Valuation-Informed Indexing #179 — The Role of Shame in the Formation of Bull Markets

I’ve posted Entry #179 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Role of Shame in the Formation of Bull Markets.

Juicy Excerpt: You’re a teenager hanging out with a group of your teenager friends and one of them announces that he has obtained the fake identification needed to obtain alcohol for all of you. You feel uneasy about where things might lead.

That’s the dynamic that applies in the early days of a bull market. Lots of us know that the big price jumps are phony. But speaking up makes us look like killjoys. Everyone wants more money in his or her retirement account. No one else seems to be speaking out. What’s the harm, anyway?


  1. Anonymous says


    Do you think your “good friends” Jack, Bill, Larry, Rick, etc. will even talk to you? Do you think your “good friend” Wade Pfau will ever speak to you personally again?

  2. Rob says

    Of course I do.

    Following the next crash, we will all be working together to rebuild our broken economy and to bring on the greatest period of economic growth. It’s going to be a blast.

    It is clear from statements made by the people you mention that most Buy-and-Holders understand today that there are serious problems with the strategy. They don’t appreciate the full extent of those problems and they have hopes that we won’t see another crash. But they are not at all comfortable with the long cover-up and would love to be able to explore the realities as revealed in the last 33 years of peer-reviewed research on a daily basis.

    They feel trapped. The cover-up has already gone on so long that they worry that there will be tens of thousands of civil lawsuits and, in the most extreme cases, criminal prosecutions. Everyone wants to move forward but each of them is also afraid of what will be done to him if he is the one who says what needs to be said to get the ball rolling. Everyone wants the safety provided by being part of a large and powerful group. We need something scary enough to prompt action by the entire group. I think the next price crash will do the job.

    People won’t be able to rationalize anymore at that point. They will be frightened enough to become convinced of the need to take drastic measures (unfortunately, just telling obvious truths has come to be perceived as “extreme” now that the cover-up has gone on for so many years).

    These are good people and these are smart people. Yes, I am highly confident that we will all be working together to achieve positive and constructive and life-affirming goals. Perhaps we will work with the Congress to get some sort of limited amnesty passed that will make it easier for lots of people to come clean. It is impossible to predict the details of what will happen; we have never before been in circumstances of this nature. But I do believe that the logjam will be broken following the next price crash and that we will quickly see things begin to move in a very positive direction.

    Good question.


  3. Laugh says

    Actually I am pretty sure all of them expect to see a crash at some point. Because that is how equity markets work.

  4. Rob says

    If the people you mentioned had confidence that they knew how equity markets work, they wouldn’t be participating at boards or blogs that also permitted participation by the sorts of individuals who have put up posts in “defense” of Mel Linduaer and John Greaney, Laugh. Give me a friggin’ break.

    They are “experts” in a model for understanding how equity markets work that is now discredited by 33 years of peer-reviewed research (based on 140 years of historical return data). The only thing that has been stopping us all from entering the greatest period of economic growth in U.S. history is the wounded pride of people who got a lot of things right and one very important thing terribly, terribly wrong. If the next price crash causes enough pain to help those people see that their concern for their wounded pride has become too high a priority for them, we are all freed to move forward to great things.

    I know these people from their writings and in some cases from my interactions with them. I believe that the next crash (which may well put us in the Second Great Depression) will be enough to bring them around.

    I’m not God. I could be wrong. You asked a question and I told you what I think.

    Now we will both need to exercise the patience needed to watch the realities play out before us.

    I naturally wish you all the best that this life has to offer.


  5. laugh says

    Well, the reason I say that is based on the fact that all of the people you mention have books that talk about how equity markets crash from time to time.

    So, it isn’t clear how anyone thinking clearly could say that those people think that there will not be a ‘next crash’. There will always be a ‘next crash’ and pretty much the whole Universe knows that.

  6. Rob says

    There have been crashes in the past because we did not know the importance of warning investors of the dangers of ignoring valuations when setting their stock allocations, Laugh. Shiller did not publish his “revolutionary” (his word) research until 1981. Now we know.

    There is no reason to believe that we will continue to have price crashes now that we know how to prevent them. We obviously need to spread the word. That’s the next step. Once people know that stocks are not worth buying at certain prices, there will be a brake on the car. Every time prices reach insanely dangerous levels, people will sell until prices are pulled back to levels where stocks offer a strong long-term value proposition.

    Driving drunk causes car crashes. Have you noticed that as a society we spend hundreds of millions of dollars pointing out the dangers of drunk driving? Buy-and-Hold strategies cause stock crashes (and the economic crises that inevitably follow from the huge loss of consumer spending power associated with them). Have you noticed that today we do NOT spend hundreds of millions of dollars pointing out the dangers of Buy-and-Hold strategies? That’s why we are in an economic crisis today. That’s what needs to change.

