“I Play It the Other Way. My FOCUS Is the Goon Stuff. I Focus On That Because That Is The Critical Factor That No One Else Has Explored in Depth. By Focusing on the Goon Stuff, I Am Making a Unique Contribution. That’s How I Become Rich and Famous!”

Set forth below is the text of a comment that I posted recently to another blog entry at this site:

Who are these goons that are standing in your way? How are they standing in your way?

One of you Goons put up a reference to “The Law of Thermodynamics” or some such thing the other day. The idea was that this law was a core principle of physics, something that people working in the physics field don’t give up lightly. It is a foundation stone of the science. There are hundreds of insights that have been built on it. So you don’t pull out the foundation stone unless you absolutely must.

The point was that I am trying to pull out the foundation stone of investing analysis when I say not only that one form of timing (long-term timing) always works but also that it is 100 percent required for investors seeking to have any hope whatsoever of long-term success to engage in this form of timing. The comment was right on. I AM trying to pull out the foundation stone. I am doing it for 100 percent positive reasons. But it IS a scary thing for us as a society to pull out the foundation stone for our model for understanding how stock investing works and to essentially agree that we knew next to nothing before and that we now need to start over again with first steps.

My critics see this as a bad thing. They see that we are going to need to rewrite all the books and rejigger all the calculators and they say “this guy is causing trouble.” I focus on the upside. We will not be rewriting all the books and rejiggering all the calculators for no good reason. We are doing it to get things right. The Buy-and-Hold Pioneers told us that we need to use a numbers-based approach to avoid the subjectivity that held back progress in this field for so many years. They were right. But the Buy-and-Hold Pioneers did not have Shiller’s research available to them when they developed their model (Fama discovered that short-term timing never works in 1965 and Shiller did not discover that long-term timing is always required until 1981). So they made a mistake on a foundational issue and thereby turned their model into the greatest wealth-destruction engine ever concocted by the human mind. I see it as a wonderful thing to correct the error because it means that it will be the first time in the history of the planet that we will have a model for understanding how stock investing works that will work in the real world and we will all live far richer lives (in every sense of the word) than we ever before imagined possible.

What’s holding us back? Why wouldn’t we all rush forward with great enthusiasm to embrace a learning experience that lets us retire five to ten years sooner while reducing the risk of stock investing by 70 percent?

You don’t achieve advances like that without making big changes. Valuation-Informed Indexing is not a small advance over Buy-and-Hold, it is a HUGE advance.

To achieve a huge advance, you must discover something entirely new, something that had been overlooked by millions of people for hundreds of years. Something gigantic.

Is there something gigantic to be discovered about how stock investing works at this late date?

There is.

It is how to overcome emotionalism.

Emotionalism is what destroys portfolios. Always. The U.S. economy is sufficiently productive that it is virtually impossible to imagine a way to invest in stocks that will not produce good long-term results. The only thing we have ever come up with is emotionalism. To fail as a stock investor you must act irrationally. Not once. But over and over and over again. In an objective sense, it’s a difficult trick to pull off. But we humans have managed to find a way!

The Buy-and-Hold Pioneers were anti-emotionalim. Their aim was to help investors make rational choices. But they didn’t know everything. That’s the sad fate of us poor humans. We are always working with imperfect knowledge, we are always partly in the dark no matter how educated we become. The Buy-and-Hold Pioneers failed to distinguish short-term timing (which never works) and long-term timing (which is always required). So they got everything wrong. They put forward a numbers-based strategy that manages to get every number wildly wrong! Yikes!

Why do we investors do these things to ourselves? Why do we make irrational choices? Why do we delay our retirements? Why do we bring on economic crises?

Because we are freakin’ Goons!

That’s the story, Anonymous.

Each and every one of us has a Goon voice within us. Bogle has it. Shiller has it. I have it. Every last one of us. And it is by reining in The Inner Goon that we become successful investors.

People in this field don’t like to talk about this sort of thing. They want to leave the impression that they are “experts.” So they like to talk about the hard stuff — numbers, graphics, tables. The problem with focusing on that stuff is that you can talk about that stuff for ten million years and never do a thing to address the Goon problem. Which means you have not managed to offer investing advice that stands any chance whatsoever of working in the real world.

I play it the other way. My FOCUS is the Goon stuff. I focus on that because that is the critical factor that no one else has explored in depth. By focusing on the Goon stuff I am making a unique contribution. That’s what I want to do. It is by making a unique contribution that I become rich and famous! And I want that for myself!

We all have an Inner Goon.

But most of us don’t let it show to the extent that you do, Anonymous.

