Set forth below is the text of a comment that I recently posted to the SiteSell.com discussion forum:
Rob, I have much respect for your work and you have a lot of valuable knowledge to share, but I would not bet that human nature will change and people will stop making decisions based on greed and fear.
The words above are from a post by Dave put to the Passive thread. I thought it would be better to respond to them here.
Your comment gets right to the core of things, Dave. Investors have for a long time been acting in one way and I am proposing that we all (I don’t mean all of us at this site, I mean all of us in this country) pull together to help them act in a very different way. It would be fair to describe this as an ambitious undertaking!
That granted, have people’s actions not changed in fundamental ways before? There was a time when people with black skin could not drink from the same water fountains as people with white skin. That changed, didn’t it? And there was a time when there were advertisements in magazines arguing for the health benefits of smoking (Google it if you don’t believe me). That changed, didn’t it? And there was a time when after a picnic people just tossed all the trash on the grass (there was a scene depicting this on Mad Man — I remember this sort of thing really happening when I was a child in the 1960s). That changed, didn’t it?
There’s a thing called Progress. Our country is pretty much built around a belief in it. I understand that it is an ambitious undertaking to try to change how people think about investing in a fundamental way. But I believe that things have reached a point where we have no choice and I believe that millions of people are up to making the change if only the need for it is presented to them in the right way.
You have to do the math to appreciate the fix we are in today. Stocks were priced at three times fair value in 2000. We always drop to one-half of fair value before the secular bear market that inevitably follows a secular bull market comes to an end. That means that people who were invested in stocks heavily in stocks in 2000 are going to lose five-sixths of their accumulated life savings before this economic crisis comes to an end. Someone who had saved for years and years to accumulated $600,000 is going to end up with $100,000 (in real terms). Defined benefit pensions are pretty much a thing of the past. We have given to workers the responsibility of financing their own retirement plans. And the investment advice that is pushed relentlessly is going to cause them to lose five-sixths of their accumulated life savings. Is our political system even going to be able to withstand the stresses that are going to be placed on it as a result?
And how about when the millions of people who end up losing most of their retirement money learn that there is 33 years of peer-reviewed research showing them how to invest in a way that would prevent this from ever happening while also permitting them to retire five to ten years sooner than they ever imagined possible? When the Buy-and-Holders spent millions of dollars promoting the idea that investment strategies should be rooted in peer-reviewed academic research, they changed this field forever. We now HAVE to provide a means for people to have access to accurate and honest reports of what the research says. We’re not there yet. But we have no choice but to go there. Events are going to push us there no matter how much we try to avoid it. And in the end we are of course all going to be very happy we made the trip.
I have a lot of experience talking to people about the Valuation-Informed Indexing concept. I can tell you that people LOVE learning about it. That’s been so going back to 2002, when I began this journey. People also HATE the friction that comes up when conventional Buy-and-Holders become defensive about what the last 33 years of research says. So I have not been successful in spreading the word far and wide. But I know from the reactions that I have seen that there are MILLIONS of people who would like to know the truth about stock investing. The market is huge. Someone is going to figure out a way to serve this huge market.
When they do, a lot of people who today advocate the conventional Buy-and-Hold strategy are going to flip. I know because a good number have told me so. There are economists who want to be reporting the realities. There are journalists who want to be reporting the realities. There are investing advisors who want to be reporting the realities. There are researchers who want to be reporting the realities. There are bloggers who want to be reporting the realities.
The hard part is going first. Those who go first get their heads chopped off. Everybody knows this and so everybody holds back. But once the dam breaks, watch out! Once the dam breaks, lots of people are going to flip in a short amount of time. My guess is that this will happen shortly following the next price crash. Shiller’s research shows that we should see that crash within the next year or two or three.
Please understand that I am NOT saying that the Permanent Portfolio concept is the problem. The Permanent Portfolio concept is a HUGE improvement over the conventional Buy-and-Hold concept. The reality here (in my view) is that the Permanent Portfolio concept and the Valuation-Informed Indexing concept solve the same problem (the danger of the conventional Buy-and-Hold strategy) in slightly different ways. PP has you invest in asset classes that will do very well in stock crashes and thereby protect you from their impact. VII has you lessen your participation in stocks when the odds of seeing a crash grow too high. Both approaches represent huge advances. An argument could be made that BOTH require a change in human behavior. Both are going to seem highly appealing to lots and lots of people following the next crash, and for good reason. My personal take is that it may be too soon to say with certainty which is better. But both represent huge advances. That’s what matters.
