Set forth below is the text of a comment that I posted about another blog entry at this site:
Rob
I am curious how you would respond to this article entitled “Forget the 4% Rule” in which Wade is interviewed. He doesn’t seem fearful and is speaking his mind. I realize you probably will delete this as it flies in the face of the elaborately constructed fantasy world in which you live
http://money.cnn.com/2014/02/26/retirement/retirement-income.moneymag/
My hope is that you will see the light and get the mental help you need. I am afraid I must move on . I see no good coming from continuing to follow you.
Best of luck
Trebor
Here are some things that Wade would be talking about in the article if he were not afraid to speak honestly re these matters:
1) Why did it take 10 years for the Wall Street Journal to write about the errors in the Old School studies? I put up my famous post pointing out the errors on the morning of May 13, 2002.
2) Why did the people who devised the methodology for the Old School studies fail to include a valuations adjustment in the first place? What were they thinking?
3) Why were the errors not discovered long before May 13, 2002? There are lots of smart people who work in this field. No one ever checked?
4) Why did investors respond the way they did when the errors were discovered? Many investors supported Greaney when he refused to correct his study. Why? It was their retirement money at stake, was it not?
5) Why did other big names who discovered the error in the studies not use their discovery to promote themselves? Bill Bernstein wrote about the error in his book “The Four Pillars of Investing.” Why didn’t he go on interviews to talk about the error and thereby give his book the publicity it needed to become a best-seller?
6) Why didn’t reports of the errors in the studies go viral? They affect millions of retirees and aspiring retirees.
7) Why didn’t reports of the 12-year cover-up of the errors in the studies go viral? This is the biggest act of financial fraud in the history of the United States, is it not?
8) Why didn’t hundreds of bloggers pick up on this? Bloggers want to help their readers and become successful, do they not?
9) Why didn’t the big names in this field and the big institutions (Vanguard, Morningstar, Index Universe, etc.) all contribute funds to get the word out once the errors were discovered as a way of showing the millions of middle-class people whose lives were destroyed by the error that the industry wanted to do all it could to help alleviate the human suffering that they caused?
10) Why has no one yet gone to prison over this?
11) How did Wade learn about the error?
12) How long was it from the time that Wade learned about the error until he first went public with a demand that it be corrected?
13) When Wade contacted the authors of the Trinity study demanding a correction, what was their reaction?
14) Does discovery of the failure to include a valuations adjustment in the Old School retirement studies suggest that the Buy-and-Holders might have produced studies in other areas which also do not include valuations adjustments?
15) Have all the studies been corrected as of today?
16) Have all the people who relied on the studies to plan retirements been compensated for their losses?
17) Is there anyone in the field still pretending that the studies are not in error and yet also still pretending to be an “expert” in investing analysis?
18) Did Wade himself ever fall for the claims in the discredited studies?
19) What has the industry done to insure that nothing like this ever happens again.? Has the peer-review process been reformed?
20) Do people who work in this field feel better about themselves now that they have come clean re the errors in the studies?
21) Are there New School studies that include valuations adjustments to which we could point our readers?
22) How different are the New School numbers from the Old School numbers?
23) Can Wade estimate how many millions of people will suffer failed retirements as a result of the 12-year cover-up?
24) Is Wade able to think of any earlier act of financial fraud that comes close to matching this one?
25) Does Wade not find this entire situation exceedingly odd? Does he think this is all the result of corruption or does he think that cognitive dissonance played a role?
26) Is it only Buy-and-Holders who are responsible for what has happened or could it be that even those who have grave doubts about the legitimacy of the Buy-and-Hold strategy have held back from expressing their sincere views for a long time because they realize how much it would upset those who believe in Buy-and-Hold to learn what the peer-reviewed academic research really says?
27) Wade once said that it would have been nice if the research behind the discredited studies had been corrected when the errors were discovered but that “that’s not how things work” in the investing field during the Buy-and-Hold Era. Does he still believe that today or has he come to regret that statement as he has learned about the millions of failed retirements and the prison sentences for those who have covered up the errors for 12 years now?
28) Does Wade see a need for a national debate on whether Fama or Shiller (twoNobel prize winners who say opposite things about how stock investing works) is right?
