Set forth below is the text of a comment that I recently put to another blog entry at this site:
Rob, what do you think the ‘final solution’ for the Goon problem should be?
That’s a great question, Sensible.
What I believe is that we all need to recognize that we are all on the same side and that we all need to work together to get things on the right track.
The Buy-and-Hold advocates are good and smart people. They are responsible for a long list of amazing breakthrough insights. I want everyone to know that. I want to be viewed as one of the lead people saying that. I HATE it that the public perception of me is that I am anti-Buy-and-Hold. I AM anti-Buy-and-Hold as it is currently promoted by most Buy-and-Holders. But I LOVE what the Buy-and-Holders did for all of us. I obviously love Valuation-Informed Indexing and VII is just Buy-and-Hold with one change (because of a perfectly understandable mistake that was made in the pioneer days). I want to be working WITH all of my Buy-and-Hold friends, not against them. So the very first step to bringing all the nastiness to an end is recognizing the amazing contributions that the Buy-and-Hold Pioneers brought to the table.
The second thing is that we need to bring all the nastiness to a full and complete stop. Not a partial stop. A FULL AND COMPLETE stop. We need to do that by the close of business today. I’d like to think there there will not be one person raising any sort of objection to that at this point in the proceedings. Let’s roll!
The third thing is that we need to educate the public as to the wonders of Valuation-Informed Indexing. For obvious reasons. We all want to bring the economic crisis to an end. We all want to bring on the greatest period of economic growth in U.S. history. We all want to reduce the risk of stock investing by 70 percent. We all want millions of middle-class people to learn what they need to learn to be able to retire five to ten years sooner than they ever before imagined possible. We all want to free everyone in this field to do honest, productive work. We all want to see thousands of people become super-rich developing the tools we all need to become truly effective long-term investors. This one would be a no-brainer if only Shiller had published his “revolutionary” (his word) research in 1961 rather than in 1981.
The fourth thing is that we need to subject Valuation-Informed Indexing to the same level of scrutiny to which I have been arguing we should subject Buy-and-Hold. My good friend Jack Bogle does not have complete confidence in Buy-and-Hold. His behavior re all these matters makes that clear. But Jack does not have full confidence in Valuation-Informed Indexing either. That is also clear. We need Jack coming clean re his doubts re Buy-and-Hold. But we also need him working as hard as he can to find holes in Valuation-Informed Indexing. And we need that from all the other Buy-and-Holders as well.
That’s my four-step program: (1) Make it clear to all that Buy-and-Holders and Valuation-Informed Indexers are on the same team and are pursing the same goal — using the peer-reviewed research to learn how stock investing works in the real world; (2) Bring the Ban on Honest Posting to a full and complete stop by the close of business today; (3) Spread the word about Valuation-Informed Indexing to every investor in the world; and (4) Continue the learning experience by applying the same tough-minded questioning that we have applied over the past 12 years to Buy-and-Hold to Valuation-Informed Indexing as well.
I see this as a win/win/win/win. My feeble, human brain is not even able to imagine any possible downside, Sensible. Does the four-step plan that I have outlined make good sense to you as well?
Rob the Ever-Hopeful
Anonymous says
Rob,
You forgot a number of steps. Let me help you out:
5) Jack Bogle, joined by Rob Bennett, makes a public presentation to say how he was wrong and that Rob Bennett should be the leader of investing
6) Rob is paid $500 million by various individuals as compensation for his contributions as well as the pain he has suffered for the past 12 years
7) a list of goons, provided by Rob Bennett, are handed over to prosecutors, who in turn send the goons to prison
8) Wade Pfau admits that his paper was really authored by Rob Bennett
9) All leading financial boards are turned over to Rob Bennett
10) Rob Bennett is awarded a Nobel Prize
Rob says
Yale Economics Professor (and Nobel Prize Winner) Robert Shiller published the research showing that there is precisely zero chance that a Buy-and-Hold strategy could ever work for even a single long-term investor in 1981, Anonymous. If men were angels, my good friend Jack Bogle would have given his “I Was Wrong” speech the next day and we all would have been off to the races developing the Valuation-Informed Indexing model.