    Once it does, the market won’t need to crash to perform its job of getting prices right. Once the internet is opened to honest posting on safe withdrawal rates and scores of other critically important investment-related topics, the market (us!) will be able to set stock prices properly in the natural, rational, non-crash way. We will act in our self-interest! Imagine! What a concept! That’s the sort of thing that becomes possible when we permit “experts” in this field to say what they truly believe rather than what turns the quickest, ugliest, smelliest buck in the short term.

    There will not be another crash after the next one. Nor will there be physics in the future rooted in a belief that the earth is the center of the universe. Nor will there be maps showing that the earth is flat. Nor will there be doctors who cure diseases by attaching leeches to their patients.

    Human knowledge advances over time. Failed ideas are put to the ash-heap of history. Let’s all pray that it happens once again for the benefit of each and every last one of us just as it has happened before in so many fields of life endeavor in this wonderful, dynamic progress-oriented nation we all live in and love.

    Here’s to our rational future and to the quick end (by the close of business today if at all possible!) of our nasty, ignorant, self-destructive, Buy-and-Holding past!

    I wish you well.


  7. Earl says

    So delusional there are really no words. Yes the market will crash again and tons of idiots, mainly Obama haters, will be coming out of the woodwork celebrating giving everyone the old “I told you so!”. The only thing is no one with a brain will pay them any attention because they will have been saying it for 8 years and longer in your case.

    So yes there will be a market crash but literally everything else in your fantasy scenario will not happen. No 500M check, no prison sentences, no Rob Bennet consultation jobs, just continued obscurity as an internet troll.

  8. Rob says

    I think you are wrong, Earl. More importantly, there is now 33 years of peer-reviewed research (based on 140 years of historical return data ) SHOWING that you are wrong.

    Market crashes are caused by Get Rich Quick investing. Get Rich Quick investing is buying stocks without regard to the price at which they are selling. Those who advocate Buy-and-Hold strategies ENCOURAGE price indifference. True experts (those looking out for their clients and their readers) keep up with the new research. True experts tell their clients and readers that they MUST exercise price discipline when buying stocks to have any hope whatsoever of achieving long-term investing success. Never in 140 years have Buy-and-Hold strategies worked for even a single long-term investor. It is a logical impossibility that that could ever change. Price indifference ALWAYS greatly increases risk while also greatly diminishing long-term returns.

    The point you make about President Obama cuts in my direction, not yours. You are right that lots of people will use the next crash to score points against Obama. I am saying that that is silly. President Obama didn’t come up with the idea of Buy-and-Hold Investing. Nor did he promote it. Nor did he participate in the 12-year cover-up of the errors in the Old School SWR studies. President Obama had little to do with any of this.

    You are right that people will SAY he had a lot to do with it. Those are the same people who blamed the economic crisis on factors other than the continued promotion of Buy-and-Hold “strategies” for 33 years after the peer-reviewed research showed that there is precisely zero chance that price indifference could ever help a single human being anywhere on the planet.

    The person most responsible for our economic crisis and for the Second Great Depression that we will likely be experiencing if we don’t act soon to avoid the next price crash is my good friend Jack Bogle. I love the guy. But still….

    Anyway, we will see what we will see, Earl.

    Take good care, man.


  9. Rob says

    So delusional there are really no words.

    You have it all together, Earl.

    That’s why you have associated yourself with the sorts of individuals who have put up posts in “defense” of Mel Lindauer and John Greaney.

    Makes sense!


  10. Rob says

    they will have been saying it for 8 years and longer in your case.

    People have been saying that the earth revolves around the sun for a lot longer than 8 years.

    It was true the first time they said it and it will remain true for all time.

    The fact that something has been said for 8 years does NOT disprove it.

    There was 25 years of peer-reviewed research showing that we were at risk of going into the Second Great Depression because of the valuation levels caused by the relentless and ruthless and reckless promotion of Buy-and-Hold strategies 8 years ago and there is today 33 years of peer-reviewed research showing that we are at risk of going into the Second Great Depression because of the valuation levels caused by the relentless and ruthless and reckless promotion of Buy-and-Hold strategies.

    All that has changed is that we have seen more death threats and more demands for unjustified board bannings and more acts of defamation and more threats to get academic researchers fired from their jobs. The research says the same today as it said then: Not only is Get Rich Quick not the answer, Get Rich Quick is actually the problem!

    That’s my sincere take re these terribly important matters, in any event.

    Hang in there, old friend.


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