29) What are Wade’s true feelings about Rob Bennett? He praised him to the skies during the 16 months that he worked with him. Then, when the Greaney Goons (with the implicit support of John Bogle and other Wall Street Con Men) threatened to destroy his career, his public statements changed dramatically overnight. Why?
30) Other academic researchers and investment advisors have expressed a desire to be able to express their honest views on a wide variety of investing topics. Does Wade think this should be permitted or should the Buy-and-Hold Mafia be permitted to continue to corrupt all work done in the field of investing analysis because coming clean would undermine support for the long-discredted Buy-and-Hold strategy that has made all the Big Shots in this field so much money over the 33 years since the error in its foundational belief was discovered?
Wade seems very, very, very, very, very afraid to my eyes, Trebor.
So do you.
My best wishes to both Wade and you and the millions of middle-class people whose lives are in the process of being destroyed. I care about all of you and will continue doing all I can to help ALL of you out (NOT just Wade and you and NOT just the millions of middle-class people whose lives have been destroyed).
Rob
All of your 30 redundant points can be answered by the simple fact that no one else sees one gimmicky PE10 metric as gospel for valuation. There are hundreds of technical metrics that can be used that perhaps have correlation with previous lows and highs but they don’t suggest causation and don’t ensure anything about the future value of stocks.
Even the people who came up with this metric (not you) don’t suggest using the metric to actually influence your exposure to stocks.
Your problem is you have become absolutely fixated on one metric, one bit of research, that you had an incredibly small part in like 15 years ago. The actual brains and true contributors to those things have long since moved on to further their research and careers yet you compulsively dwell on this tiny contribution you had to someone else’s long forgotten research. It is not a conspiracy to cover it up, it is just not as revolutionary as you believe and it is so bizarre that you are so attached to it since you are such an insignificant contributor.
I was banned at 15 different investing sites because my contributions are so insignificant.
Um — That certainly makes good sense, Anonymous.
Truly outstanding!
Rob
No you were banned for your obnoxious behaviour relating to your obsession. What is truly outstanding is that you actually believe you were banned for your “oh so edgy and dangerous ideas” and not just for being a boorish prick.
John Greaney threatened to kill my wife and children if I continued to post honestly re safe withdrawal rates. And I was the one banned for being a boorish prick.
It’s funny that I didn’t see it that way all along, Anonymous.
Take good care, man.
Rob
And you still can’t prove death threats
Um — There might be a jury member somewhere who would look at your posts and conclude that it might be possible that you did not employ death threats back when the errors in Greaney’s study were first discovered. No one has a crystal ball. I suppose anything can happen. It’s the longest of long shots. But who knows, right?
The reality remains that you’re the one going to prison following the next price crash.
And I’m the one getting the $500 million settlement payment.
I won.
You lost.
It seems that Goonishness, like Buy-and-Hold investing, offers a poor long-term value proposition.
Who’d a thunk it?
Don’t let the bad guys gets you down, man.
Rob
There is no evidence of this threat and it certainly didn’t happen on 15 different message boards. Someone isn’t going to be banned from a message board for some words supposedly uttered not even on said message board. This should be beyond clear.
The same threats were not made at every board.
But similar behavior was certainly seen at every board.
There was never even a sliver of evidence that Buy-and-Hold could ever work for even a single long-term investor. Buy-and-Hold was a mistake. It wasn’t an intentional con at the beginning. But it was always wrong.
When the peer-reviewed research was published showing that there is precisely zero chance that Buy-and-Hold can ever work for even a single long-term investor, the Buy-and-Holders had already built careers around this strategy. They went into cover-up mode.
33 years later, we are all enduring an economic crisis caused by their massive act of financial fraud. The Buy-and-Holders themselves want off the merry-go-round at this point in the proceedings. But how? If they come clean, they go to prison. Not super appealing. So the cover-up continues another day, another week, another month, another year. And we move closer to the point at which the losses are so great that we fall into the Second Great Depression.
No one has worked harder to get the Buy-and-Holders out of the trap they have built for themselves than I have, Anonymous. I am the one who came up with the Cognitive Dissonance thing. Cognitive Dissonance gets you off the hook both for making mistakes and for continuing to promote strategies that have been discredited by 33 years of peer-reviewed research. I sweated blood coming up with that one. It would have worked too but for the way that you Goons responded to it.
