. Shiller then showed that long-term timing always works and is always required.
From 1981 forward, the experts have been suffering from cognitive dissonance. The idea that timing doesn’t work is a fundamental belief. They are having a very hard time giving that one up. It’s not quite right to say that they are “lying.” They are saying wrong things. They should know that these things are wrong from following the research. But they simply are not able to process what they read in the research. If valuations affect long-term returns, long-term timing is required for any investor hoping to keep his risk profile stable over time. You don’t need to be a genius to see that. But the people who are “experts” in this field are blind to the implications of Shiller’s research because they cannot bear to question the core belief of the investing paradigm around which they have built their careers.
Cognitive dissonance is a real thing, Anonymous. Please check the literature in the field of psychology if you don’t believe me. This is a compelling illustration of the phenomenon. But it is certainly not the first time that we have seen something of this nature take place. It also would help to read the book “The Structure of Scientific Revolutions.” Several of the academics to whom I wrote referred to this book in trying to explain why the implications of Shiller’s revolutionary finding have been ignored for 33 years.
People have a hard time processing really big changes. The shift from Buy-and-Hold to Valuation-Informed Indexing is a HUGE change. There’s never been a change this big before in this field. So it is taking some time for people to process it. It’s actually HARDER for people who possess a high level of expertise in the field to process the changes. They have more of an emotional stake in the old paradigm.
I don’t feel comfortable saying that there is a “mass conspiracy.” There was never a day when a group of people got together in a smoke-filled room and decided on a plan to keep knowledge of the implications of Shiller’s findings from millions of middle-class investors. But the Buy-and-Hold Mafia is a real thing. Bloggers who push Buy-and-Hold know that they will not be able to persuade their readers to follow their advice if they permit honest commenting at their blogs. Mutual fund companies know that they will not be able to persuade their clients to remain fully invested in stocks if they learn the realities. Stock brokers know that they will make more money in the short term if people don’t learn about what the last 33 years of peer-reviewed research says. Lots of people benefit in the short-term from keeping millions of middle-class investors in ignorance.
And those people have been acting in the self-interest. They are telling untruths. For example, the claim that “long-term timing is not absolutely necessary” is an untruth. Long-term timing is price discipline. It is absolutely required. But the people who tell this untruth believe the untruth themselves, at least to some extent. They know that Shiller published research casting doubt on the fundamental principles of Buy-and-Hold. But they tell themselves that Buy-and-Hold probably kinda, sorta works. These are generally honest people telling untruths in this one particular area because the knowledge that was brought to light by Shiller is knowledge that millions of people wanted very much to ignore for so long as stocks were insanely overpriced.
Not all untruths are spoken by people with an intent to lie. When people said in pre-Civil Rights days that “blacks are better off with the world being the way it is than they would be if they were given equal rights,” many of them believed it on a least one level of consciousness. It wasn’t only whites that said that sort of thing. Many blacks said that sort of thing. There was a level of consciousness on which they wanted to see change (and there is a level of consciousness on which John Bogle wants to understand the implications of Shiller’s findings). But they were afraid to step into a new world; they were more comfortable staying in the old world despite its imperfections.
There’s something between telling truths and telling lies. There’s being too emotionally afraid to bear looking at new truths to be able to bear giving up old ones.
You Goons tell lies. You Goons have told many, many lies. But even you Goons rationalize your lies. You tell yourself that it is okay to tell them because you have to “protect” investors from hearing views that you believe are dangerous.
The Wall Street Con Men tell partial lies. Bogle says that it is not necessary for investors to change their stock allocations by more than 15 percent even when stock valuations reach insanely high levels. The historical return data shows that investors need to change their stock allocations by 60 percent when stock valuations reach insanely high levels. So what Bogle says is certainly not true. But I don’t think it is quite right to call it a “lie” in the way that the word is usually used. Bogle tells himself that 15 percent is enough. He tells himself that we are not going to see another crash anytime soon. He tells himself that the promotion of Buy-and-Hold was not the primary cause of the economic crisis. People tell themselves all kinds of things when they are working hard to ignore discoveries that they find it painful to confront, Anonymous. Humans do this sort of thing ALL THE TIME.
