“If I Showed How We Can Reduce the Risk of Stock Investing By 10%, I Would Be the Most Popular Person in the Investing World Today. But 70%? It Doesn’t Seem Possible. How Could It Be Possible? It’s Because Investor Emotion Has Been the Great Forbidden Subject for Many Years Now. We Have Decided as a Society to Adopt a Social Taboo Against Talking About the Subject That Covers 80% of What We Need to Know to Become Effective Investors.”

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

It is so common to see as these leading financial experts threatening people with prison and lawsuits.

It is not common at all to see leading financial experts refer to the need for prison sentences for you Goons, Anonymous. That’s why we are in an economic crisis.

I was a Buy-and-Holder on the morning of May 13, 2002. I gave it up on the evening of August 27, 2002. That’s the night that John Greaney threatened to kill my wife and two sons if I continued to “cross” him by posting honestly on the safe-withdrawal-rate matter. Motley Fool did nothing even though this was an obvious violation of their posting rules. 200 of my fellow community members (people who praised me to the skies in the days before I worked up the courage to post honestly on the SWR matter) endorsed Greaney’s threat.

That is emotion, Anonymous. That is a level of investor emotion so great that it is scary.

The peer-reviewed research that I co-authored with Wade Pfau shows us how to reduce the risk of stock investing by 70 percent. The biggest problem I have promoting that study is that the findings are unbelievable to most people. If I showed how we can now reduce the risk of stock investing by 10 percent, I would be the most popular person in the investing world today. But 70 percent? It just doesn’t seem possible.

Why is it that it is possible? It’s because investor emotion has been The Great Forbidden Subject for many years now. People see it all the time. They see 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. And they keep it zipped. They view it as unprofessional to talk about this stuff. They haven’t seen other investing experts talk about it and so they feel that it will hurt their credibility to talk about it themselves.

We have decided as a society to adopt a Social Taboo against talking about the subject that covers 80 percent of what we all need to know about to become effective investors. We need to know about and avoid investor emotion. We have a tool — P/E10 — that tells us what we need to know. We all need to make use of that tool. But to do so we all need to acknowledge that we messed up big time during those years when we were telling people (and ourselves) that looking at P/E10 was not 100 percent necessary.

We are ashamed that we messed up. We are ashamed that others messed up. We are ashamed that we failed to call others out when they messed up. We are ashamed that we let things get so out of control that there are people who will be going to prison over the cover-up. And on and on and on and on.

If I had a magic wand, I would take us back to the morning of May 13, 2002, and we would all play it over, behaving much differently this time. I appreciate that you Goons would like that. I can’t do it. I don’t have a magic wand. I can say some words as to why I think you felt pressures to play it the way you did play it and I can say some words about how I think you would do it differently if you had another chance. But that’s as far as I can go. If I say that you demanded correction of the Greaney study within 24 hours of learning of the errors in it, I am aiding the cover-up and then I am committing financial fraud myself. Which is a felony. Which means prison time for me too. Huh? No thanks!

We’re all in the same boat. We’re all in a big mess.

We have one huge thing going for us. We are the luckiest generation of investors who ever lived.

We take advantage of that card and we all end up in a far better place than would otherwise be possible.

But taking advantage of that card means working up the courage to talk about investor emotion. Which evidences itself in death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs. We all need to work up the courage to talk about all the stuff that we have never talked about before. Because it is the failure to talk about that stuff that caused our investing advice to go so wide of the mark and to cause so many trillions of dollars of losses as to bring on an economic crisis.

If the market were automatically efficient, none of this would matter. If the market were automatically efficient, investor emotion simply would not be an issue.

It turns out that Fama was close to being right but not precisely on the mark. The market LONGS to be efficient. But it cannot pull the trick off without being supplied with information helping it to access the level of investor emotion present at any given time. Once the market has that information, it can act to BRING the market to efficiency. We cannot do it without the information.