Cognitive Dissonance doesn’t get you off the hook for death threats or for demands for unjustified board bannings or for tens of thousands of acts of defamation or for threats to get academic researchers fired from their jobs. So we now are looking at long prison sentences for those who have put up posts in “defense” of Mel Linduaer and John Greaney and my good friend Jack Bogle.
Am I supposed to apologize for knocking myself out trying to get you off the hook, Anonymous?
I won’t.
Am I supposed to agree to commit financial fraud myself?
I won’t.
You’ll go to prison. I’ll get the $500 million settlement check.
I have offered to say what words I can to help you out and that offer stands.
That’s as far as I can go.
For obvious reasons.
If you want to roll the dice, roll the freakin’ dice. It’s your life, man.
I ain’t rolling no freakin’ dice with my life. I will continue to post honestly re SWRs and re lots of other critically important investment-related topics. Non-negotiable.
We will meet up again on the other side of the river following the next price crash and we will trade notes as to who has fell and as to who has been left behind.
Fair enough?
I naturally wish you all the best that this life has to offer a person, my long-time abusive-posting friend.
Rob
no one else sees one gimmicky PE10 metric as gospel for valuation. There are hundreds of technical metrics that can be used that perhaps have correlation with previous lows and highs but they don’t suggest causation and don’t ensure anything about the future value of stocks.
I first posted a serious (and long) response to this. When I read it over for typos, I decided to delete it and replace it with a short and sweet response. I will now take a middle ground that makes the serious point in a short post.
The significance of Shiller’s finding that valuations affect long-term returns is that it discredits the core premise of the Buy-and-Hold strategy.
The core premise is that it is not necessary for investors to practice price discipline (long-term timing). On the surface, this sounds like a crazy claim. Price discipline is critical to the operation of ALL markets. Why would things work in the opposite way in the stock market?
Fame believed that he had shown that market timing doesn’t work. If that were so, it really would be true that long-term timing is not required. Because long-term timing is the means by which stock investors exercise price discipline.
Fama was of course mistaken. He never even tested long-term timing. So he obviously did not show that long-term timing is not required. He tested short-term timing and showed that short-term timing does not work.
Shiller was the first to test long-term timing. He showed that it always works and is always 100 percent required. In 33 years, there has never been a sliver of research suggesting otherwise. And of course there was never a sliver of research suggesting otherwise before 1981 either. Fama mis-stated his finding, that’s all. Long-term timing has always been 100 percent required. There has never been any legitimate reason for believing otherwise.
That’s what makes P/E10 different from any other technical metric. Most technical metrics are aimed at helping investors engage in short-term timing. Given Fama’s finding that short-term timing never works, these metrics don’t add much if anything.
P/E10 and the small number of other metrics that help investors engage in long-term timing are different. Investors MUST use these tools to have any hope whatsoever of “Staying the Course.” To fail to adjust your stock allocation in response to big shifts in valuations is to allow your risk profile to get wildly out of whack.
It is not Rob Bennett who says that long-term timing is 100 percent required. It is the last 33 years of peer-reviewed academic research in this field (which is based on the 140 years of historical return data available to us).
Rob
Time is ticking away on those prison sentences and your $500M check. 15 years and a crash and you have made zero progress towards this fantasy world. Nothing is going to happen to change this but I’m sure people we keep coming here to remind you of your failure.
I think it is really important you understand this Rob. No matter what happens in the future, buy and hold determined to be complete garbage, the study you always talk about is changed, people start using a form of VII as the gold standard, some people even go to jail for financial fraud, YOU WILL NEVER BE AWARD A $500M CHECK. You have done nothing of value only talk about things other people have come up with long ago that is not worth anything.
Even the people who came up with this metric (not you) don’t suggest using the metric to actually influence your exposure to stocks.
They would if the Buy-and-Hold Mafia did not threaten to destroy their careers as their “punishment” for posting honestly.
We should all want honest posting. Honest posting is a plus.
We should all also want to see those who have put up posts in “defense” of Mel Lindauer and John Greaney and my good friend Jack Bogle put in prison.