Bogle has an Inner Goon. He doesn’t advance death threats. He shows his Goon in another way.Bogle fails to speak up in opposition when Mel Linduaer and John Greaney make death threats.That’s another way of doing the same thing. An argument can be made that the way Bogle does it is worse. It is less honest. At least with Linduaer and Greaney, you see just what you get. With Bogle, the Goon stuff is hidden. He gets the benefits of goonishness (people are afraid to point out the weaknesses in the investing strategies he promotes). But people also offer him the sort of respect that we generally extend only to people who act in responsible ways. He gives the appearance of being professional while protecting himself from intellectual challenges by associating with the most vile gang of abusive posters ever seen in the history of the internet.

Goonishness is hate and irrationality and anger and envy and ignorance and violence and intimidation and stubbornness. Our goonishness is our dark side. It is by coming to terms with our dark side that we become more effective investors. It is by reining in goonishness that we bring the Buy-and-Hold Crisis to an end and enter the greatest era of economic growth that we have ever seen.

I call you guys (and witches!) Goons because you are so obvious about it. But I acknowledge that the goonishness is a more widespread phenomenon. It is not just people who put up posts in “defense” of Mel Lindauer and John Greaney who suffer from goonishness. It is also the people who fail to speak up about the goonishness of those who post in “defense” of Mel Lindauer and John Greaney. Which means that it is pretty much all of us (including me prior to the morning of May 13, 2002).

When we work up the courage to face our goonishness, we will achieve the biggest advances in our understanding of how stock investing works that we have ever achieved. We will all go on to live far richer lives than we ever before imagined possible.

If we fail to work up the courage, we will all go down together. That’s what the numbers say.

I have a patriotic duty to try to bring down The Buy-and-Hold Mafia. That’s what every member of The Buy-and-Hold Mafia deep in his or her heart wants me to do. All of the Goons have a human side. All of the Goons secretly want to be called out. So that’s my job.

It is your job too. It’s Bogle’s job. It is Shiller’s job.

We all need to protect our nation’s economic and political systems from further Goon attacks if we hope to be able to continue to enjoy the blessings bestowed upon us.

So I will continue to post honestly re safe withdrawal rates and all other critically important investment-related topics.

I naturally wish you all the best that this life has to offer a person, Anonymous.

Rob

Comments

  1. Anonymous says

    I say not only that one form of timing (long-term timing) always works but also that it is 100 percent required for investors seeking to have any hope whatsoever of long-term success to engage in this form of timing.

    But you yourself don’t seem to practice it, since you’ve maintained exactly the same allocation for almost 20 years.

    Your response seems to be: “I’m waiting until stocks are even cheaper than they were in 2009″. But a strategy that only varies allocations once every 50 years, if that, is really a fixed allocation.

  2. Rob says

    I’ve answered this question over 100 times. The fact that you need to engage in deception on this point (in pretending that you don’t know the answer) reveals your lack of confidence in the Buy-and-Hold strategy, Anonymous.

    I’m not waiting for stocks to be cheaper than they were in 2009. The long-term value proposition was strong in early 2009. I said that on every RobCast that I recorded at the time.

    The problem is that we are working through the transition from Buy-and-Hold to Valuation-Informed Indexing. That’s a one-time event. Once we have done it, there will never again be a Buy-and-Hold, so it will never again be an issue. But today it is an issue and it is something that the smart investor wants to take into consideration when setting his stock allocation during this transition period.

    The peer-reviewed research shows that those who bought stocks when the P/E10 level was 13 or thereabouts, as it was for a few months in early 2009, should do well on those purchases so long as they hold for 10 years. But they will be put through hell in the process of holding for 10 years. We are due for a price crash of 65 percent. Those who bought in 2009 will be doing fine by 2019, when 10 years will have passed. But the 65 percent price crash comes first. And, if they do not hold through that, they do not get the good long-term returns.

    An argument could be made for buying in 2009 and knowing that you are going to be put through hell on your way to good long-term returns.

    An equally strong argument could be made for holding back in 2009, knowing that you will have plenty of opportunities to buy at even better prices in coming years.

    I elected to wait for better prices. But I have never said that the prices that applied in 2009 were not good prices. A P/E10 of 13 is a very, very good price.

    That’s it. I have of course not held the same stock allocation for 20 years. That’s another one re which you have heard the answer over and over and over again and have elected to lie over and over and over again.

    I wonder why.

    Get Rich Quick isn’t the answer, Anonymous. Get Rich Quick is the problem.

    Rob

  3. Rob says

    Your comment reveals impatience, in my assessment.

    I love stocks. They are my favorite investment class by far. The entire Valuation-Informed Indexing strategy is built around the need to understand stocks.

    So I obviously don’t like it one little bit that the last 18 years has been the worst 18-year time-period to own stocks in the history of the United States. There are historical reasons why this turned out to be the case and I accept this as a reality that has to be accepted. But I sure don’t like it. I would prefer to be heavily invested in stocks. I would like to be at 70 percent stocks or 80 percent stocks.

