“Indexing Pretty Much Takes Intelligence Off the Table as a Factor. All the Things That People Used to Study Are Priced In. You Don’t Need To Be Intelligent to Obtain Great Investing Results Today. But You Need to Rein in Your Emotions. You Can Ruin the Indexing Thing By Getting Too Emotional.”

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

Rob,

Specifically, who are the goons? What makes them goons? Who are the leaders of the goons? Who are the goons that are most responsible for what you see as the problems? Are we talking about a handful of goons or just a small select group? How do I spot a goon?

A Goon is someone who is too filled with hate and fear to have a constructive discussion.

We ALL have goonishness within us. That includes me. That includes Shiller.

You could just use the word “emotionalism” if you wanted. “Goon” is a smidgen more colorful.

We are living through a time of fundamental change in the investing advice field.

In the old days, the idea was to be intelligent. The more so, the better.

Indexing pretty much takes intelligence off the table as a factor. All the things that people used to study are priced in. You don’t need to be intelligent to obtain great investing results today.

But you need to rein in your emotions. You can ruin the indexing thing by getting too emotional.

So the future is about reining in your emotions. That’s 80 percent of the investing job from this point forward.

You guys make the point all the time that most of the Big Shots in this field don’t talk about Goons and about death threats and about prison sentences and about board bannings. They should be talking about all that stuff. That is the stuff that matters in the Age of Indexing.

Why? Because that is the stuff that tells you that emotion is the driver. Emotion is risk in index investing. Rein in your negative emotions and you can’t lose no matter what else you do. Fail to rein in your emotions and you can’t win no matter what else you do.

We all suffer from goonishness. The people I refer to as “Goons” (that’s you, Anonymous!) make it their whole life. They give in 100 percent to the negative emotions. They don’t make even a feeble effort to rein anything in.

By learning what drives the Goons, we can learn how to reduce risk. The Goons would like to obtain good results . Why don’t they? What causes them to make such bad choices?

Coming up with the answers to those questions is the future of investing analysis.

My take.

Rob

Comments

  1. Anonymous says

    You make such a good case for buy, hold and rebalance. Superior performance and it takes away the emotion.

  2. Rob says

    We don’t agree re the rebalance part, as you know, Anonymous.

    But the rest of the Buy-and-Hold package is pure gold.

    I don’t believe that Bogle himself recognizes how big an advance his ideas represent. I think that over time people are going to see the work done by the Buy-and-Hold Pioneers as positively “revolutionary” (there’s that word again!) in impact.

    I am the biggest critic of Buy-and-Hold as it is currently promoted by Buy-and-Holders alive on the planet today. But I also am the biggest advocate of the parts of the Buy-and-Hold package that the Buy-and-Hold Pioneers got right — which is 90 percent of it.

    Thanks for stopping by to share your thoughts, Anonymous.

    Rob

  3. Anonymous says

    You can choose to rebalance or not. Everyone has a choice. I have made my choice and I follow what has been implemented and proven.

  4. Rob says

    We certainly agree that everyone has a choice.

    We obviously do not agree that the rebalancing option has been proven.

    I naturally wish you the best of luck in all your future life endeavors regardless of what investing strategies you elect to follow.

    Rob

  5. Rob says

    The people who speak in hate about the peer-reviewed research are injured souls, Anonymous.

    The Buy-and-Holders were right the first time. We should all be taking the peer-reviewed research into account. Looking at something objective helps us get outside our personal subjectivity, which is what tempts us to believe in Get Rich Quick strategies.

    When your heart melts, you will be ready to move on to something much better.

    Love is the answer, not hate.

    That’s it.

    My best wishes to you.

    Rob

  6. Rob says

    I see some free and open posting about P/E 10s happening over a Bogleheads

    What you see in that thread is the opposite. You see a board poisoned by hate and anger and shame and envy and ignorance.

    We would have hundreds of Valuation-Informed Indexers commenting on every thread had we not adopted a Ban on Honest Posting as our response to my posts pointing out the errors in Greaney’s study.

    We’ll put it all back together. We are the luckiest generation of investors who ever walked Planet Earth.

    But it is painful to see what a once-wonderful board community has become.

    It gets better. A lot better.

    Rob

  7. Anonymous says

    “I see some free and open posting about P/E 10s happening over a Bogleheads”

    Hey, I guess that there is open posting and now all your problems are solved, right Rob? After all, the subject is being discussed.

    This should be good new for you since now you will have all this free time on your hands to do something else.

  8. Rob says

    It’s not my problem. It’s our problem.