Investor behavior will change because it must if our free-market economy is to survive. We all want it to survive and so we are all going to pull together to achieve some changes when it hits us that we have no practical choice. There was a day when only very rich people had money in stocks. That’s not the case today. Middle-class people fund their retirements by investing in stocks. They must have accurate information. There’s just no other way. We are a richer people than we were in earlier times. That changes the realities. I believe that we are ready for this change and I believe that, when we are faced with no option but to move ahead with it, we will pull together to help bring about the change.
It is NOT true that middle-class investors are governed entirely by greed and fear.I have talked to THOUSANDS of people who are seeking a smart and safe and simple way to invest in stocks. The problem today is that most people are intimidated by the subject of stock investing and put too much belief in what “experts” tell them and the primary expertise of many of the people who work in this field is in marketing. Once a small number of people stick their necks out and try to make names for themselves pushing strategies that help people avoid the pitfall of giving in to feelings of greed and fear (whether by recommending PP or by recommending VII or by recommending some third approach that achieves the same ends), the wall is going to break and we are going to see that millions of middle-class people are willing to work hard to avoid fear and greed if only they can find some people to help them understand better what they need to do.
That’s my sincere take, in any event, Dave. There are lots of smart and good people who think I am a dreamer. I guess we will find out for sure when that next price crash hits and we see how people react.
Rob
If you really believe fear and greed are not prime drivers of human action, then you truly are delusional.
If you were to argue that fear and greed are significant drivers of human action, I would agree.
But prime drivers? No, I don’t see it.
Our economic system has been generating enough wealth to support an annual average return for stock investors of 6.5 per year for 140 years now. All of that comes from people primarily driven by fear and greed? I don’t buy it, Honest. That sort of return comes from hard work and intelligence and risk-taking and prudence.
Yes, there is some fear and greed mixed in. That’s why I speak out so frequently and so forcefully in opposition to the relentless promotion of Buy-and-Hold strategies by the Wall Street Con Men and their Internet Goon Squads. But Buy-and-Hold hasn’t killed us all yet, has it? This isn’t the first Buy-and-Hold Crisis that we have had to endure. It is the fourth. One of those four Buy-and-Hold Crises became the First Great Depression. And yet here we are, enjoying the fruits of our wonderful economic system despite the unceasing efforts of the Wall Street Con Men and their Internet Goon Squads. Explain that one, my good friend.
Fear and greed is a genuine problem. The Buy-and-Holders exploit our human weaknesses to the fullest extent possible. They have been doing this for a long, long time. But that’s only half of the story, Honest. We are in the process of OVERCOMING the Buy-and-Hold Mafia. Shiller was awarded a Nobel Prize last year. More and more people are sickening of the smelly Buy-and-Hold garbage on a daily basis. Things are getting better and better by the day.
Is all of that not so?
Don’t be so glum, my Goon buddy. Yes, I know all about the prison sentence. You know what? You are better off in prison than in a society whose economic system is collapsing due to the relentless promotion of Get Rich Quick investing strategies. Opening up the internet to honest posting is a win/win/win/win/win. Even you Goons end up better off when you are sent to prison.
That’s my sincere take re these terribly important matters, my long-time abusive-posting friend.
Don’t let the bad guys get you down, man.
Rob
middle class investors have nothing to do with market behavior.
Are you able to explain why you believe this, Laugh?
Rob
I can answer that for you Rob. Read this article:
http://www2.ucsc.edu/whorulesamerica/power/wealth.html
“The top ten percent have 81% to 94% of stocks, bonds, trust funds, and business equity, and almost 80% of non-home real estate.”
This data is from 2010 and the trends show an increasing percentage heading towards the top 1%. The middle class investor does not hold enough stock to influence the overall market behavior.
The primary problem for middle class investors is that THEY HAVE NOT SAVED ENOUGH.
p.s. — Fear and Greed come in many different shapes and forms. Just because we are “sophisticated” animals, never forget that we are still very much primal animals. Fear and Greed.
“One of those four Buy-and-Hold Crises became the First Great Depression. ”
LOL!!!
Now I really know that you have NO idea about how finance/econ works!
The market crash which, in part — not in whole — caused the Great Depression, was due to mass and hyper-speculation — NOT Buy-and-Hold!
Speculation is just the opposite of Buy-and-Hold.
Have fun with your psychotic little private playground, Rob.
I am not buying what you are selling, Anonymous.
I can accept that the top 10 percent own most of the stocks. It doesn’t follow that the lower 90 percent do not affect the economy. Many businesses make most of their money by selling to the lower 90 percent. Wipe out the wealth of the lower 90 percent and you do serious damage to the economy (as well as to those in the lower 90 percent!).
Middle-class people matter. Wiping out their wealth is a bad thing. I am sure.