    It is not VII that is “Never Get Rich.” If everyone followed VII strategies, stocks would always be priced to provide an annual return of 6.5 percent real. I hope you agree that that is a perfectly fine return. So it is not VII that caused the problem here.

    It is Buy-and-Hold that caused the problem.

    Buy-and-Hold tells people that they don’t need to exercise price discipline. So prices got out of hand and have stayed out of hand for a long time. It’s not my fault and it’s not the research’s fault. It’s Buy-and-Hold’s fault. It’s the fault of this “idea” that there is some magical blue pixie dust that we can all sprinkle in the air so that we won’t need to exercise price discipline when buying stocks and yet somehow things will work out just fine.

    If all of you Goons had started working with me back in May 2002 to get Buy-and-Hold buried 30 feet in the ground, where it can do no further harm to humans and other living things, stock prices would have dropped to reasonable levels a long, long time ago. And the market wouldn’t be a “Never Get Rich” place today.

    So please don’t blame me, Anonymous. I recognize that the stock market is a “Never Get Rich” place for the time-being and I am doing everything in my power to change that. You pretend to like stocks. But your actions — blocking millions of people from learning what they need to know about the last 33 years of peer-reviewed research to know how to invest effectively — is what is keeping the market a “Never Get Rich” place.

    Stocks will never again be a “Never Get Rich” asset class once we get the word out about what the last 33 years of peer-reviewed research says. You are to blame for the point you are making here and your Goon efforts will be overcome.

    Because as a nation we have no choice re this matter. Millions of people need the stock market to function effectively to have any hope of financing decent middle-class retirements. And for the market to function effectively, we have to open up some means for millions of middle-class people to read honest reports on what the last 33 years of peer-reviewed research says.

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

    Rob

  4. Anonymous says

    My 25 years of “impatience” has paid off very nicely, Rob. I am happy to compare my put comes with your’s whoever you would like.

  5. Rob says

    There’s no amount of money in the world that would make me feel okay about spending the last decades of my life in a prison cell, Anonymous.

    I do not think you are thinking clearly.

    I naturally wish you the best of luck in all your future life endeavors, in any event.

    Rob

  6. Rob says

    So said Bernie Madoff right up until the day prior to the day he was taken away to prison.

    Financial fraud always sounds like a “can’t miss” until the bottom falls out.

    Not this boy.

    My best wishes to you, Anonymous.

    Rob

  7. Tron says

    Rob,

    PE/10 has two component and you seem to only be considering one price. What if in the 10 – 20 years you are waiting for the market to collapse instead earning increase?

  8. Rob says

    It’s not clear to me what you are asking here, Tron. I have a guess.. But I am not sure.

    P/E10 tells you how many dollars are coming out of your pocket to pay for each dollar of earnings being delivered to you each year. If you are paying 7 dollars for each dollar of annual earning, that’s an amazing deal. You will break even on your investment in seven years and any earnings you obtain after that are pure gravy. It’s still a very good deal if you pay 14 dollars for each dollar of annual earnings. It’s a horrible, horrible, horrible deal if you pay 44 dollars for every dollar of annual earnings, as you did for stocks you purchased in 2000.

    My guess is that you may be asking whether the fair-value P/E10 value could be restored by an increase in earnings rather than by a price crash. The thought behind such a question would be that it is a mistake to get out of stocks because of a fear of a price crash that might never come.

    There’s no magic in having the fair-value P/E10 level restored through increases in earnings rather than through drops in prices. Instead of a dramatic crash, you would have a large numbers of years in which there were no price gains. So you would be holding dead money. That’s not good. If prices had never gone to levels far above fair value, you would have been seeing good returns all those years.

    There’s no support in the 140 years of stock market history for the scenario you are suggesting here. It is perfectly legitimate to speculate that SOME of the distance between the current P/E10 value and the fair-market P/E10 value might be closed through earnings gains rather than price drops. But there has never been a time when we permitted the P/E10 value to rise above 24 and did not see a price crash.

    Is it theoretically possible? ANYTHING is theoretically possible. Has it ever once happened in 140 years? No, it has never once happened in 140 years. Do I want to stake my retirement hopes on a belief that something that has never happened in 140 years is going to happen now? I do not. Do you have a right to do so? Of course. Obviously.

    I am not considering only price. It’s not even true that my primary concern is price. My primary concern is in knowing how stock investing works. That’s fundamental. If you get that, everything else follows.

    The Buy-and-Holders believe that the market is efficient. Another way of saying it is that investors are rational. If that were so, everything the Buy-and-Holders say about investing would follow. The system is 100 percent logical. The problem is that the root premise has been proven false. If your root premise is false, every strategic recommendation you make that follows from that root premise is discredited. You cannot get ANYthing right until you get the FIRST thing right.