Bogle behaves with a greater level of dishonesty when he fails to respond to my e-mails seeking help with the Lindauer matter. He has a responsibility to take action when he learns that a discussion board with his name on it is being misused in that manner. I am not sure that this act of dishonesty can be excused with references to the cognitive dissonance phenomenon. That’s something that we are going to have to decide as a society. My job is to report the realities with honesty and charity. The decision as to what sorts of consequences will fall on Bogle as a result of that particular act of dishonesty is not mine to make.
That’s my sincere belief as to what is going on. I won’t say that it is not a strange story. I acknowledge that it is mighty strange. But things are not as black and white as you suggest. There is corruption present in our story. But the amount of corruption is not as great as one would intuitively think to be the case on first hearing that “experts” continue to advocate Buy-and-Hold strategies 33 years after peer-reviewed research was published showing that there is zero chance that they could ever work for even a single long-term investor.
These are big changes. And humans have a hard time processing big changes. And there are particular factors present here that makes these particular big changes particularly hard to process. One special factor is that the new understanding evidences itself only in the long term and for a good number of years Buy-and-Holders experienced a powerful amount of positive short-term feedback re the merit of their investing strategy. Another special factor is that the experts do not feel that they have available to them the option of saying that there are two schools of thought that lead to opposite strategic implications. That’s the truth here. But the experts in this field feel that to speak that truth plainly would cause people to question their expertise. A third special factor is that experts who give bad advice can be held financially liable for losses suffered as a result. That makes people in this field reluctant to acknowledge mistakes.
We are in a transition period. Buy-and-Hold is the past. Valuation-Informed Indexing (which is Buy-and-Hold with the Get Rich Quick element removed) is the future. Those are the realities.
Humans are imperfect creatures. It can take time for them them to acknowledge and correct mistakes. That’s another important reality.
We all should be working together to make the transition to the new model as painless as possible for as many people as possible. We should be trying to help heal wounded egos rather than trying to polarize debates and stir up trouble. That’s my sincere recommendation.
The world is not as simple as you once imagined it to be, Anonymous. You cause a lot of pain by ignoring the complexities, both to millions of others and to yourself.
Rob
Anonymous says
“It’s a combination of those, Anonymous.”
Which then means that not a single expert has the full combination of being honest, avoiding conspiracies and is knowledgeable……..and that you alone, Rob, is the only one that has all three of those attributes.
Rob says
I don’t think that what you say here is too terribly far off the mark, Anonymous.
We all have different strong points and different weak points.
There are areas where Bogle’s knowledge base is so far greater than mine that it would be silly to compare the two.
That’s true with Shiller too. And of course with lots of others.
But if you limit the discussion to valuations, I far surpass Bogle. He is not in my league. Not because he is dumb. He is very smart. But he has elected not to learn about valuations. He has deliberately stunted his own growth in this area. So I have been able to race ahead of him. It may be that someday he will start devoting his energies to coming to a better understanding of the effect of valuations and then he will surpass me in that area too. He has chosen until today not to do that.
Valuations happens to be the most important subject matter for the majority of middle-class investors. This is the are where we had a huge advance a number of years back that most experts in the field have elected (not with full intent, but still…) not to pursue. So I have been able to go to the head of the class on an overall basis without going to investing school or managing a huge fund.
It’s been easy for me to avoid conspiracies. I never advocated Buy-and-Hold. So I never had any vested interest in it. I never experienced any psychic pain reading Shiller’s work or exploring the implications of it.
And, yes, I try to be honest. I think these other people do too. I believe that one of the big problems we have is that they feel that I am calling them dishonest when I say that they got the SWR wrong and they become defensive about it because they view it as important to be honest. So I do believe that they try to be honest. I often say that they are “smart and good people.” But their cognitive dissonance does not permit them to be fully honest.