And please understand that the reckless promotion of Buy-and-Hold strategies is one of the biggest causes of the saving problem. Middle-class portfolios were priced at three times their real value in 2000. Say that you are a guy who needs to have $400,000 saved to be on track to meet your retirement goals. You only have $200,000 of real wealth. So you are behind by $200,000. You need to be saving a lot more. But the Buy-and-Holders tell you that you have $600,000 of wealth and that it is reasonable to count the Pretend Money as money that can be used to finance your retirement. Does this Big Lie encourage you to save more or not to save more. I would think that believing a lie that you are far ahead of where you need to be to meet your goal would discourage you from making the sacrifices you need to make to save more.
The Buy-and-Hold Lies help no one. The Wall Street Con Men think they are being helped because their trickery puts so many dollar bills in their pockets. I don’t buy that one either. The Wall Street Con Men could sell more stocks in the long run if their Buy-and-Hold lies did not cause economic crises every 35 years or so. In the end they would be better off just telling the truth about what the last 33 years of peer-reviewed research tells us about how stock investing works.
That’s my sincere take re these terribly important questions, in any event.
My best and warmest wishes to you and yours.
Rob
“I can accept that the top 10 percent own most of the stocks.”
I happens to be the fact, Rob. We continue to see countless studies showing the lack of savings (and low stock ownership) of the middle class.
Rob,
The chart on this page is one of the better graphics to show that the middle class owns very little of the stock market.
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/11/graph-of-the-day-who-actually-benefits-from-a-stock-market-boom/
Since it is the top 10% that own most of the stock, is this the group you are worried about? It doesn’t seem so as you keep talking about the middle class. The facts, however, show that the middle class doesn’t really own much, if any, stock.
Just because we are “sophisticated” animals, never forget that we are still very much primal animals.
Yes.
The way you say it there sounds right to me, Honest.
One of the many reasons why I so oppose the promotion of Buy-and-Hold strategies is that they appeal to the base instincts. They bring out the worst in us all.
Research-based strategies are just the opposite. They help us to be the best we can be.
My take.
Rob
The market crash which, in part — not in whole — caused the Great Depression, was due to mass and hyper-speculation — NOT Buy-and-Hold!
So you say, Honest.
The P/E10 value prior to the crash was 33. That’s more than double fair value. That’s the highest P/E10 value we have ever seen in U.S. history prior to the late 1990s.
Market prices are self correcting so long as all investors know that it is in their best interests to exercise self-discipline. The investors of that day were NOT lowering their stock allocations in response to price increases. If they had been, the P/E10 value never could have gone that high. They were following Buy-and-Hold strategies, not Valuation-Informed Indexing strategies.
To be fair to the Wall Street Con Men of that day, we did not then have 33 years of peer-reviewed research showing that the widespread promotion of Buy-and-Hold strategies ALWAYS causes a price crash and an economic crisis. We do have that today.
Rob
We continue to see countless studies showing the lack of savings (and low stock ownership) of the middle class.
We also continue to see evidence of how much harm is being done to millions of middle-class people by the Buy-and-Hold Crisis. Millions have lost their jobs. Millions are in the process of experiencing failed retirements. Tens of thousands have seen their businesses fail. We are seeing political unrest on both the left (The Occupy Wall Street movement) and the right (the Tea Party movement). You Goons caused all that with your brutally abusive posting practices and you will be serving long prison sentences following the next price crash as a result.
Fair enough?
Rob
Since it is the top 10% that own most of the stock, is this the group you are worried about? It doesn’t seem so as you keep talking about the middle class. The facts, however, show that the middle class doesn’t really own much, if any, stock.
The wealthy have lost more money in the Buy-and-Hold Crisis than have the middle-class. I certainly don’t say different, Anonymous.
And I obviously don’t want to see the wealthy lose their money.
But, yes, I focus more on the middle-class. A big part of the reason is that I am middle-class myself. And most of my friends and neighbors and co-workers are. My parents were. Most of my readers are middle-class. So that’s my focus.
Just because the wealthy have suffered terribly doesn’t mean that the middle-class haven’t suffered terribly as well. A person who loses $5 million from a $6 million portfolio suffers terribly. So does a person who loses $500,000 from a $600,000 portfolio.
I care deeply about the losses suffered by millions of middle-class people. I doesn’t make me feel better to consider the reality that lots of wealth people have suffered as well.
Many middle-class people own stock. Many middle-class people are trying to finance their retirements largely through the purchase of stock. I will continue to insist on recognition of their right to hear honest and accurate reports re the last 33 years of peer-reviewed research in this field.
I naturally wish you all good things.
Rob
“Fair enough?”
No, it is just plain wrong. In fact, you just make it up as you go so that it fits your story.