    Investors are NOT rational. If investors were rational, they never would have permitted prices to get so high that the annualized long-term return on stocks became a negative number. That is INSANE. People should be compensated for investing in stocks. People shouldn’t have to pay an Equity Risk Penalty for the fun of investing in a high-risk asset class.

    But they did.

    Investors are irrational. And the REASON why they are irrational is that they do not today have access to good research-based information on how stock investing works. Investors WANT to be rational and they WILL be rational once we decide as a society to permit them access to the information they need to become empowered to make rational decisions. But you Goons need to be put down to make that happen. People cannot learn so long as all discussion of the findings of the last 33 years of peer-reviewed research are poisoned by your death threats and your demands for unjustified board bannings and your tens of thousands of acts of defamation and your threats to get academic researchers fired from their jobs. You are the only thing holding us all back at this point in the proceedings.

    Do I know for certain that it will be prices that will drop rather than earnings that will rise?

    I do not.

    I don’t know for certain that the moon is not made of green cheese.

    I BELIEVE that the moon is not made of green cheese because all the evidence indicates that it is not. And I BELIEVE that we will see a price crash because all the evidence points that way.

    That’s all. I do not possess super powers. I do not claim to have perfect knowledge of what is going to happen.

    I REFUSE to post dishonestly, to say things that I do not believe.

    Why? Because this is an important matter. People’s retirements are at stake. And there are laws on the books making financial fraud a felony. And I just have no interest in going there.

    I hope that helps a bit, my long-time abusive posting friend.

    Rob

  9. Anonymous says

    The problem is that we are working through the transition from Buy-and-Hold to Valuation-Informed Indexing.

    But you already agreed that folks take valuations into consideration now. So how would they change after the “transition”? What are they doing wrong now?

    And I see the market is reaching new highs, not dropping 65% like it’s supposed to. At what point do you have to give the “I was wrong” speech on this one?

  10. Rob says

    But you already agreed that folks take valuations into consideration now. So how would they change after the “transition”? What are they doing wrong now?

    Most investors take valuations into consideration to a small extent today. What they are doing wrong is failing to take the last 33 years of peer-reviewed research into consideration in forming determinations as to HOW MUCH to change their stock allocations in response to valuation shifts.

    The best example of the problem is Bogle’s claim that it is never necessary to change one’s stock allocation by more than 15 percent. Investors assume that Bogle wouldn’t make such a claim if there were not support for it in the research. There is no support for that number. It is wildly off the mark. Bogle pulled that number out of his backside and his false claim will end up ruining millions of middle-class lives in the event that stocks continue to perform in the future anything at all as they always have in the past. Bogle’s crazy 15 percent number is as off the mark from the number you get by looking at the historical data as Greaney’s crazy 4 percent SWR number. Truly foul-smelling stuff.

    We all should be demanding that Bogle explain where he got the number. If he openly said that he pulled the number out of his backside, it wouldn’t be quite so bad. The number would still be wildly wrong. But at least people would know not to place any credence in it. If you are going to pull numbers out of your backside, you should tell people that. That fact is an important part of the story. We all should be demanding that Jack say that openly. And we all should be helping to spread the word re the real numbers, the numbers that come from the research and the data.

    There never should have been any discussion as to whether investors need to take price into consideration when buying stocks. Nothing could be more obvious. The debate should always have been re HOW MUCH investors need to change their stock allocations in response to valuation shifts.

    The great Buy-and-Hold lie is the claim that many Buy-and-Holders still advance today, that there is some magical, mystical, alternative universe in which investors can kinda, sorta do okay without making ANY changes in their stock allocations in response to valuation shifts. That is of course a lie, a marketing gimmick, pure b.s. mumbo jumbo. It is that lie that brought on the huge losses of middle-class wealth that caused the economic crisis. We should all be working together to EXPOSE that lie and to hold accountable those who continue to promote it today, 33 years after the peer-reviewed research in this field showed it to indeed BE a lie.

    Rob

  11. Rob says

    And I see the market is reaching new highs, not dropping 65% like it’s supposed to. At what point do you have to give the “I was wrong” speech on this one?

    I have reported accurately that the 140 years of historical return data shows that we will see a price drop of roughly 65 percent sometime within the next three years. You are speculating that we will be in coming years seeing someone that we have never seen before.

    It COULD be that we will see something we have never seen before. It COULD be that the moon is made of green cheese. That won’t mean that I was wrong to report the current realities accurately. It will remain true that the 140 years of data available to us today say what I have reported them to say.

    If we see something that we have never seen before, I certainly will report that to be the case. We will all have to work together to incorporate the new realities into our understanding of how stock investing works in the event that we really do see new realities.

    New realities won’t bring Buy-and-Hold back. The 140 years of data showing that Buy-and-Hold has never worked will remain in place.