When we open the internet up to honest posting on every possible issue, we will all enjoy seeing an efficient market for the first time in history. So long as the Ban on Honest Posting remains in place, that dream remains unrealized.

My job is to steer us to the place where we work up the courage to make all that good stuff happen. Part of it is pointing out the prison sentences. Part of it is softening the blow by pointing out that the people who engaged in the cover-up were under a lot of unusual pressures.

That’s it. That’s where we stand today.

When I get the help I need, we all will begin living far richer lives than we ever imagined possible in the Buy-and-Hold days.

The hand of kindness is outstretched. I obviously don’t control when you Goons will extend your own hands in warm acceptance of the offer of help.

I continue to wish you all good things while you ponder the matter some more.

Rob

Comments

  1. Anonymous says

    If you could show us how to reliably outperform the market you would be more popular that is for sure. Unfortunately you yourself haven’t even been able to do this over the last 15 or so years.

    Barring a crash of catastrophic proportions you have essentially ensured you can never match the returns of a normal buy and hold and REBALANCE portfolio in a 20 year time frame. Investing is a long term game but 20 years is really starting to become too long to wait on results. Many ambitious people hope to retire after only working 20 years they can’t have their portfolio significantly underperform in that time frame as you have.

    If we do see a crash of say 70% or so from peak levels that would put people who stayed completely in equities in that time basically back even with you. Not so sure about people who have been rebalancing semi annually and continuing to skew their portfolio more conservative as they age. They would still be ahead of a stash in mattress approach.

    I guess you are desperately hoping for a huge crash so you can stick it all in stocks and try and catch up. That isn’t an ideal strategy for most.

  2. Rob says

    Every statement you make here is false, Anonymous.

    Buy-and-Holders will cheer you on because they are emotionally addicted to a Get Rich Quick strategy and so it will comfort them to hear these lies advanced. Those seeking to learn what works in the long run will check your numbers and see for themselves that they are all false.

    The big question is — Will those who cheer you on today because they are emotionally addicted to a Get Rich Quick strategy stop cheering you on following the next price crash?

    That’s what I expect to see happen.

    We’re just going to have to wait to see how it plays out.

    I wish you all good things.

    Rob

  3. Rob says

    If you could show us how to reliably outperform the market you would be more popular that is for sure. Unfortunately you yourself haven’t even been able to do this over the last 15 or so years.

    I did it for 140 years.

    That’s how science works.

    What has worked for 140 years is probably going to continue to work. It might not. I cannot say it will continue to work with 100 percent certainty. But I can with 100 percent certainty say what has worked for the 140 years for which we have data. Failing to exercise price discipline ALWAYS dramatically increases risk in the long term. Failing to exercise price discipline ALWAYS dramatically diminishes return in the long run. There has never been a single exception to the rule. It is impossible for the rational human mind to imagine circumstances in which there ever would be one.

    If Buy-and-Hold ever starts working, I am going to tell people that. It would make me happy to be able to say that.

    But we cannot say that based on five years or ten years or fifteen years. You’ve got to have 30 years for it count for something. And Buy-and-Hold has NOT EVER ONCE IN HISTORY worked for a 30-year time-period.

    That’s verifiable. That can be checked.

    We cannot today get the peer-reviewed research that checks it out to people because of the tactics employed by the Wall Street Con Men and their Internet Goon Squads.

    But we will. There’s a reason why as a society we adopted laws against financial fraud. There’s a reason why we adopted a policy of sending those who engage in these sorts of tactics to prison.

    So we’ll see how it goes, Anonymous.

    Hang in there, old buddy.

    Rob

  4. Anonymous says

    I have crunched the numbers. I have compared contributing X amount of dollars every month for the last 12 years in the market with semi annual rebalances and skewing 1% less to equities as each year goes by. Since I can’t compare it directly to your situation of having no job and income for 12 years I instead chose to compare it to contributing the same X amount of dollars every month into TIPS. The results are not even close if you do the math like this.

