Set forth below is the text of a comment that I recently put to another blog entry at this site:
You may be surprised to hear this from me but yes valuations do matter. There are a number of indexers who believe that the reason you shouldn’t invest in individual stocks is because it’s straight-up gambling and even Warren Buffett himself is nothing more than a lucky gambler. Buffett of course has repeatedly mocked these true believers in the Efficient Markets Hypothesis in his letters. He doesn’t mind them because he figures if his competition isn’t even trying, it’s easier for Berkshire.
But indexing is a different beast than individual stocks. You’ve probably heard of Bogle’s phrase “the majesty of simplicity”. Simplicity is what truly makes indexing special. Any idiot can do it and be a success. Market timing, while possible, is much harder than many people including you seem to think it is. If market timing was so easy then I’m sure you wouldn’t have missed the 2009 buying opportunity. Thing is as hopeless as you (and I, and many others) are with this stuff all is not lost. Over time buying and holding the index has yielded very good results, results superior to those of most who either pick their own stocks or buy managed funds. Buffett can beat the index, one of my favorite bloggers a young Buffett wannabe Joshua Kennon can beat the index. These people are the exception, not the norm. Buffett (and Kennon) both realize this and that’s why, even though they reject some of the core beliefs of indexers, they recommend indexing for almost everyone else. Bottom line is your approach to investing takes something that works and that is simple and makes it needlessly complicated. The end result of VII is the opposite of what you intend it to be. Just look at your own performance over the past 18 years and compare it to any diligent indexer’s performance.
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Anonymous says
Buy-and-Hold is an emotional roller coaster.
You’ve bought and held the same asset allocation for almost the last 20 years. Has it been an emotional roller coaster?
Rob says
No.
But I saw a lot of Buy-and-Holders freaking out in early 2009, Anonymous.
And they will be freaking out again during the next price crash.
The issue you need to be thinking about is — Is stock-investing-risk stable or variable?
If risk is stable, there is no emotional roller coaster for Buy-and-Holders and Buy-and-Hold is the ideal strategy.
If risk is variable (changing with changes in valuation levels), then Buy-and-Holders are permitting their risk profiles to get wildly out of whack. And, yes, doing that turns the investing experience into an emotional roller coaster.
That’s the only thing re which we disagree. You invest as if risk is stable and I invest as if risk is variable. The two contrasting beliefs call for two contrasting investing strategies.
Can you acknowledge that and stop pretending you see something else at issue here?
It’s not that I forgot to take my meds. And it’s not that I am stupid. And it’s not that I am evil. And it’s not that I am a troll.
It’s that I think stocks are more risky when valuations are high. And I set my allocation accordingly.
You can’t acknowledge that. That’s the problem. That’s the cause of all the friction.
Rob
Sensible Investor says
You are free to believe what you want to believe, Rob. No one is going to stop you from posting your views. The internet is wide open for posting. What they take issue with is the way you seek to take over every discussion and make it about yourself and your views.
Rob says
What they take issue with is the way you seek to take over every discussion and make it about yourself and your views.
I don’t seek to take over any discussions, Sensible.
It just happens.
The reason why it happens is that the things I say make so much sense to most people and most people have never before heard anybody say these things. So they naturally are interested and want to learn more. So they naturally ask lots of questions. And the next thing you know one of the Buy-and=Holders feels bad that I have yet again “taken over” a discussion.
There is a solution to this problem. The solution is to open the entire internet to honest posting on the last 33 years of peer-reviewed research. Then there will be hundreds or perhaps thousands of people saying all the same things that I say. No one will need to ask lots of questions because they will have had all their questions asked and answered many, many times. People will have access to all the information they need and they will decide for themselves what to believe and there will be no problem.
The problem today is that there are just not enough people advocating Valuation-Informed Indexing. So it shocks people when I advance perfectly natural and understandable claims like “the Old School SWR claims get the numbers wrong” or “the promotion of Buy-and-Hold strategies caused the economic crisis” or “we will likely see a price crash of 65 percent within the next year or two or three.”
There’s nothing odd or radical or extreme about these claims. They follow logically from an understanding of the last 33 years of peer-reviewed research. But they SOUND odd and radical and extreme to most people because they have never heard such claims before. The claims scare people because they have their retirement money invested pursuant to Buy-and-Hold principles. So these claims are always going to attract a lot of attention until we reach a point at which everyone has heard them and understands what is behind them.