    And we don’t need to see more discussions of the topic. We need to see the first honest discussions of the topic.

    We permit (and encourage!) honest discussions of every topic under the sun. The only exception is what the peer-reviewed research says about how stock investing works.

    We didn’t make that the one exception because the topic is so unimportant. We made that the one exception because the topic is so terribly important that we cannot bear to acknowledge how we messed up in earlier days.

    We have no choice but to move forward. Holding off on doing so is in the process of killing us.

    Given that we will be moving forward sooner or later, it is better to do it sooner. Every day we delay causes us all to experience more pain.

    There’s some part of you that doesn’t like living in hate. Otherwise you wouldn’t be here.

    That’s the part of you that you need to be listening to, Anonymous.

    I am sure.

    Rob

  9. Anonymous says

    What you see in that thread is the opposite. You see a board poisoned by hate and anger and shame and envy and ignorance.

    Huh. I looked to me like a post stating that anyone foolish enough to blindly follow the P/E 10 over the last 20 or so years wouldn’t have invested in stocks at all! I’d hate to be *that* guy!

  10. Rob says

    Stock prices reached insanely dangerous levels in early 1996.

    They have remained at such levels for over 18 years, with the exception of a few months in early 2009.

    Better returns at less risk have been available for the entire time-period.

    Every analysis that has been done shows that the investor who followed what the research says has more money in his portfolio and has taken on far less risk.

    And you would hate to be that guy.

    That’s not science talking, Anonymous. That’s emotion talking.

    I guess you could say that I would hate to be the guy who ignores the research.

    But I don’t really hate you. I don’t threaten to kill your wife and children as you do mine.

    I hate the ignorance and fear and anger that blinds you to what the research says. I hate the Get Rich Quick voice within you. But I don’t hate you.

    If I hated you because you have a Get Rich Quick impulse within you, I would have to hate myself for the same reason. And I don’t go there. I don’t think hate is the answer.

    I think love is the answer.

    I will continue to do what I can to help you and all my other Buy-and-Hold friends to let enough love in your hearts to hear the message of the peer-reviewed academic research. If are not able to open your heart today, I’ll try some more tomorrow. If you are not able to open your heart tomorrow, I’ll try again the next day. And so forth and so on.

    Will you one day open your heart?

    I believe you will.

    Is it possible you will never open your heart, even after the next price crash?

    Anything is possible. It’s possible that a nuclear bomb will drop on us. I get up every morning knowing that there are negative possibilities and devoted to working for the realization of the positive possibilities all the same.

    I wouldn’t want to be you. But I am excited for you that we live at the best time in history to be a stock investor, the first time in history in which we have all had the opportunity to reduce investing risk by 70 percent while earning far higher returns. I hope to be able to persuade you to take advantage of all of the wonderful insights that we have mined together over the course of the past 33 years (and especially the past 12 years).

    I am repulsed by your acts of hate. But I am excited by the possibilities that are open to my friend Anonymous that were never open to him before.

    I care about you and I will continue to care about you. There’s no amount of hate that you can direct at me that can change that.

    I hope that’s okay by you.

    But of course there is zero chance that I will ever change even if it isn’t. Because the caring is real.

    You say that you hate those who care about you. I say that there is a part of you that doesn’t hate the good. If you hated the good 100 percent, you wouldn’t be here.

    And here you are to greet me as I begin the new day.

    Hang in there, old friend. It gets better.

    Rob

  11. Rob says

    Another way of saying it is that, if you had confidence in your investing strategies, you wouldn’t feel a need to hate anyone. You would be indifferent to those who followed other strategies.

    You hate because there is a voice within you that tells you that Buy-and-Hold doesn’t add up and it causes you pain to hear what the peer-reviewed research in this field really says. I didn’t cause you that pain. It was the people who persuaded you to follow Buy-and-Hold strategies who caused you that pain.

    I wish you all good things.

    Rob

  12. Anonymous says

    The only hate I see is coming from one guy who makes continous threats about prison.

  13. Anonymous says

    I suspect you are implying that the bogleheads thread is missing your input. Is that correct?

  14. Rob says

    You’ve said that about 10,000 times, Anonymous. I have responded in the same way about 10,000 times. You need to listen to the response.

    I have zero power to put you in prison. I am not a prosecutor. I am certainly not going to be assigned to your jury. So forget about me. There is zero chance that I can in any direct manner send you to prison. It is never going to happen.

    I am a journalist. I can INDIRECTLY cause you to be sent to prison. But that’s something very different.