    I know you like to cherry pick one date in the past when stocks were at a peak and assume a locked in rate much higher on TIPS than anyone can get now but thats not the real world. If you could truly reduce the risk of investing by 70% while maintaining the same expected return you would be rich but you aren’t.

    There have been many crashes and support for buy and hold has not waned at all in fact it has only increased.

    So in summation, no Rob, it is everything you post which is false.

  5. Rob says

    The research showing the Valuation-Informed Indexing has beat Buy-and-Hold for 140 years running was peer-reviewed, Anonymous.

    Was the peer-review committee in on the massive conspiracy against Buy-and-Hold?

    Did Shiller doctor the 140 years of data available at his web site to make Buy-and-Hold look bad?

    Is the Nobel Prize Committee in on the conspiracy?

    Is that why the Buy-and-Holders had to threaten to send defamatory e-mails to Wade’s employer?

    Your jury will decide the length of your prison sentence, Anonymous. That’s how our system works.

    I naturally wish you all good things.

    Rob

  6. Rob says

    I know you like to cherry pick one date in the past when stocks were at a peak

    The peer-reviewed research that I co-authored with Wade Pfau shows the results for 140 years running. No cherry picking.

    This is why you had to threaten him. When word gets out re what the peer-reviewed research shows, you and your Goon pals go to prison.

    You BElONG in prison. We elected as a society to make financial fraud a felony to protect ourselves from people like you.

    Is that not so?

    Rob

  7. Rob says

    and assume a locked in rate much higher on TIPS than anyone can get now but thats not the real world.

    I got a 3.5 percent real return on my TIPS. That was the real world at the time I purchased them.

    You are obviously not going to be able to obtain the same return at a time after stock prices have crashed once. Why would any rational person expect to do so? There is more demand for TIPS following a crash. That pulls the price down.

    TIPS still offer the better long-term value proposition. We are closer to the second crash today. So the amount of time you need to hold the TIPS is less. TIPS are every bit as good a deal today as they were when they were paying 3.5 percent real when you consider how much closer we are to the second price crash for stocks (which is what will provide the big payoff for TIPS owners — the second crash will pull the 10-year annualized return on stocks up to 15 percent real).

    TIPS were a great deal when I bought them and TIPS are a great deal today. It’s funny that the Wall Street Con Men don’t tell us this.

    I wonder why.

    Rob

  8. Anonymous says

    Folks who hold 100% bond allocations while telling everyone how they’ve got the stock market all figured out seem just a little bit disingenuous.

    And we are talking about the same Batsignal that told you the market was going to crash within a year of the last presidential election, correct? And the one that told you stocks would drop by 65% a couple of years ago? Correct?

  9. Rob says

    If you could truly reduce the risk of investing by 70% while maintaining the same expected return you would be rich but you aren’t.

    I haven’t earned a dime in 14 years and my wife does not work and we and our two boys will be going on a week-long vacation to the beach in a few weeks.

    There are richer people in the world. But that ain’t poor.

    And every analysis that has been done by a non-Goon shows that I am ahead today because I got out of stocks in the Summer of 1996. I’ll be much farther ahead following the next crash. And then I will enjoy decades of compounding returns on the differential.

    That’s not even counting the $500 million settlement payment.

    Somehow, I think I’ll stick with research-based investing strategies and leave the smelly Get Rich Quick garbage to you Goons.

    Call me madcap.

    Rob

  10. Rob says

    There have been many crashes and support for buy and hold has not waned at all in fact it has only increased.

    There have been four crashes in U.S. history.

    The first three came before Shiller’s “revolutionary” (his word) finding of 1981. So those don’t count. People can’t go beyond Get Rich Quick when they don’t even know that Buy-and-Hold IS Get Rich Quick. I mean, come on.