People respond to incentives. The problem we have today is that Get Rich Quick strategies have immense emotional appeal and Buy-and-Hold is the purest and most dangerous Get Rich Quick strategy ever concocted by the human mind. Buy-and-Hold has made millionaires of many Wall Street Con Men. We need to create some disincentives for going with the pure Get Rich Quick approach. Enforcement of the laws against financial fraud is the perfect response to continued promotion of the smelly Buy-and-Hold garbage. Announcement of the prison sentences will go viral. Within two weeks of the announcement of the prison sentences, the phrase”Buy-and-Hold” will be viewed as an obscenity.
As it should be.
No?
Rob
YOU WILL NEVER BE AWARD A $500M CHECK. You have done nothing of value only talk about things other people have come up with long ago that is not worth anything.
My good friend Jack Bogle is looking for a way out of the trap he put himself in, Anonymous.
Jack has power. Jack has influence. Jack has contacts.
When we open the internet to honest posting, we change the history of investing analysis in a very fundamental and positive way. The leverage here is amazing. We are not going to have one or two academic researchers generating honest research. We are going to have HUNDREDS.
If you don’t think that Jack is going to be looking to arrange for a $500 million payout to the fellow who made all that happen, I think it would be fair to say that you don’t know Jack the way I know Jack.
We’ll see what happens following the crash.
Rob
only talk about things other people have come up with long ago
I didn’t publish the research showing that valuations affect long-term returns. Shiller did that.
I refused to be intimidated by the Buy-and-Hold Mafia into posting dishonestly. I insisted on recognition of my right to post honestly on what the last 33 years of peer-reviewed research says. I am in the process of breaking the Buy-and-Hold Mafia.
That’s a HUGE breakthrough.
Shiller’s insights did not keep us from experiencing another economic crisis at the hands of Buy-and-Hold, did it?
Opening the internet to honest and informed discussion of the implications of Shiller’s findings sure will.
That’s where this is headed.
$500 million is a tiny amount to pay to avoid future economic crises. We spent TRILLIONS in stimulus spending when the Buy-and-Hold Crisis hit. That becomes unnecessary once we open the internet up to honest posting.
Are you joking?
Rob
I believe that I will get the $500 million. If you don’t think so, you don’t think so. But my decisions are obviously going to be governed by what I think. And I think I will get the $500 million plus a whole lot more.
But say that an angel came down from heaven and told me that it was not in the cards.
Would that persuade me to post dishonestly?
It would not.
Financial fraud is a felony. That means prison time. Huh?
Going to prison is not on my bucket list, Anonymous.
The idea possesses very little appeal.
Try to imagine how you would be thinking about all this if you were not on your way to a prison term.
That’s how I feel about it.
Find someone else, you know?
No can do.
Rob
“Your problem is you have become absolutely fixated on one metric, one bit of research, that you had an incredibly small part in like 15 years ago. The actual brains and true contributors to those things have long since moved on to further their research and careers yet you compulsively dwell on this tiny contribution you had to someone else’s long forgotten research. It is not a conspiracy to cover it up, it is just not as revolutionary as you believe and it is so bizarre that you are so attached to it since you are such an insignificant contributor.”
Completely agree.
Reading how Rob forecasts a $500 million (plus a whole lot more) pay-day for himself on the back of Bogle’s power, influence, and contacts was the kicker.
(Will Bogle deliver the $500 million before or after you put him in prison?)
That and the persistence of non-existent death threats.
This place is too bizarre, in a very sad way.
Try to enjoy your last half of your life, Rob. Seriously.
I’m gone.
We’ll miss you, Canuck.
I’m not putting Bogle in prison. I have zero power to do so and zero desire to do so.
My take on all this is that Jack is a good man who today finds himself on a bad path because he lacks the humility to say the words “I” and “Was” and “Wrong” and because too many of the people who call themselves his friend are more concerned about making a buck off their connection to the guy to talk straight to him.
I make an effort to talk straight to him. Kind. But also honest. Honest. But also kind.
Valuation-Informed Indexing takes Buy-and-Hold to all the places that Jack wanted it to go when he was a young man. The material at this site is the man’s dream come true.