There would never have been a single death threat. There would never have been a single demand for a single unjustified board banning. There never would have been a single act of defamation. There never would have been a single threat to get a single academic researcher fired from his job.
We wouldn’t be in an economic crisis today. There wouldn’t be millions of unemployed workers. There wouldn’t be million of middle-class people on their way to suffering failed retirements.
Men are not angels. Perhaps you have noticed.
When Jack failed to give his “I Was Wrong” speech in 1981, he got another chance in 1982. He failed again.
He got another chance in 1983. He failed again.
He got another chance in 1984. He failed again.
And so on and so on.
The message of the peer-reviewed academic research is never going to change. It has been saying the same thing for 33 years now and I think it would be fair to say that it will be saying the same thing 33 years from now and 333 years from now and 3,333 years from now.
Get Rich Quick is a loser in the long-term.
Stock investing works just the way your common sense tells you it must work. It is as important that people consider price when buying stocks as it is when buying any other good and service. There’s a short-term profit for the Wall Street Con Men in spending hundreds of millions of dollars to try to persuade us otherwise. But in the long run the Wall Street Con Men live in the same country as all the rest of us and, when they destroy it with their mumbo jumbo marketing b.s., they suffer along with the rest of us.
Jack can continue participating at boards that permit posting by the sorts of individuals who have put up posts in “defense” of Mel Linduaer and Jon Greaney. But I remain the man’s friend. I think that in the long run the good he has done will outweigh the bad he has done. So I am intend to continue urging him to come clean and to urge all Americans who feel any friendship for the man to urge him in the strongest possible terms to disassociate himself in every way, shape and form from you Goons.
The hand of kindness is extended to you. Ask me for help in getting your prison sentence reduced a bit and you’ve got it. Ask me to join you in your massive act of financial fraud and I have no choice but to ask you to try to find someone else. It is my aim to get YOUR prison sentence reduced, not to to add a prison sentence for ME. No way, no how. I can’t go for that. No can do. It’s not my particular cup of tea.
In any event, I certainly wish you the best of luck with whatever investing strategies you elect to pursue.
Hang in there, my old friend.
Rob
Anonymous says
Rob,
Shiller’s paper did not say that.
Rob says
Shiller’s paper said that Get Rich Quick is the answer.
It doesn’t matter what the question is, Get Rich Quick is ALWAYS the answer.
That was his “revolutionary” (his word) insight.
Shiller is one of the Wall Street Con Men.
For a moment there, I forgot.
Truly outstanding!
Rob
Anonymous says
Rob,
You are always right. You have all the answers. Our millions are just a fantasy. We will never measure up to all your success. We should just give up now and send you all of our money.
Shiller is lying. He really doesn’t have any money in the market. Wade is lying too. He really thinks you are right about SWRs but the goons made him lie. We don’t need proof of death threats. Your word is good enough for us. Same goes for the job threats.
Rob says
I think it would be fair to say that I was right about safe withdrawal rates, Anonymous. There was a time when you said otherwise.
When I was proven right about SWRs, that should have told you that you were capable of getting things wrong and that you should have been willing to listen to the thousands of your fellow community members who expressed a desire that honest posting be permitted.
I get it that you are embarrassed that you were taken by people pushing a Get Rich Quick scheme.
You know what? Not acknowledging a mistake makes things worse, not better. Had you acknowledged your mistake when you first learned of it, at least you wouldn’t be going to prison. We all make mistakes. We don’t all commit financial fraud to cover up our mistakes.
That’s my sincere take re these important questions, in any event.
I naturally wish you the best of luck in all your future endeavors.
Rob
Curious says
Hi Rob,
So I give you a magic wand, and all stock investors are following your approach, selling stocks when their PE ratios reach X.
To whom are they selling their stocks?
Rob says
It works the same way with stocks as it works with cars, Curious.
If Edmunds.com didn’t exist, there would be car dealerships that would ask insanely high prices for their cars. Edmunds.com provides the people buying cars with the information they need to avoid overpaying. That’s what we need in the stock realm. We need to get accurate, honest information about the value proposition offered by stocks when they are selling at various prices out to the millions of people who buy stocks.