    I can cause you to be sent to prison by telling a story that very much needs to be told. The investing advice field is today 100 percent corrupt. The errors in the Old School safe-withdrawal-rate studies became public knowledge on the morning of May 13, 2002. Those studies have not been corrected to this day. Every investor alive on Planet Earth today needs to know why that is. It is because of a massive act of financial fraud re which you have played a leading role. This massive cover-up of the errors in the Old School studies has featured 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.

    I am telling that story. There has never been any question about that and there never will be. If I were to fail to tell that story, I would be participating in this massive cover-up myself. That would mean that I too would be committing a felony under the laws of the United States. That would mean that I too would be headed to a prison cell following the next price crash. Um — no thanks, you know? I will tell the story. We will see where that leads us.

    I am not God. I could be wrong re where I expect it to lead us. So please don’t feel compelled to listen to anything I say. I am happy to tell you honestly where I think it will lead us. But that’s as far as it goes. I possess no more power to see into the future than you do.

    I believe that following the next price crash my story will gain traction and, as the word spreads far and wide as to how it came to be that millions of middle-class people lost large portions of their retirement savings, you will be placed in a prison cell for the role you played in making that happen. That’s what I sincerely believe. If I were to say otherwise, I would be lying.

    I also believe that it is within our power today to get your prison sentence shortened a bit. The shift from Buy-and-Hold to Valuation-Informed Indexing is the biggest advance in the history of personal finance. If we get the word out to people, they will be very, very, very happy. Happy people tend not to care too much about sending people to prison. Unhappy people, in contrast, are big on retribution. I believe that you are going to prison either way. But I sincerely believe that you will be going to prison for a shorter amount of time if we open the internet to honest posting before the onset of the next price crash. Again, if I were to say different I would be telling a lie.

    That’s it from my end.

    I have for 12 years now not been able to get the word out by myself. I need help from my good friend Jack Bogle. And from my good friend Bill Bernstein. And from my good friend Wade Pfau. And from my good friend Scott Burns. And from Morningstar. And from Moltey Fool. And from Early Retirement Forum. And from Index Universe. And from Bogleheads Forum. And on and on and on.

    You have contacts with the people from whom I need help. You get them on board by the close of business today and I will work my butt off doing what I can do to get your prison sentence reduced a bit. I am happy to do it.

    Or don’t, you know?

    I don’t control you. Ignore everything I say, if that is what floats your boat.

    I am going to continue posting honestly re SWRs and scores of other critically important investment-related topics. I made my decision to move out of the darkness and towards the light on the morning of May 13, 2002, and I have never for two seconds in the 12 years since had any reason to question whether that was the right call. So I am settled in. I will do what I can to get the word out about the last 33 years of peer-reviewed research in this field. I can do no more and I can do no less.

    I am glad to help you out. Not just because I care about you (which I certainly do). But also because by working together we could change the lives of millions of middle-class people in very positive and constructive and life-affirming way. So I am ready to go with that project within 10 seconds of the time I receive your message that you have made a decision to proceed in that manner.

    But I don’t control you! YOU have to make that call. I cannot do it for you.

    I am 100 percent happy to help out. I have received zero cooperation from you and your Goon pals for the first 12 years of our discussions. I don’t know what else you want from me. I try and and I try and I try and I try and I try. In 99 cases out of 100, all I get from you is the back of your hand. In the 1 case out of 100, I get slightly positive signals that never seem to amount to much in the practical realm.

    I’m here, Anonymous.

    If you hold off on making a decision until tomorrow, I’ll be here tomorrow.

    If you hold off on making a decision until 12 years from today, I’ll be here 12 years from today (presuming that others do not step in and render the positive options available to you today unworkable, as I believe they will), I will be here 12 years from today.

    I wish you all good things. What more do you want from me? Please tell me why you show up here every day and yet never take the steps that we both have known you need to take for a long, long time now.

    If you can offer some sort of explanation for your strange behavior, I would be happy to listen.

    If you cannot, I truly do not see what else I am able to do other than to offer you my hopes that you get to enjoy all the best that this life has to offer regardless of whatever beliefs you happen to hold re investing strategies.

    Is all of that fair enough, my long-time Goon friend?

    Rob

  15. Anonymous says

    But you are the only one talking about prison, Rob, so that is the only hate I see.

  16. Rob says

    I suspect you are implying that the bogleheads thread is missing your input. Is that correct?

    No, that’s not correct.

    The thread is missing the honest input of THOUSANDS of good and smart people who should be contributing to that board community in an honest way but who today do not feel safe doing so.