Please remember that I was not fully honest in the days prior to May 13, 2002. I rationalized not speaking up about the errors in the Old School SWR studies for a time. I do not say that I am better than other people. Part of the reason why I have had to play it so honest is that I have had you Goons on my back for 12 years and, if I engage in one tiny bit of dishonesty, I am sure to be burned at the stake for it. My personal circumstances are more than a bit unusual.
The bottom line is pretty much as you say. The work that I present here is the product of a combination of a reasonable amount of intelligence and a reasonable amount of integrity. That happen to be a rarely found combination in InvestoWorld in the year 2014. So, yes, I believe that the investing advice offered here is superior to what is available just about anywhere else.
I wish it weren’t so. Anonymous. I would like to see all my blogger friends offering top-notch investing advice. I would like to see Jack Bogle offering top-notch investing advice. I would like to see Index Universe and Bogleheads Forum and Motley Fool and Early Retirement Forum offering top-notch investing advice.
You know what it takes, right?
We need to hear Bogle give his “I Was Wrong” speech.
That will clear the air for everything. That will launch the national debate we all need to hear.
Then EVERYONE will be offering advice that shows millions of middle-class investors how to reduce the risk of stock investing by 70 percent while increasing returns enough to permit them to retire five to ten years sooner than they ever imagined possible.
You know what, Anonymous? You should stop worrying about me getting the credit for all the wonderful material at this site. If you spent one-tenth of the energy learning from that material and spreading the word, you wouldn’t have to sweat it so much that I will be getting the credit for all this amazing stuff.
I am going to get plenty of credit. I deserve it. I sweated blood getting all this stuff right. I had to fight you Goons with two arms tied behind my back every step of the way. And I never flinched. I never quit. I never even slowed down. I am about as proud of my performance here as you would be proud of yours if the tables were turned.
But I am not going to be the only person getting lots of credit. This is so huge that there is plenty of credit to go around. LOTS of people will be getting lots of credit.
Here’s a tip: The early adapters are going to get the MOST credit.
Do you see what I am hinting at here?
My best wishes to you, old friend.
Rob
Anonymous says
In short, Rob, you are the only financial expert with the total package, right?
Rob says
In short, Rob, you are the only financial expert with the total package, right?
As of today, I believe that’s so, Anonymous.
Most people in this field are scared to death of you Goons. Many, many people have grave doubts about Buy-and-Hold. But they are afraid to say what they believe. So they are not helping their clients and readers to the extent they could. And they are not enjoying the day-to-day learning experience that they would be enjoying if they were speaking with 100 percent honesty and then further developing their views as a result of the feedback they obtained when they expressed themselves honestly.
Learning is a building-block process. I started laying the blocks on the evening of August 27, 2002, when John Greaney put forward his first death threats and 200 of my fellow community members endorsed his act. That told me that Buy-and-Hold is a 100 percent emotional strategy, something that I want nothing to do with. So that was the day that I began my effort to learn what DOES work, the strategy that I called “Valuation-Informed Indexing.”
I wouldn’t say that I have the TOTAL package, except in relative terms. I certainly don’t know it all. I certainly would know a lot more today of all of my many Buy-and-Hold friends had been participating in positive and constructive and life-affirming discussions for the past 12 years instead of engaging in or tolerating all this abusive garbage, which adds precisely zero to the equation.
I am confident that I will know a lot more one year after we open the internet up to honest posting than I know today. So I don’t today possess the TOTAL package in an absolute sense.
However, I am okay saying that I come the closest to possessing the total package today. I have demanded honesty of myself ever since the night of August 27, 2002. I probably have messed up from time to time without intending to and without even knowing that it happened. All of us humans are guilty of mess-ups from time to time. It comes with being human.
But if someone asked me what is the best site on the internet to go to to obtain information as to how the typical middle-class investor should invest his retirement money, I would send that person here. I think the information available here is better than the information available anywhere else today.