    But we will have to incorporate the new realities into our future understanding. I do think it would be fair to say that it would be a significant development for us to go another three years without seeing a price crash. I do not think that that would be consistent with what we have seen over the last 140 years of stock market history.

    I hope that helps a bit, Anonymous.

    Rob

  12. Anonymous says

    “I have reported accurately that the 140 years of historical return data shows that we will see a price drop of roughly 65 percent sometime within the next three years.”

    You have been saying that for a long time. Don’t you think you run past that “three year” prediction?

    Also, note that you keep saying 65%, even though the market is much than it was when you started with your 65% estimate. Sounds like you are just pulling numbers out of the air.

  13. Rob says

    You have been saying that for a long time. Don’t you think you run past that “three year” prediction?

    It’s not a three-year prediction. It’s a 10-year prediction.

    It can take as long as 10 years for the common sense that resides within all investors to overcome the Get Rich Quick urge that also resides within all investors. That’s the way it has been working for 140 years now.

    The clock starts ticking at the bull-market high. That was January 2000. Those who follow the research should have been expecting a crash by early 2010. The crash came in September 2008.

    We were at prices never seen before in early 2000. The highest P/E10 value we ever saw before that was the 33 we saw in September 2009 (other than that, the highest we had seen was 25). The reason we went so high is that the Wall Street Con Men were not only pushing Get Rich Quick strategies this time, they were actually saying that there was research supporting the pure Get Rich Quick approach. This was an obvious lie and anyone checking the record would have seen that. But, remember, investors all have a Get Rich Quick urge residing within them. So lots of us fell for the b.s. marketing mumbo jumbo. As silly as the idea is, millions of investors BELIEVED that there was research supporting the Buy-and-Hold strategy.

    The result is that we went to a P/E10 value far higher than any we have ever seen before. We work our way down to fair value and below by coming to accept realities that we denied during the time the valuation level was rising. For a few months in early 2009, we tried accepting enough realities to get the P/E10 level down to fair-value levels. It would have been great if we held there. We could have started recovering from the economic crisis back in 2009.

    But the Wall Street Con Men were up to their old tricks. A lot of them gave speeches saying that “stocks are now cheap” and other such b.s. People were scared by the depth of the economic crisis. There were articles in major papers like the Wall Street Journal saying that we could he headed to the Second Great Depression. We freaked. Our emotional response was to continue to accept price levels lower than the 44 that had applied at one time but NOT to accept (at least not at that time) the fair-value P/E10 levels that we hit for a few months. We let things go back to the mid-20s, a dangerous price level but obviously one not as dangerous as the one we saw in 2000.

    We experienced HALF of the price pullback in 2009. We have the other half up ahead of us. We have to work through the same emotional battles that took us from 44 to 25 in going from 25 to 8. We are not able to say how long that process will take, only that it is rare for it to take more than 10 years. A 10-year time-period for the second leg of the crash would take us to 2018. It took 8 years for the first leg (2000 to 2008). So my guess is that we will see the second leg within 8 years of the day we saw the first leg (September 2008). So I put late 2016 down as the time when I expect to see the second leg completed. We obviously could see it completed before that. That’s an attempt at coming up with a “how late could this happen?” number.

    If we don’t see the next leg by the end of 2016, perhaps we will see it by the end of 2018. We cannot predict these things with precision because the timing depends on when investor psychology changes. We don’t have the tools to get inside people’s minds. The only thing we have to go by is the historical data — How long has the process of investors coming to terms with the realities taken in the wake of earlier out-of-control bull markets? This one was more out of control than any before it (because of the reckless and relentless promotion of Buy-and-Hold “strategies”). So we cannot even achieve the same level of imprecision that would be possible in more ordinary circumstances. But I believe that the “end of 2016″ guess is a perfectly reasonable estimate.

    I hope that helps, Anonymous.

    Rob

  14. Rob says

    Also, note that you keep saying 65%, even though the market is much than it was when you started with your 65% estimate. Sounds like you are just pulling numbers out of the air.

    You are putting far too much focus on small changes in valuations.

    The P/E10 value has been in the neighborhood of the mid-20s for a long time. We always go down to 7 or 8. We are looking at a price drop of about 65 percent. It could be 50 percent. But the odds are just as strong that it will be 80 percent. All three possibilities are devastating possibilities. We should be working to limit the crash rather that quibbling over how devastating it is going to be.

    One thing you learn from looking at the historical data is that the short-term price changes that people talk about endlessly have little significance. We may go up over the next six months and we may go down over the next six months. It makes little difference. What always matters is where we are headed long-term. That is of HUGE strategic importance.

    Buy-and-Holders fuss and fuss and fuss and fuss over the short-term. The research-backed reality is that it just doesn’t matter. It’s the long-term that matters. The long-term is the one thing that Buy-and-Holders CANNOT BEAR to have anyone talk about.

    I wonder why.