The payment of the $500 million makes everything go down smooth. It makes a statement to the world that the days of keeping people from learning how investing works through the use of threats to kill family members and threats to destroy careers is over. By sending a signal to the world that those who talk honestly about this stuff can become millionaires by doing so, we will be encouraging a lot of honest talk about stock investing, which we obviously need very, very, very much.
Yes, I believe that my good friend Jack will do everything in his power to see that that check is made out properly once he comes clean. You are allowed to think otherwise. But that’s certainly what I think.
To think otherwise would be to think that my good friend Jack is the Frank Underwood of Personal Finance. That one doesn’t fly for me. For a whole big bunch of reasons that begin with the fact that I think of Jack as a friend. Why would he work so hard to promote so much of what is right if he did not care about the people listening to his words? Huh?
The thing that I “compulsively dwell on” is the need for honesty and humility in this field. Intellect has never been a problem. To acknowledge a mistake takes honestly and humility. We have known for 33 years that valuations affect long-term returns. The next step on the agenda is to get about the business of telling the world all the wonderful stuff that follows from that “revolutionary” (Shiller’s word) insight.
There ain’t nothing sad in helping millions of middle-class investors learn how to reduce the risk of stock investing by 70 percent, Canuck. There’s nothing even a tiny bit sad in that.
I do what I can to enjoy whatever sweetness comes to me in each passing day.
Take good care, man.
Rob
You haven’t helped a single person. It is time for you to grow up and to stop acting like a child.
The bottom line here is that I love my country, Anonymous.
I’ll let you in on a little secret. Deep in his heart, my good friend Jack Bogle does too. I’ve read his stuff carefully. I know this.
That gives me a huge edge in the long run.
Huge.
Rob
A contributing factor of you getting kicked off all those sites is the factbthat also don’t listen. You have your agenda and want to spread it on every thread, even when it is not the subject being discussed. You think that your points are more important than what anyone else has to say, yet give no consideration to the opinion of others. If it doesn’t mesh with your line of thinking, you say that people are lying or “afraid” and that is just a bunch of bull.
I plead “guilty” to having an agenda and wanting to spread it far and wide. No apologies whatsoever.
I plead “not guilty” to pushing that agenda on any thread in which it was not relevant. That is something that I would never do. That is something that I would never consider doing. I am a very big believer in following rules, Anonymous. And that is a rule which is needed and makes sense and which I endorse. I never, ever break that rule.
All that said, there is a small bit of legitimacy to what you are saying here.
Shiller’s findings are relevant to a LOT of threads.
That’s not my doing. That’s just the way it is. Shiller’s findings are of fundamental importance. They are relevant to many, many. many discussions.
I plead “guilty” to believing that my points are more important than the points being made by most others. Everyone is guilty of that. If I didn’t think my points were important, they wouldn’t be my points. I obviously always show respect and affection to those making other points. I obviously always try to learn from those making different points. That’s as far as a human can go. We all have biases. We all are influenced by the life experiences that have comprised our lives and by the particular skill sets that we bring to the table.
I plead “not guilty” to saying that people who don’t believe in Valuation-Informed Indexing are lying or afraid. I have said 10,000 times that there are millions of good and smart people who believe in Buy-and-Hold. I was a Buy-and-Holder myself prior to the evening of August 27, 2002. Do you seriously believe that I called myself a liar and a fearful person prior to that date?
I plead “guilty” to saying that those who engage in Goon behavior (death threats, demands for unjustified board bannings, tens of thousands of acts of defamation, threats to get academic researchers fired from their jobs) are liars or fearful. Those behaviors are over the line of what is considered acceptable or tolerable in a free society.
The root problem here is that Buy-and-Hold and Valuation-Informed Indexing are opposite strategies that both claim to be rooted in the peer-reviewed academic research. If VII weren’t rooted in research, the Buy-and-Holders wouldn’t get so upset. They still wouldn’t follow VII strategies. But they wouldn’t see VII as a threat. They see it as a threat because they believe that their ideas are rooted in research and those advocating VII are advocating a strategy that is the opposite in every possible way that is ALSO said to be rooted in the research. Huh?
The answer is for Buy-and-Holders and Valuation-Informed Indexers to show respect and affection for each other and to try to learn from each other.