I would caution that person never to take anything I say as gospel just because I say it. I would strongly urge that person to go to lots of other places and hear lots of other views before placing confidence in anything I say. I would note to that person that I never went to investing school and that I never managed a big fund and that my only claim to expertise is that I figured out how to get my words posted to the internet.
But, yes, I would send that person to PassionSaving.com to obtain the best information on stock investing available today. I am the lead author of the breakthrough research showing investors how to reduce stock investing risk by 70 percent. It doesn’t get any better than that. So this site should be the starting place for anyone seeking to come to an up-to-date understanding of how the markets work in the real world. This is the only site on the internet that explores in depth the implications of Shiller’s revolutionary research findings of 1981.
Does all that make good sense, Anonymous?
Rob
Anonymous says
And so you are saying that you would be wildly successful from a career standpoint as well as a financial standpoint if it were not for the goon conspiracy? Do I have that right as well?
Rob says
Absolutely.
100 percent.
And the United States would not be in an economic crisis had Motley Fool addressed the Goon problem when I sent them an e-mail asking them to do so. This was in June 2002!
And everyone in the investing advice field would be better off. People would have more confidence in stocks than they ever had before knowing that it is now possible to reduce stock investing risk just by being willing to abandon Buy-and-Hold/Get Rich Quick strategies.
And bloggers would be making money hand over fist developing all the new tools and books and calculators and podcasts that people need to make the transition from Buy-and-Hold to Valuation-Informed Indexing.
The last 33 years have been the most important 33 years in the history of personal finance. We now have the missing piece that explains why stock investing was risky in earlier times but no longer needs to be so for any society that opens the internet up to honest posting on safe withdrawal rates and scores of other critically important investment-related topics. We have denied ourselves the benefits of our breakthrough advances of the past three decades out of deference to the hurt feelings of the Buy-and-Holders (and our of deference to our own hurt pride in having fallen for their Get Rich Quick mumbo jumbo). But there is no law saying that we can not as a society elect to change all that beginning at the close of business today.
I vote for us all letting ourselves off the hook, Anonymous.
Personally, I don’t even see any need to wait for the next price crash.
And you?
Rob
Anonymous says
Rob,
Sit back and read what you posted. Don’t you see how that comes off as you having a “messiah” complex. Further, the likelihood of just one person you) has uniquely come to a conclusion that many more knowledgeable and successful people have not, is so remote, that there is minimal credibility in such a position.
Rob says
But it’s not just one person, Anonymous.
Shiller’s book was a bestseller. It is in most public libraries. At every large blog and board at which I have told people about Valuation-Informed Indexing, it has gotten HUGE support. When I tell people about it at the Financial Bloggers Conferences, they are fascinated. I have some of the biggest names in the field endorsing my work in the 200 comments at the “People Are Talking” section of the site. I also have had thousands of my fellow community members say that they have never heard of an approach to stock investing that made as much sense.
The problem is that Get Rich Quick is such a money-maker. It is human nature that, if you offer to make people multi-millionaires if they will just agree to promote a Get Rich Quick to investing, lots of them are going to be willing to do it. The way they live with themselves is to rationalize what they have done. They tell themselves: “Oh, maybe it won’t be so bad, maybe stocks will not continue to perform in the future anything at all as they have always performed in the past.”
And how do you think that people who have been working such a scam for years are going to feel when they get called out on it? They are going to feel very, very, very defensive. Sound familiar?
We are in a unique period of time. There once was research that appeared for a time to support Buy-and-Hold strategies. Then that research was discredited. Now we know what really works. But lots of people have built careers pushing what doesn’t work and they don’t want to be exposed.
Why is that so hard to believe? Con men NEVER want to be exposed. I mean, come on.
If there were even a sliver of support anywhere in the historical record for Buy-and-Hold, we could all be friends because I could point to that sliver of support and use it to try to help you save face. But there is no sliver of support. I cannot make stuff up. Wade searched all the literature and never found one tiny sliver of support. I wonder why.