To get to that place, we need to open every site to honest posting. There is no other way to get the job done.
I have been advocating this for 12 years now. Stop opposing me and support me instead and we can make this happen together. That’s the answer. If you don’t want people to be shocked when they hear research-based stuff, you need to stop supporting the Ban on Honest Posting. People are not shocked by claims they hear on a daily basis. Let’s work together to insure that every investor on the planet hears about Valuation-Informed Indexing on a daily basis and therefore no longer feels the tiniest bit of shock when these ideas are advanced at internet boards and blogs.
This came up just the other day. One of you Goons made a good point by saying that I wouldn’t be banned at any site if I limited myself to expressing these ideas only on rare occasions rather than on every thread at which they are relevant. I want to express them on every thread! That’s how we will all get to a point where no one will be shocking by the ideas. We all want that. You don’t want the discussions to be about me and I don’t want the discussions to be about me. Let’s get to work! Let’ get THOUSANDS of people talking about these ideas.
People need to be incentivized to advance these ideas. You Goons punished Wade Pfau for publishing honest research showing the dangers of Buy-and-Hold. Let’s take it in the other direction. Let’s applaud him for the research that he co-authored with me. Let’s award him a Noble prize. Let’s invite him to post honestly re what he really believes at the Bogleheads Forum. Let’s write threads about his e-mail to the authors of the Trinity study asking them to correct the errors in their study and ask the Trinity authors to respond.
Let’s change the world! For the better!
I’m ready to get started today.
Are you?
If you’re not, then stop complaining that I get so much attention when I put forward these ideas. The only reason why I am not sharing the attention with thousands of others is that you Goons have intimidated the thousands of others into silence. STOP DOING THAT!
Rob
laugh says
And, if we just look empirically. There are less than 5 posters out of hundreds of thousands who actually care when/after you are banned. I don’t read anything on any message board bemoaning the loss of Rob Bennett’s contribution.
And I have a feeling its not because they are ‘scared’ of being banned from an Internet message board – LOL!
Rob says
It’s exactly that.
If someone participats at a discussion board and enjoys it, why would he not want to avoid getting banned at that board? It’s common sense that he would avoid behavior (posting honestly) that he knows will make you Goons demand that he be banned.
This all began when I put forward my famous post pointing out the errors in the Old School safe-withdrawal-rate studies. John Greaney was embarrassed to have people learn about his mistake.
That’s understandable. What’s not so understandable is the manner in which he dealt with that embarrassment. He lashed out at the person who brought the error to his attention.
Huh?
I didn’t cause Greaney’s embarrassment. His embarrassment was caused by the fact that he got an important number wrong in a retirement study. He got the number wrong because he used the same methodology that was used in the Trinity study, a peer-reviewed study. He ASSUMED that the methodology employed in the Trinity study was analytically valid. But of course it wasn’t. The Trinity authors should have corrected their study a long time ago. If they had, Greaney never would have been embarrassed. His gripe is with the authors of the Trinity study, not with me.
Of course we can take it back even a step farther. Why didn’t the Trinity authors correct their study a long time ago?
The Trinity authors didn’t get called out on their b.s. for many years any more than Greaney did. They too would be embarrassed to acknowledge their error today, after it has caused millions of failed retirements. The Trinity authors are pretty much in the same situation as Greaney.
And of course we can take it back even farther than that. Bogle knew about Shiller’s 1981 findings when they came out. Why didn’t he make a statement then acknowledging that there was now peer-reviewed research showing that there is precisely zero chance that Buy-and-Hold could ever work for even a single long-term investor?
If men were angels, he would have done that. Men are not angels. Bogle did not acknowledge his mistake at the time when the peer-reviewed research in the field first showed it to be a mistake. He ignored the new research. He went into cover-up mode. And, now 33 years later, here we are. Bogle’s unwillingness to acknowledge his mistake has now brought on the biggest economic crisis in U.S. history. Whachagonnado?
Our understanding of how stock investing works is still in its primitive stage, Laugh. That’s the bottom line here. We like to think we know all there is to know. But we don’t. Not even close.