That’s the way that this would have played out if getting this investing stuff right weren’t so darn important. If it were a small thing, the Buy-and-Holders could say “well, this new stuff doesn’t sound quite right, but let’s hear what these people have to say, it sure can’t hurt just to listen to them.” In this case, it CAN hurt. If the Valuation-Informed Indexers are wrong, they could cause people to suffer failed retirements. So the Buy-and-Holders feel a need to come on very strong.
The other side of the story is that, if you believe in Valuation-Informed Indexing, it is the Buy-and-Holders who are causing failed retirements! We believe just as strongly in what we believe. Buy-and-Hold is every bit as dangerous in the eyes of Valuation-Informed Indexers as Valuation-Informed Indexing is in the eyes of Buy-and-Holders.
We have to find some way of having a conversation without yelling at each other.
I am game for anything that doesn’t require me to say something that I do not believe. I don’t want to tell lies. That’s normal and understandable, right?
Now —
The problem comes with what you say up front. Shiller’s findings are “revolutionary.” They turn our old understanding of how stock investing works on its head. They change every strategic consideration.
It’s not my intent to jump on every thread in which the Buy-and-Holders are having a conversation amongst themselves and ruin it for them by turning it into an argument. It is NOT my intent to do that.
But it is not only confirmed Buy-and-Holders who participate on our boards and blogs. About 10 percent of our community members follow VII strategies. Those people should be able to hear the VII side of the story on all the threads on which it applies (and that is most of them). And there is a much larger percentage of the community that remains in the Buy-and-Hold camp but would like to hear the other side of the story from time to time as well. Those people have rights. The Buy-and-Hold dogmatics don’t get to decide by themselves how things go down.
Say that the Buy-and-Holders wanted the right to label some threads “For Buy-and-Holders Only” so that they didn’t need to get in arguments re basic points with the Valuation-Informed Indexers. I have no problem with that so long as the same right is extended to the Valuation-Informed Indexers. We get to have our threads where the Buy-and-Holders stay out too. And of course there would be other threats (most threads) in which both Buy-and-Holders and Valuation-Informed Indexers would participate.
The core thing here is that there needs to be a general recognition that there are TWO schools of academic thought re how stock investing works, not one. Buy-and-Holders are not dumb. Buy-and-Holders are not evil. But it is NOT true that Buy-and-Hold has been proven beyond any reasonable doubt. Fama won a Nobel Prize. So did Shiller. Both schools of thought are valid today. Every board and blog on the internet must be open to discussion of both schools of thought.
No one who comes to the table with a halfway reasonable mind is going to have a hard time working out details with me. I am 100 percent happy to bend over backwards to be reasonable and accommodating to my Buy-and-Hold friends. Put forward reasonable suggestions and we can lock this down in 24 hours.
It is NOT reasonable to expect me to sit in the audience for years while John Greaney pushes his retirement study on a daily basis and not say anything even though I am aware of the 33 years of peer-reviewed research showing that that study gets the numbers wildly wrong. I am not saying it that way as some sort of dig. I am saying it that way to make you aware of the very real problem here. You put me in an impossible situation when you apply intimidation tactics to silence me re something like that.
Greaney may well believe in the study. I believe that he does. Bogle may well believe in the investing strategy. I believe that he does.
But it is NOT the case that the Old School SWR methodology is beyond dispute proven. It is NOT that.
I have every bit as much right to advocate Valuation-Informed Indexing as Bogle has to advocate Buy-and-Hold. That right MUST be respected. There can be zero negotiation re that one.
Work with me and I will do everything I can to make things proceed smoothly.
Pull out intimidation tactics and I will call out your sorry ass on it. Every time. I am FAMOUS for it.
It has to be said that way because the bad stuff has been going on too long now for it to be ignored.
But, if you want to work together, I am 100 percent on board. I LOVE the good that the Buy-and-Holders have done, which is considerable. I care deeply about all of my Buy-and-Hold friends. It is my strongly held belief that VII is just a new version of Buy-and-Hold. We are not enemies. We are friends. We should be working together. It is a national tragedy that things ever got so far off track that there are people who today think of the two sides as working toward different purposes. We want the same things. And we can only obtain the things we want by working together.
I DO listen.
I listen to reasoned and civil arguments.