If millions of people were trying to sell their stocks, the price would come down dramatically. That would bring the value proposition up and they would not need to sell them anymore.
The reality, of course, is that all people cannot be educated about how stock investing works on a single day. In the real world, one group would learn the realities and they would sell to a group that had not yet learned. In time, that group would learn and then they would sell. Eventually, prices would be back at fair value and no one would need to sell.
Once the entire internet has been opened to honest posting, we all will learn what we need to learn and there won’t be a need for any of us to sell anymore. Once people have learned the realities revealed by the peer-reviewed research, bull markets are an impossibility. That means that bear markets are an impossibility. And that means that economic crises become very unlikely. We all earn far higher returns and we all get to retire many years sooner. Investor heaven!
If ever there came a time when someone started pushing Buy-and-Hold again, prices would start to rise to dangerous levels again. Then we would need to have sales of stock again to pull prices back to fair-value levels again. So long as no one pushed Buy-and-Hold, there wouldn’t be a problem. People could just hold their shares and earn their 6.5 percent real per year. Buy-and-Hold works so long as no one pushes Buy-and-Hold!
There’s nothing wrong with holding your shares so long as the long-term value proposition remains in place. But we do need to respond when we see people promoting Get Rich Quick strategies. Had Shiller published his revolutionary findings in 1961 instead of in 1981, there never would have been a Buy-and-Hold as it is currently promoted. We all would have just been honest about what the research says from the first day. The problem is that the Wall Street Con Men built their careers around the promotion of Buy-and-Hold/Get Rich Quick and then, when Shiller showed that Get Rich Quick is not the answer, the people pushing it felt ashamed and went into cover-up mode.
Once we open the internet up to honest posting, all this is over. Once people know what works, they are never going to go back to what does not work. This is a one-time thing. We are the luckiest generation of investors who ever walked Planet Earth. We are the first generation who has access to the mountain of peer-reviewed research that lets us reduce the risk of stock investing by 70 percent. But it obviously doesn’t help us any to have the research if we cannot talk about it. We need to pull together to overcome the Buy-and-Hold Mafia. Then we gain access to all the wonderful stuff that follows from that.
I hope that helps a bit.
Rob
Curious says
Hi Rob,
I’m sure that your research has accounted for the impact of interest rates on stock prices, yet I’ve never heared you account for that. Could you expand?
Rob says
Interest rates are priced in, Curious.
Every factor other than valuations is priced in.
Valuations is a unique factor.
The thing that makes it unique is that all the other factors are the product of the workings of investor rationality. Valuations (mispricing) is the one exception. Mispricing is the product of the workings of investor irrationality. It is a logical impossibility that mipricing could ever be priced in.
Irrationality is something we need to learn to control. To do that, we need to talk about it.
Investor irrationality is responsible for 70 percent of the risk of stock investing. It goes away once we permit ourselves to talk about it and learn about it and develop tools (like the Stock-Return Predictor) to combat it.
All that good stuff begins soon after the announcement of your prison sentence, Curious. That news will go viral. No one will ever be afraid of the Buy-and-Hold Mafia again once the lead members have gone to prison. That’s how a good and smart society overcomes something like this.
My best wishes.
Rob
Curious says
Thanks Rob. How do interest rates factor into your valuation model? I’m sure that you realize that stocks aren’t valued in a vacuum, and that the value of all alternative investments has an impact. Stocks at a PE of 10 have a much different expected return if interest rates are 2% or 10 %. Please expand on how your model accounts for these external factors.
Rob says
Fama showed that the market is efficient except for the valuations effect, Curious.
Investors factor in interest rates and every other factor (except for valuations).
That’s it.
Fama was responsible for many insights of huge importance. He made one mistake. He failed to test long-term timing. He tested short-term timing, found that it didn’t work and concluded rashly that timing doesn’t work. Shiller later tested long-term timing and found that it always works and is always 100 percent required (while confirming Fama’s finding that short-term timing never works).
Now we just need to get the word out.
My best wishes to you and yours.
Rob