    Rob

  15. Rob says

    I know some things and I don’t know other things, Anonymous.

    Of the things that I think I know, I know some with a high level of confidence and others with a low level of confidence or a moderate level of confidence.

    A few of the things that I think I know will probably be discovered in time to be wrong.

    That’s how it is in every field of human endeavor. We do our best to come to a sound understanding of things we need to know. We get some right, we get some wrong. We advance in our knowledge over time.

    Is there some reason why you think it should be different in the investing advice field?

    The only difference that I can see in the investing field is that it is more painful to make big mistakes in this field because it means that you have missed out on years of financial freedom. I think it would be fair to say that there is no one on Planet Earth who has done more to try to help you work through that pain than I have.

    Is that not so?

    When you give up the anger and hate and defensiveness, things will start to move in a positive direction for you.

    The hand of kindness remains extended to you. How you respond to the extension of the hand of kindness is on you.

    My best wishes to you, man.

    Rob

  16. Anonymous says

    The clock starts ticking at the bull-market high. That was January 2000. Those who follow the research should have been expecting a crash by early 2010. The crash came in September 2008.

    Then why didn’t you start predicting a big crash until after 2008/2010? Were you not following the research?

    We experienced HALF of the price pullback in 2009. We have the other half up ahead of us. We have to work through the same emotional battles that took us from 44 to 25 in going from 25 to 8. We are not able to say how long that process will take, only that it is rare for it to take more than 10 years.

    Oh, so you don’t know how long it will take. What you’re saying is – someday, the P/E 10 will be at 8. Well I’d say that’s a safe bet if you wait long enough! Could be 50 years though. What’s your time horizon?

  17. Rob says

    Then why didn’t you start predicting a big crash until after 2008/2010? Were you not following the research?

    What the heck are you talking about? I put up my famous post pointing out the errors in the Old School safe-withdrawal-rate studies on the morning of May 13, 2002.

    Ask Greaney. I bet he remembers.

    What you’re saying is – someday, the P/E 10 will be at 8. Well I’d say that’s a safe bet if you wait long enough! Could be 50 years though. What’s your time horizon?

    You can check out the historical return data yourself by going to Shiller’s site, Anonymous.

    There have been four times when the P/E10 rose to 24 or above. On each and every one of those occasions, it went down to 8 in the years following.

    I have a funny hunch that that’s not a coincidence. I have a funny hunch that the reason why the P/E10 value always drops to one-half of fair value in the years following a runaway bull market is that the economic crisis that is caused when millions of investors lose most of their life savings causes a mass freak-out.

    We’ll see.

    I with you all the best things that this life has to offer a person.

    Rob

  18. Anonymous says

    What the heck are you talking about? I put up my famous post pointing out the errors in the Old School safe-withdrawal-rate studies on the morning of May 13, 2002.

    All it proves is that you can find patterns in the data. Let’s see….each time the P/E10 ended in a “1″ in February, it dropped 10% by the following May. There’s no causation – that’s all in your head.

  19. Rob says

    If we were talking about a small number of years, it would make some sense to say that it is just coincidence. But the P/E10 level has been effectively predicting long-term returns for 140 years. The odds of the same coincidence playing out 140 years in a row are probably something like 10 billion to one. This is something real.

    We don’t know all the details. I don’t say that we know everything there is to know. But Valuation-Informed Indexing is rooted in something real and important.

    That’s why Shiller was awarded the Nobel Prize in Economics. As a society we are gradually working up the courage to acknowledge what a big deal this is. At an earlier time, the people who awarded Shiller the Nobel prize wouldn’t have done so. My guess is that, if you looked at the portfolios of the people who awarded him the prize, you would find that most of them are more believers in Buy-and-Hold than they are in Valuation-Informed Indexing. But they are experiencing doubts. That’s what led them to make that statement.

    They didn’t feel safe making a bold statement.They gave the prize to Fama too so that they could not be viewed as “taking sides.” They didn’t take sides but they changed the playing field. In the old days, Fama was it, there was no Shiller. Those days are gone. Buy-and-Hold is still dominant, Valuation-Informed Indexing is still the thing that can only be discussed tentatively, not in bold and firm and clear terms. But that is in the process of changing when the guy who did the research that led to the revolution in understanding is being awarded a Nobel prize for his work.

    This isn’t some kind of thing where people are saying “Buy stocks in January and sell in May.” The data is available at Shiller’s web site. Buy-and-Holders can study it as long as they want. And yet in 12 years of discussions no one has ever found a single hole in the new model. That tells us something, Anonymous.

    I have no fear that Jack Bogle will ask me a question that I cannot answer. But Jack sure has fears that I will ask HIM a question that HE cannot answer.

    Why? Because Buy-and-Hold is the thing that is in the process of dying and Valuation-Informed Indexing is in the process of being born.