I do NOT listen to intimidation. Not ever. Intimidation tactics are a total and complete turn-off for me. My ears clog up when some Goon comes forward with dirty, smelly, disgusting intimidation tactics.
Your move.
Please THINK before posting your next words. We all have to live with the consequences of what you put forward. Please listen to that voice within you that is telling you to take things in a positive and constructive and life-affirming direction. If you listen carefully to that voice, you will see all good things come back to you in return.
Rob
Here’s another little insight for you, Rob, and another reason why I chose my new career path and no longer endorse the stock market.
Valuation is a big thing with you, it is with me, too. It actually is with everyone — even buy-and-holders — or there wouldn’t be daily frenzy over the price levels of stocks and indices. I actually don’t know one person who buys into stocks without concern for price.
Anyway, regarding P/E, private equity typically sells for around P/E 3-6, where as public equity typically sells for around P/E 10-18.
That extra cost is supposedly for a liquidity premium. That’s pretty expensive considering the actual markets are complete garbage and rife with manipulation and fraud.
I buy into companies, the drivers of the economy; you buy into stock market indexes, the drivers of nothing (you actually own nothing when you hold an index fund).
My typical private equity deal lasts ~5 years; the average rebalance period for VII is just over 5 years.
So if I don’t require that liquidity, then why would I pay up to P/E 15 more for something I don’t require?
Oh, right, because valuation doesn’t work for individual acquisitions, only broad based accumulations. Uh huh.
Good luck with the $500 mill. Guess you won’t have to worry about SWR after that.
If you have found something that works for you, you should go for it.
I don’t say that it won’t work. If you do the research, I think it may well work.
I don’t believe that what you are describing is right for the typical middle-class investor.
The reason why I love Jack Bogle so much (and I do) is that he is the only guy who has put a lot of effort and thought into putting together something that works for the typical middle-class investor.
There are people who are smart enough that they don’t need to bother with Valuation-Informed Indexing. It may well be that you are one of them.
I write for the other guys and gals, the guys and gals who don’t have the time or inclination or smarts to figure out private equity deals. There are millions of them. And they deserve something that works. And Buy-and-Hold only ALMOST works. There is one element of it that needs to be changed to make it workable in the real world. I see it as my job to get that missing element added to the mix.
I am NOT saying that VII is for everyone. If you have found something that looks to be a better bet for you, you have my best wishes for your great success with it.
Rob
I actually don’t know one person who buys into stocks without concern for price.
Yes and no.
Buy-and-Holders kinda sorta acknowledge that valuations matter.
But they don’t QUANTIFY the effect of valuations.
They quantify everything else. But not that. The Old School SWR studies contain NO adjustment for the valuations level that applies on the day the retirement begins.
That’s always been the source of the friction between me and the Buy-and-Holders.
I learned from them to quantify stuff and to pay attention to the peer-reviewed research and to focus on the long-term. So, when I learned from Shiller that valuations ALWAYS affect returns in the long-term, I naturally got about the business of QUANTIFYING the effect.
And the Buy-and-Holders went positively apeshit.
It’s THEIR idea!
But they hate it. They hate that one application of their idea with an awesome hate.
You figure it out, you know?
I think they hate it so much because they know on one level of consciousness that what I am saying makes perfect sense given everything else they believe.
If you come up with some different explanation of their behavior, please fill me in. Until someone comes up with something else, I am going with the cognitive dissonance thing.
It’s their idea to quantify things. I picked that one up from my Buy-and-Hold friends. But they hate, hate, hate the idea of quantifying the effect of valuations on long-term returns.
Other than that, Jack Bogle and I (and Mel Linduaer and I and John Greaney and I) are soul mates.
Rob
“If you have found something [private equity investment] that works for you, you should go for it.”
Oh, it works not just for me.
It’s working for Oxford, Harvard, Yale, Princeton (Hi, Wade!), Warren Buffett, almost every pension fund in existence, etc. ad nauseam.
“I don’t believe that what you are describing is right for the typical middle-class investor.”
Only because the typical middle-class investor is lazy and/or uneducated.
That puts them in the Benjamin Graham described “defensive” camp a la lower “intelligent effort”.
And put’s me in the “enterprising” investor camp, substantially expanding my investment universe.
(Or perhaps you think the man who spawned the greatest investor in humankind is also wrong?)