So the most important quality that anyone working in this field needs to possess is an ability to say the words “I” and “Was” and “Wrong.” Mel Lindauer lacks that ability. John Greaney lacks that ability. Jack Bogle lacks that ability. That’s why we are in this economic crisis. That’s why we are in the process of seeing millions of middle-class people suffer failed retirements. That’s why you will be spending a big stretch of years in a prison cell. That’s why we are in this big mess.
Yes, people are scared to be banned from discussion boards. And yes, people are scared to have you Goons threaten to kill their loved ones. And yes, people are scared to have tens of thousands of acts of defamation directed at them. And yes, academic researchers are scared to have internet Goons threaten to send defamatory e-mails to their employers in an effort to get them fired from their jobs and to see leading figures in the field like Jack Bogle raise not a finger to deal with the problem when they learn about it.
And of course you understand full well that intimidation tactics work when trying to silence people on the internet. If you didn’t know that intimidation tactics worked so well, you wouldn’t employ them so frequently.
I am not engaging in intimidation tactics when I note that you have committed the biggest act of financial fraud in U.S. history and that you are now on your way to serving a long stretch of time in a prison cell. All that I am doing is letting you know how the people of the United States elected to protect themselves from Goons like you.
But the announcement of your prison sentence WILL serve a similar end as your intimidation tactics. People respond to incentives. During the Buy-and-Hold Era, lots of people got filthy rich pushing the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind. Those who posted honestly re the last 33 years of peer-reviewed research saw their careers destroyed by the Buy-and-Hold Mafia. Huge incentives were provided for pushing smelly garbage and huge disincentives were provided for letting people know what the peer-reviewed research in this field really says.
That is in the process of changing.
When your prison sentence is announced, people are going to be running away from statements in “defense” of Buy-and-Hold at the speed of light. When my settlement check for $500 million is mailed to me, we are going to see HUNDREDS of blogs opened that will be exploring the implications of the past 33 years of peer-reviewed research in great depth.
The usual rule is that research-based strategies are what work and that Get Rich Quick/Buy-and-Hold strategies are what sell.
But the relentless promotion of the Get Rich Quick garbage ALWAYS causes an economic collapse.
And, following the economic collapse, Get Rich Quick doesn’t sell so hot anymore. Following the next price crash, the phrase “Buy-and-Hold” will be spit out of people’s mouths like an obscenity.
I will have 12 years of articles and podcasts and calculators at my site showing that I have done everything in my power to see you Goons shut down.
What will you have?
You will have a few kind words from me arguing that as a society we should act with charity toward those of our Buy-and-Hold friends who have put up posts in “defense” of Mel Linduaer and John Greaney.
What else?
And how much will that hold back the millions of people who will have seen their financial futures destroyed by your death threats and your deceptions and your word games?
Even then I will wish you all the best that this life has to offer a person.
That much will not change.
How much will it help you at that point?
I don’t think it will help too much at that point.
But I’m not God. I don’t know for sure. We will just have to wait and see how things play out.
Hang in there, my long-time abusive-posting friend.
Rob
Laugh says
If it is the fear of being banned from Internet boards that is holding back your legion of supporters…then you have no legion of supporters
Rob says
For some, it is a fear of being banned from a discussion board.
For some it is a fear of losing a job as an academic researcher that it took years of hard work to win.
For some it is a fear of having loved ones killed or injured.
For some it is a fear of having one’s blog destroyed.
For some it is a fear of being held liable for millions of dollars in damages for continuing to promote a Get Rich quick investing strategy for decades after it was discredited by the academic research.
For some it is a fear of spending one’s last days in a prison cell.
We all have fears, Laugh.
We all also have hopes.
I believe that our hopes will win out over our fears following the next price crash.
We’ll see.
I wish you all good things.
Rob
Rob says
I don’t have legions of supporters.
What I have is millions of middle-class people who very much need to learn what the last 33 years of peer-reviewed research says about what works in stock investing and who have expressed a great desire to participate in a wonderful learning experience.
And a small group of Wall Street Con Men and their Internet Goon Squads who very, very, very, very much do not want those millions to enjoy that learning experience.
I am with the millions who want to enjoy the learning experience.
We are working at cross purposes, my Goon friend.
Please take good care.
Rob