    In future days, we won’t look at it that way. In future days, we will be able to look back at what the Buy-and-Holders did and give them full credit for all of their wonderful contributions. That becomes possible when the Buy-and-Holders stop being so defensive and when we all can acknowledge that Buy-and-Hold was a FIRST DRAFT effort at a research-based investing strategy and that Shiller’s “revolutionary” (his word) findings moved the Buy-and-Hold project forward in a very, very, very important way.

    You either believe in following the research or you don’t, Anonymous. If you don’t believe in following the research, then you are just guessing when you invest your retirement money. If you don’t believe in following the research, then you really are back with the people who say “Buy in January and sell in May” and all the other garbage that follows from a guessing approach.

    If you truly believe in following the research, you cannot ignore what Shiller discovered. His discovery that valuations affect long-term returns changes everything in a fundamental way.

    Buy-and-Hold could once be promoted as a research-based strategy. It cannot honestly be promoted as that today. Once peer-reviewed research was published showing that valuations affect long-term returns and the Buy-and-Holders neglected to change their strategy to incorporate this revolutionary finding, Buy-and-Hold stopped being research-based and became just another case of investing superstition.

    The Buy-and-Holders have two choices today. They can accept that they made a mistake and change the Buy-and-Hold Model so that it reflects the last 33 years of peer-reviewed research as well as the research that came before that. Then they go down in history as the people who developed the foundation for the first research-based strategy and then later made the changes needed for that model to work in the real world.

    Or they can continue with 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. Then they go down in history as fools and con men and felons.

    There is no middle ground. You cannot say “this is a research-based strategy” and ignore the last 33 years of peer-reviewed research.

    They didn’t award Shiller the Nobel Prize because he is some clown who forgot to take his meds. When you say that Valuation-Informed Indexing cannot be discussed on the internet, you are saying that the last 33 years of peer-reviewed research cannot be discussed on the internet. That makes you the clown.

    An unethical clown.

    A clown headed on his way to a prison cell.

    Not good.

    That’s my sincere take re this terribly important matter, in any event.

    My best and warmest wishes to you, my long-time clown friend.

    Rob

  20. Anonymous says

    Rob,

    I noticed above that you have moved your market crash date timeline to as long as 2018. Several years ago, you said it would be by the end of 2015 and that if it didn’t happen, we should question VII. Care to explain?

  21. Rob says

    All I have to go by is the peer-reviewed academic research of the past 33 years and the 140 years of historical return data on which it is based, Anonymous. Contrary to Goon rumors, I do not possess access to a crystal ball. Ever single statement that I have made over the past 12 years is based on the research and the data. So that’s what you need to turn to to identify the answer to your question.

    The research shows that short-term timing doesn’t work. So forget about giving a precise date for the next crash. It’s not possible. It’s not going to happen. So please get that one out of your head.

    The research shows that long-term timing ALWAYS works and is always 100 percent required for those seeking to keep their risk profiles roughly constant (that SHOULD be all of us). So please also give up on any idea of not trying to set rough expectations of when the next crash is coming.

    The rule that we get from the historical data is that it takes 10 years for common sense to win out over the Get Rich Quick urge. The bull top was in January 2000. So we should have been expecting a crash sometime late in the first decade of the new Century.

    We got it. It happened in September 2008. Perhaps you noticed. It was written up in all the papers.

    Now –

    We ALWAYS go to a P/E10 level of 7 or 8 in the wake of a huge bull market. We haven’t yet gone to anything even remotely close to that. So, yes, we have had the crash that we should have expected. But, no, the crash has not yet completed itself. We are still waiting for the second leg of the crash.

    Why are we seeing two legs to this crash?

    Because we went to P/E10 levels so much higher than any we have ever seen before. A P/E10 level of 25 ALWAYS causes a economic crisis. The one time we went to 33 we had a Great Depression. This time we blew past 25 and we blew past 33. We went all the way to 44. We are in totally uncharted waters.

    The thing that causes the crash is that psychological resistance is worn down. We have seen an erosion of belief in the Buy-and-Hold fantasies. That’s what took us down from 44 to 26. But we have NOT seen enough of an erosion to get down to 8. We are still working up the courage to let that much honesty in. The question you are asking is — When will we have as a society worked up enough courage and honesty to bring the P/E10 level down to 8?

    I certainly cannot give a precise answer. There is 50 years of peer-reviewed research showing that short-term timing doesn’t work. So, again — Forget that.

    Can I give a rough approximation?

    I can try. Using the research and the data and common sense, I can tell you what sounds roughly right to me. That’s all that I am capable of doing. If you are going to demand more precision and more confidence than that,you are going to have to look elsewhere. I am not your guy.

    It took 8 year for us to see the first leg of the crash. I think it makes sense to believe that it will take no more than another 8 years to see the second leg. That puts the second crash at the end of 2016 at the latest.