    Support for Buy-and-Hold HAS waned since the 2008 crash. All you have to do to prove that is to look at the P/E10 level. It is still insanely high. But it is lower than it was at the peak of the Buy-and-Hold bubble. It’s not too far off from where it was just prior to the crash. So, if you want to say that Buy-and-Hold is as popular today as it was just prior to the crash, fine. But it is nowhere near as popular as it was at the peak of the bubble.

    And the popularity of Get Rich Quick/Buy-and-Hold was WAY down in the months immediately following the crash. The P/E10 level dropped to 13 in early 2009. That ain’t the sort of P/E10 level you see when large numbers of investors are following a Get Rich Quick strategy. I mean, come on.

    People HATE GRQ strategies after they lose most of their retirement money. This has been true throughout history. It’s not hard to understand why.

    The difference this time is that we now have 33 years of peer-reviewed research showing us the dangers of the pure Get Rich Quick approach. We never had that before. This will be the first elective Great Depression that we ever suffered.

    I think that’s going to make a big difference.

    But we’ll all just have to wait and see, you know?

    I hope we can agree re that much, my old friend.

    Rob

  11. Rob says

    Folks who hold 100% bond allocations while telling everyone how they’ve got the stock market all figured out seem just a little bit disingenuous.

    TIPS are technically bonds. But they do not perform at all in the manner of conventional bonds.

    They are inflation-protected. Inflation is the biggest risk with conventional bonds. So this is a very different asset class.

    I don’t say that I have the stock market all figured out.

    What I say is that I am 12 years ahead of people like Bogle, who have not yet acknowledged that Buy-and-Hold is a big pile of smelly garbage.

    It is Bogle who taught me to root my strategies in the peer-reviewed research. I am 100 percent happy to give the Big Guy that one.

    The Big Guy is not following his own good advice!

    Shiller discredited the Get Rich Quick approach in research he published in 1981!

    The day that Bogle gives his “I Was Wrong” speech is the day that I will begin working with him. I LOVE the idea of working with my good friend. There is nothing I would enjoy more.

    I ain’t going to agree to post dishonestly re safe withdrawal rates to win his support.

    Why? Because I freakin’ don’t want to go to prison.

    Who’d a thunk it?

    I don’t know everything there is to know about investing. None of us do.

    I know not to commit any major felonies.

    That puts me ahead of you, Anonymous. And it puts me ahead of my good friend Jack. And it puts me ahead of anyone who still believes in Buy-and-Hold 33 years after the peer-reviewed research showed that there is zero chance that it could ever work for a single long-term investor.

    Fair enough?

    Rob

  12. Rob says

    And we are talking about the same Batsignal

    We are talking about the last 33 years of peer-reviewed research.

    The fact that you refer to the last 33 years of peer-reviewed research as a “batsignal” shows that you are addicted to your Get Rich Quick fantasies.

    Could anything be more clear?

    Rob

  13. Rob says

    that told you the market was going to crash within a year of the last presidential election,

    The research didn’t tell me that. The research says that short-term timing doesn’t work.

    I wrote that I believed that would happen in a column. Things didn’t turn out as I speculated. But it was a perfectly good column. The case was presented in a reasoned argument. It was a fun thing to speculate on.

    I don’t regret writing the column. I think it can serve as a good illustration of why we all should doubt the voices within us that tell us that we can do things that the research shows cannot be done.

    The fact that I got that one wrong SUPPORTS Valuation-Informed Indexing, which posits that short-term timing doesn’t work. It certainly does not undermine it in any way.

    Rob

  14. Rob says

    And the one that told you stocks would drop by 65% a couple of years ago?

    The research says that stock prices will fall by 65 percent sometime within the next few years.

    It’s not Rob Bennett who says that. It is the peer-reviewed research in this field.

    It could be that the research will be corrected at some future date. That’s what happened with Buy-and-Hold. So it seems possible to me that it will happen again. I sure am not offering any guarantees.

    But, yes, that is what the research says.