The typical lazy middle-class investor will over-pay for stocks and receive average returns.
Just means they have to put more money into the market for a longer period.
That all sounds so appealing.
I’ll put in the extra effort to attain higher returns over a shorter time frame and with less risk.
Benjamin Graham also stated the rate of return:
i) is not related to the risk taken but dependent “on the amount of intelligent effort the investor is willing and able to bring to bear on his task”, and
ii) earned will be dependent upon the price you pay.
So lazy middle-class stock market investors:
i) bring little or no intelligent effort to the task,
ii) over-pay for their investment (even using VII).
Resulting in a lower rate of return. Way to deliver that free lunch, stock market index!
Maybe the typical middle-class investor should be informed of better (risk, return, etc) investments than simple stock market indices.
Maybe someone needs to take up the fight against VII as much as you rail against Buy-and-Hold.
(Hey, if there was ever a board to harbor crazy ideas, this is it! And all without the fear of ever getting banned.
Maybe I will stick around…)
Or perhaps the lazy just get what they deserve. Perhaps Benjamin Graham is a goon.
There is a reason why ‘lazy’ and ‘rich’ are never used in the same sentence (except this one).
There is a reason the typical middle-class is typical middle-class and not rich — see above.
p.s. — my favorite Goon was Chunk.
I don’t see the typical middle-class investor as lazy or uneducated. I see the typical middle-class investor as BUSY.
But there are certainly a percentage of them who would go for what you are describing if they knew about it.
I don’t see anything unappealing about receiving average returns. Receiving average returns is wonderful. Yes, it means that it will take longer to retire than if you received above-average returns. But there are lots of people who would prefer to do that than to put in the work it would take to invest in the way you describe.
You are making a comparison to the difference between Buy-and-Hold and Valuation-Informed Indexing. I don’t agree with the suggestion that VII is more complex than BH. But say that it were. I wouldn’t have any problem with people CHOOSING Buy-and-Hold over Valuation-Informed Indexing so long as they were exposed to each and thus were making a genuine choice.
I would choose VII. I would recommend that others choose VII. But it is not for me to say what others choose. It’s even possible that it is the others who are right and that I am wrong. So I want those others out there expressing their views. I as much want the Buy-and-Holders to feel free from intimidation as I want to feel free from intimidation myself. I want us ALL to feel free from intimidation. That’s how our system works.
I don’t rail against Buy-and-Hold. I rail against the tactics that Buy-and-Holders employ to block million of people from learning about Valuation-Informed Indexing. That’s not the same thing. I don’t think Buy-and-Hold works. So I do find fault with it. But I don’t believe that the Buy-and-Holders knew back in 1965 what Shiller taught us with the “revolutionary” research he published in 1981. I don’t blame the Buy-and-Holders for what happened (except re the cover-up). And I don’t think that it was a bad thing that for a time lots of good and smart people believed in Buy-and-Hold. Believing in Buy-and-Hold was part of a process that we had to go through as a society to get to the place where we are intellectually today, which is a very, very good place indeed.
If you want to give a name to the strategy you follow and write about it here from time to time, that’s fine with me, Canuck. I am not angry with you because you have something that you believe is better than Valuation-Informed Indexing. I don’t want to stop people who otherwise might be drawn to VII from learning about it. If they end up choosing what you have to offer as a result of reading your words, that’s what they should choose. If VII has value, it will thrive even if people learn about other options.
I think you are off base with this lazy and rich thing. It is the money that is being invested that is earning the return for the Valuation-Informed Indexer. The money is not lazy even if the investor is. Money invested in the U.S. economy earns a return of 6.5 percent real because it is put to uses that support that sort of return for the investor. The investor doesn’t have to jump around and do handstands to get the return. He needs to be willing to give up control of his money for a period of time. That’s it. A lazy investor can earn very solid returns.
An investor who is willing to go to lots of effort can probably earn better returns. I won’t argue that one. But that is a choice that some will choose to take and that some will choose not to take. My job is to spread the word about VII. If you want to make it your job to spread the word about this other approach, please feel free to go for it. It is the job of the millions of middle-class investors to decide which of the various approaches available is the one for them. The people who earn the money being invested make that call.
I hope that helps a bit.
Rob