There are LOTS of knowledgeable people who have expressed a desire to come clean. Wade Pfau did that. Larry Swedrow did that. Bill Bernstein did that. Jack Bogle did that. Why do you think all these people have expressed a desire to come clean if there is nothing to what the last 33 years of peer-reviewed research says?
The problem is that they will become liable for huge financial penalties and in some cases prison sentences when the 12-year cover-up is exposed. Are you really saying that you cannot understand why rich and powerful people would want to avoid having to pay damages or go to prison? Are your serious?
The 12-year cover-up is the biggest act of financial fraud in the history of the United States. I haven’t “uniquely” come to that conclusion. EVERYONE sees that. That’s why they are so afraid. Rich and powerful people strike out when they are cornered. We have been seeing that for 12 years now.
The only thing that I have done differently than lots of others is that I use words like “financial fraud” and “prison sentences.” I do that because I want to bring this to an end. I want to keep the prison sentences as short as possible. And I want to get us out of this economic crisis. I want to spread the word everywhere about the amazing research that I co-authored with Wade Pfau that shows investors how to reduce the risk of stock investing by 70 percent. Wade wants to do that too. He told me so on numerous occasions.
Wade is scared of the Wall Street Con Men and you Goons. He doesn’t want to lose his job.
So is every other academic researcher out there. They ALL will be telling the truth about scores and scores of critically important investment-related topics once Bogle gives his “I Was Wrong” speech.
I didn’t cause the corruption in this field, Anonymous. I am the one trying to bring it to an end.
I certainly don’t apologize for trying to do so. I think it would be fair to say that every last one of us will be better off after Jack gives his speech and we all are freed to talk honestly about stock investing once again.
If you think I am the only one saying that there is no valuation adjustment in the Old School SWR studies, you need to think again The Wall Street Journal has backed me up on that one. The Economist magazine backed me up on that one. Wade Pfau backed me up on that one. Smart Money backed me up on that one. Bill Bernstein backed me up on that one.
The Campaign of Terror has nothing to do with what the research says. There is no intellectual content to it. It is a power play. It is corrupt people covering up their mistakes, nothing more and nothing less.
When the corruption is exposed and prosecuted, all the nasty stuff comes to a full and complete stop.
If you are saying that no one has ever engaged in corruption before in the quest to turn a dirty buck, you are just misinformed. The Buy-and-Holders have come up with nothing new. They have caused greater losses than we have seen from any earlier act of corruption. But the basic idea of behaving in a corrupt manner to turn a dirty buck is something that we have seen many times before. That’s why we adopted laws against financial fraud in the first place.
But you knew all that, didn’t you?
Rob
Anonymous says
And the United States would not be in an economic crisis had Motley Fool addressed the Goon problem when I sent them an e-mail asking them to do so.
Rob Bennett saves the world with an email!!!
Rob says
I’ve sent a lot of e-mails, Anonymous.
And I’ve written a lot of articles.
And I’ve recorded a lot of podcasts.
And I’ve submitted a lot of Guest Blog Entries.
And I’ve authored a lot of weekly columns.
And I’ve posted a lot of comments at discussion boards and blogs.
And I’ve developed a lot of calculators.
And, yes, that is how one goes about changing the world.
Lots of people complain about the economic crisis. How many do something constructive and positive and life-affirming about it?
Lots of people complain about the riskiness of stocks. How many do something constructive and positive and life-affirming about it?
Lots of people complain about the nastiness of internet Goons. How many do something constructive and positive and life-affirming about it?
Lots of people complain about the avarice and deceit of the Wall Street Con Men. How many do something constructive and positive and life-affirming about it?
When a person has an opportunity to change in the world in an amazingly positive way fall into his lap, my sincere view is that he should get off his duff and DO something about it.
No apologies whatsoever.
My best wishes to you and yours.
Rob