    Let’s take one hugely important example — my good friend Jack Bogle.

    Jack obviously knows that Yale Economics Professor Robert Shiller has published research showing that there is precisely zero chance that Buy-and-Hold could ever work for a single long-term investor, right? WHY THE HECK ISN’T HE TELLING PEOPLE THAT AT THAT BOARD IN PLAIN AND SIMPLE AND CLEAR AND DIRECT LANGUAGE?

    Has my good friend Jack gone fuckin’ insane?

    Has he?

    That’s a fair question, isn’t it?

    Jack should have come out in 1981 and gave a speech saying that there was new research that cast doubts on the Buy-and-Hold strategy as it had been developed in its first-draft form by Bogle and the other Buy-and-Hold Pioneers. Had he done that, there would be no problem today. Had he done that, we would all be Valuation-Informed Indexers today.

    Jack didn’t do that. He is one of the flawed humans. He messed up.

    Okay.

    So what do the rest of us do about that?

    We could cover up for Jack, right? That might work for a few years, right?

    But there’s a downside, isn’t there?

    If we engage in a cover-up, we are engaging in financial fraud, a felony under the laws of the United States. We land in prison somewhere down the line. Perhaps the cover-up idea is not our best thought! Just perhaps!

    Are there any other options?

    There are.

    The other option is to come clean.

    That’s what I proposed on the morning of May 13, 2002.

    Would there have been prison sentences had we opened the entire internet to honest posting on the morning of May 13, 2002?

    I don’t think so. It is possible that there were some terrible things that happened before that date that I don’t know about and that I am wrong about this. But, going by what I know, there would not have been prison sentences if we all had come clean on the morning of May 13, 2002.

    How about today?

    I don’t see any way to avoid prison sentences today. But I am not God. Perhaps I am wrong. It has been known to happen.

    Does it even matter?

    We are all obviously better off if we come clean today than we will be if we come clean tomorrow. So let’s make it happen today, you know? Why the f not?

    I don’t know how much confidence Bogle has in Buy-and-Hold.

    My confidence is zero. I don’t believe that his confidence is zero. If it were zero and he continued promoting it, he would be The Frank Underwood of Personal Finance, a monster. I do not think of my dear friend Jack as a monster. So I do not view it as even remotely possible that his confidence is zero.

    How about 100 percent? Could Jack’s confidence level in Buy-and-Hold be 100 percent?

    No, that’s not possible. If it were 100 percent, he would be happy to hear people express contrary views and he obviously is not even a tiny bit happy to hear people express contrary views. So we can rule out 100 percent.

    It’s not 0 percent and it’s not 100 percent. It’s something between those two.

    Could it be 50 percent?

    Perhaps.

    I don’t know.

    I cannot see into Jack’s mind.

    My guess is that Jack’s confidence is something in the neighborhood of 70 percent. Enough to permit him to rationalize that it is okay to continue to promote the concept.

    BUT NOT GREAT ENOUGH TO JUSTIFY HIM NOT TELLING EVERY PERSON WHO COMES TO THAT BOARD ABOUT HIS DOUBTS!

    My good friend Jack has to tell us about his doubts. He MUST do this. Or he will go to prison too. And that is just too, too, too sad.

    Do you see, Anonymous?

    We don’t just need Rob Bennett contributing honestly to the Bogleheads Forum. We need Jack Bogle contributing honestly to the Bogleheads Forum.

    And Bill Bernstein.

    And Wade Pfau.

    And Larry Swedroe.

    And Scott Burns.

    And J.D. Roth.

    And Mike Piper.

    And Carl Richards.

    And Michael Kitces.

    And Bill Schultheis.

    And on and on and on and on and on.

    We need EVERYONE contributing their honest thoughts to every investing board and blog on the internet.

    Do you see?

    Rob

  17. Rob says

    But you are the only one talking about prison, Rob, so that is the only hate I see.

    If you are waiting for the day when I stop trying to get your prison sentence reduced, you will be waiting a long time, Anonymous.

    I don’t see my actions aimed at getting your prison sentence reduced as hateful actions. I see them as loving actions.

    It appears to me that we might have a difference of opinion re this matter.

    I wish you all good things, in any event.

    Rob

  18. Anonymous says

    Rob, profanity and prison talk. You seem so angry and full of hate. I believe all of those people you mentioned can post at the bogleheads forum and I don’t recall them being dishonest.

  19. Rob says

    Okay, Anonymous.

    I wish you all the f’in best that this life has to offer a person in any event.

    Rob

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