    There are a range of possibilities. It could be that the drop will only be 50 percent. But the odds of it being 80 percent are as good as the odds of it being 50 percent. 65 percent is the MOST LIKELY drop. That’s what should be our default expectation.

    I hope that helps a bit, Anonymous.

    Rob

  15. Anonymous says

    The research says that stock prices will fall by 65 percent sometime within the next few years.

    It’s not Rob Bennett who says that

    Here’s what Rob Bennett did say in April, 2013:

    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.

    I can give the reasons why I view the end of 2015 as being an outside date. But they don’t matter. You’ve heard them before.

    2015 is the outside date, correct Rob? Or were you “missing a piece of the puzzle” again?

  16. Rob says

    All you need to do to understand this is to read the very words you quote in your comment, Anonymous.

    The research says we should see the drop in 10 years, starting from September 2008 (the date of the first crash). So any date prior to September 2018 fits the research.

    Rob Bennett has tried to do better than that. I have tried to take informed guesses based on the information available to us. One guess I got wrong (the one where I made a case that we might see the crash within a year after the election). I might or might not get the “by the end of 2015″ one wrong and I might or might not get the “by the end of 2016″ one wrong. We don’t know yet.

    None of that reflects on VII in any way, shape or form.

    VII is a research-based strategy. The research says we should expect to see a crash by the end of 2018.

    It is even possible that we will not see a crash by the end of 2018. The Buy-and-Hold research ended up being wrong, right? If that research could be discredited, it is possible that someday the VII research will be discredited.

    There’s nothing that I can do about that, is there?

    I have reported accurately what the research says. I will continue to do so. Every investor alive today needs to know what the research says.

    How does any of that compare to what you have done, Anonymous? You have committed felonies to keep people from learning what the research says. Huh?

    I ain’t committing no felonies to make you Goons happy, Anonymous.

    I will continue posting honestly what the research says.

    I naturally wish you all good things.

    Rob

  17. Rob says

    You’re the one who shows up here everyday, Anonymous.

    You’re the one who is afraid to go to prison.

    I am the one who has offered to help in any way that does not require me to commit a felony under the laws of the United States.

    I’ll help you when you help the millions of middle-class investors whose lives you are in the process of destroying.

    Ask Jack what he thinks you should do, old friend.

    If he gives the wrong answer, ask again.

    Please let me know when he says that he is ready to say The Three Magic Words.

    That’s when we all win. Big time.

    Rob

  18. Anonymous says

    “The research says we should see the drop in 10 years, starting from September 2008 (the date of the first crash). So any date prior to September 2018 fits the research.”

    Rob is moving the goal posts yet again. Sorry Rob, but we have your quotes from before on the timeframe.

  19. Rob says

    There are no goalposts. This is not a game.

    Greaney should have corrected his study within 24 hours of the moment he learned of the errors in it.

    Had he done that, we would have all been on the same side starting on the morning of May 14, 2002. And we would all today be enjoying the benefits of having worked together to snap the last piece of the investing puzzle into place.

    I didn’t cause your feelings of shame, Anonymous. There is nothing shameful about making a mistake. Your shame is the result of your efforts to cover up the mistake. The shame grows bigger every day because the number of lives you have destroyed as a result of the cover up grows larger ever day.

    All that I can do is wait for the day that your prison sentence is announced and publicize it and thereby save millions of others from experiencing the shame that you live with today.

    I hope your prison sentence is on the short side. I hope you get out in time to still have a few years left to enjoy the fruits of the wonderful work that all the non-Goons have been doing for these 12 years.

    In short, I wish you well. That’s why I will never agree to post dishonestly on safe withdrawal rates. I don’t like to see my friends suffer this way.

    Take care, man.

    Feel free to go elsewhere if you think I am a troll. I can run this place without you.

    Oh, Noes!

    Rob

  20. Anonymous says

    Your typical prison crappolla scares no one. In fact, you know where you can stick it.