    If you say that it could take a full 10 years for the second leg of the crash to complete itself, you could say that it might not happen until the end of 2018. That sounds a bit extreme to me. But I suppose that, given how insanely high we let valuations go in the late 1990s, we cannot rule it out altogether.

    Personally, I am expecting to see the crash by the end of 2016. If someone puts the date at the end of 2018, I won’t argue too much. But I personally do not feel comfortable with that date. My take is that we should see it by the end of 2016.

    My sense is that you want to discredit Valuation-Informed Indexing and that you want a hard date so that, if the crash does not come by that date, you can say “Aha! It didn’t work!”

    If you are going by me, please feel free to use the “end of 2016″ date. It we don’t see the crash by then, I would take that as evidence that there is something wrong with the theory behind VII. My guess is that there are other Valuation-Informed Indexers who will not go along with that. I cannot speak for them. I can only speak for me.

    Will I become a Buy-and-Holder if we do not see the crash by the end of 2016?

    I will not.

    Buy-and-Hold has been discredited by 33 years of peer-reviewed research, based on 140 years of historical return data. That won’t change if we have not seen a crash by the end of 2016. This will have been the first time in history that we have seen any reason not to believe in VII (IF the scenario you are raising comes to pass!). We have 140 years of data showing that BH never works in the long term. So VII would still be ahead by miles and miles and miles.

    That said, I still believe that not seeing a crash by the end of 2016 would be a legitimate reason for not believing that we know all there is to know about how the market works. My hope would be that we would all pull together and try to learn more. I want to know how things work. So, if there ever is any reason to believe that VII might for the first time in history not work perfectly, I want to engage in discussions with lots of good and smart people to try to figure out what the heck is going on this time to make things turn out differently.

    I hope that helps a bit, Anonymous. You are speculating that this might be the first time in history when all the long-proven rules of stock investing are turned on their heads. It could happen. It’s obviously an extreme long shot. But who can say with absolute certainty?

    In all events, I am just going to continue trying to figure things out to the best of my ability.

    I would love to see you Goons adopt the same outlook on things.

    Please take good care, my old friend.

    Rob

  22. Anonymous says

    It seems your message is changing as this is what you said before:

    “I was asked to give a time frame and  felt that that was a reasonable thing to demand of me. So I gave it my best shot. I said that, if we do not see a crash by the end of 2015, that would be grounds to question this VII stuff. I think that is fair. We cannot say when it will come but there are lots of reasons to believe that it should come by the end of 2015. If it doesn’t, that would suggest that we are missing a big piece of the puzzle and I think it would be fair for my critics to point that out. That’s all I can say on the matter. “

  23. Rob says

    I don’t have a problem with any of those words, Anonymous.

    If we don’t see a crash by the end of 2015, please feel 100 percent free to question whether VII is the cat’s pajamas.

    The full truth, of course, is that you should also feel free to question VII today (and of course you do).

    I personally will not feel a need to question VII unless we don’t see a crash by the end of 2016. But even then I will not go with Buy-and-Hold. I will just be keeping my eye out for explanations as to why we did not see a crash by the time. And of course the full truth again is that I keep my eye out for that sort of thing now as well. So there are no magic dates.

    I hope that helps a bit.

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

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

    Rob

  24. Rob says

    It seems your message is changing

    There HAS been a change in the date that I use from “the end of 2015″ to “the end of 2016.”

    That’s going to happen as we learn more and as we talk things over more.

    I wish we could see more changes on your side of the table.

    Nobel Prize Winner Robert Shiller published “revolutionary” (his word) research in 1981. Are you able to point to any way in which my good friend Jack Bogle or any of the other Buy-and-Holders changed their thinking on how stock investing works as a result of those revolutionary findings?

    There are times when changes in our beliefs are required by the evidence. There are circumstances in which is is IRRESPONSIBLE not to change your beliefs.

    When it appears to me that I am a bit off the mark on something, I make adjustments. I hope that I continue to follow that policy and don’t ever come to follow the lead of you Goons in being unwilling to acknowledge mistakes.

    My best wishes to you and yours.

    Rob

  25. Rob says

    There are no goal posts.

    This is not a game.

    There is now 33 years of peer-reviewed research showing that there is precisely zero chance that a Buy-and-Hold strategy could ever work out well for even a single long-term investor. You Goons are engaged in the greatest act of financial fraud in U.S. history.

    I will continue pointing that out to the millions of middle-class investors whose lives have been damaged in very serious ways by you Goons and by the Wall Street Con Men who support you or who fail to take action to rein you in.

    That’s best for every single person involved. The sooner we get prison sentences announced for you Goons, the shorter those prison sentences will be. I have been doing my part to spread the word re this massive act of financial fraud for 12 years now and I pledge to continue to give this project my best efforts.

    My best wishes to you and yours.

    Rob

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