  21. Rob says

    I’m not convinced, Anonymous.

    More importantly, you’re obviously not convinced either.

    We’ll see where things stand following the next price crash.

    Fair enough?

    Rob

  22. Anonymous says

    One guess I got wrong (the one where I made a case that we might see the crash within a year after the election). I might or might not get the “by the end of 2015? one wrong and I might or might not get the “by the end of 2016? one wrong. We don’t know yet.

    I don’t know Rob, the ability to make guesses about the future and get them wrong doesn’t seem like a very valuable skill.

  23. Rob says

    It’s not, Anonymous. We couldn’t possibly agree more.

    But people have been doing it since the beginning of time, haven’t they?

    That’s why I love the idea of rooting one’s strategies in the peer-reviewed research so freakin’ much!

    Doing that gets you out of the realm of the subjective and brings you into the realm of the objective.

    The Buy-and-Hold Pioneers were 100 percent right about that one. That’s why I love them so darn much. That’s why I want to bring Buy-and-Hold back to what it was in its early days — a research-based investing strategy.

    I intend to continue to make guesses about the short-term future. I’ll probably get most of them wrong. Perhaps I will stumble onto a gold mine with one of them someday and we will all benefit. Perhaps not. The key, though, is that I will always ALSO continue advocating the first research-based strategy. And that means that there will always be plenty of people who will know not to pay too much attention to those subjective short-term guesses because the core of a long-term investing strategy has to be the peer-reviewed research, which as of today tells us that short-term guessing doesn’t work.

    You’re engaged in short-term guesswork every day that you wake up and leave your Buy-and-Hold strategy in place, Anonymous. There’s now 33 years of peer-reviewed research showing that Buy-and-Hold can never work for a single long-term investor. Yet you solider on. Why?

    Because there’s a Get Rich Quick urge that resides within all of us that tells us to ignore the research and to fall for the illusion that we will this time manage to pull off something that has never been pulled off before — to invest all our retirement money pursuant to a pure Get Rich Quick approach and not live to regret it sooner or later. Good luck with that!

    We can’t do it.

    My guess often turn out wrong. So do Bogle’s. So do Shillers. So do yours.

    There is only one strategy that has never failed for 140 years running. The research-based strategy.

    Why? Because the research is not freakin’ human! The research doesn’t have a Get Rich Quick urge residing within it. So the research doesn’t fall for all the foolish fantasies that we humans so often fall for.

    That’s why we are able to reduce risk by 70 percent just be being willing to abandon the Buy-and-Hold fantasy, Anonymous. It is the Buy-and-Hold fantasy, the idea that subjective guessing games might work out this time even though they have never before worked out, that is the cause of most of the risk of stock investing. It turns out that not only is Get Rich Quick not the solution, Get Rich Quick is actually the problem!

    I am sure.

    When I guess, I call it guessing. I don’t shift to a pure Buy-and-Hold strategy because I made one or two lucky guesses. Yes, I speculate in columns. And, yes, it appears that my track record with the speculation stuff is no better than the track records of the thousands who have gone before me. But at least I don’t advocate speculative investing strategies. I advocate Valuation-Informed Indexing. I advocate the true research-based stuff.

    Do you see how that makes a difference?

    It’s harmless fun to write a speculative column. You hurt millions of people when you put fantasy numbers in a retirement study and mislead people into thinking that it is based on anything real.

    You don’t see me threatening to kill your wife and children because you pointed out that one of the silly predictions that I made in my column didn’t work out, do you?

    That’s the difference between me and John Greaney. John Greaney is a Buy-and-Holder. I am not. So my ego is not wrapped up in all the subjective Get Rich Quick garbage. I can laugh at my mistakes. John has to cover his up out of shame. Yuck! Not this boy. Find somebody else, you know?

    I wish you all good things, my long-term subjective fantasy-following Goon friend.

    Rob

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