Sorry Rob, but if you don’t have the ability to even understand what happened in 2008/2009 then you have no business even talking about investing.
There is only one side in these discussions employing death threats, Anonymous.
There is only one side employing demands for unjustified board bannings.
There is only one side employing tens of thousands of acts of defamation.
There is only one side employing threats to get academic researchers fired from their jobs.
I submit that it is those on that side who lack a complete understanding of how stock investing works.
Worse, I submit that it is those on that side who will be sent off to serve long prison sentences following the next price crash.
I naturally wish you all the best that this life has to offer a person, in any event.
Rob
“Many businesses make most of their money by selling to the lower 90 percent. Wipe out the wealth of the lower 90 percent and you do serious damage to the economy…”
Over 50% of the earnings of the S&P companies come from foreign lands.
The companies would survive — survive, not thrive — without the “wealth” of the lower 90%.
“Middle-class people matter. Wiping out their wealth is a bad thing. I am sure.”
What don’t you understand, Rob?
The middle-class people have no wealth!
The middle-class people are the workers and the spenders.
Their existence is not one of building wealth, of saving, or of investing — it’s one of spending.
Wiping out the “wealth” of the middle-class wipes out very little wealth.
You also don’t understand that it’s not just wealthy individuals which own the vast majority of wealth assets — stocks, bonds, land, et al — it’s also corporations, investment funds, and governments, both domestic and foreign.
According to one of the provided links, in 2010, the bottom 90% owned ~19% of all privately-held stocks and mutual funds. But what it doesn’t show is what percentage of the 90% owns that 19%. It might only be 50% or maybe 20%. I don’t know but I can guarantee the full 100% of the 90% does NOT own stocks.
Maybe no one is listening to you because what you are yelping about has a very, very small audience.
Keep fighting the imaginary enemy, Rob. It’s a loosing battle.
People aren’t joining in because they are afraid to do so. They don’t want to see the lives of their family members threatened. They don’t want to see their businesses destroyed. They don’t want to be defamed. That one is not super hard to figure out, Honest. As a short-term strategy for keeping people from learning about a mistake you have made, intimidation is pretty darn effective.
If the financial futures of millions of middle-class people do not matter, why is the Buy-and-Hold Mafia working so hard to keep those millions of middle-class people from learning about the implications of Shiller’s research? Your story does not add up, Honest.
And say that the loss of most of their accumulated wealth of a lifetime did NOT affect the millions of middle-class workers experiencing the losses. The economic crisis would still affect them, would it not? The economic crisis caused by the reckless and relentless and ruthless promotion of Buy-and-Hold strategies affects ALL of us. That certainly includes millions of middle-class people, does it not?
It is my intent to continue to post honestly re safe withdrawal rates and re many other critically important investment-related topics.
You have my best and warmest wishes.
Rob
“People aren’t joining in because they are afraid to do so.”
People (the middle-class) aren’t joining in because they have no money.
They also don’t really — and I mean REALLY — care.
They spend far more time watching teevee et al than paying attention to finance and economics.
Why would they? They have no wealth, thus it doesn’t concern them.
Remember, spenders, not investors/savers.
True, the financial crisis did effect everyone.
It made the rich even more rich, and everyone else less rich.
We disagree, Honest.
I’ve spoken to many middle-class people over the past 12 years. They care about what is happening to their money. They care a lot.
They haven’t put together the pieces of the puzzle. They suspect that there is a lot of corruption on Wall Street. Many even went so far as to point the finger at Wall Street when the economic crisis arrived in late 2008. But they were vague in their accusations along these lines. They did not specify WHO on Wall Street caused the problem and WHAT they did to cause it. We need to get the information out to them so that they can identify the Wall Street Con Men pushing Buy-and-Hold strategies 33 years after the peer-reviewed research showed that there is precisely zero chance that such strategies could ever work well for even a single long-term investor.
A big part of the problem is that we have never seen a case of financial fraud as big and as far-reaching as this one. I certainly didn’t know about it on the morning of May 13, 2002, and I consider myself a reasonably smart person who follows these sorts of issues to at least a moderate extent. When I find myself feeling frustration that the millions of middle-class people who are the primary victims of this massive act of financial fraud are not speaking up, I try to call to mind my own ignorance of the realities in those long-ago days and that helps me understand why many people are having a hard time taking this in today.
I don’t believe that the Wall Street Con Men (or even you Goons!) possess a full understanding of what you have done. I believe that you really follow Buy-and-Hold strategies. So you are being hurt as much as everyone else. You just don’t see it. You are in emotional pain. You believed that Buy-and-Hold was the answer and it hurts to acknowledge that you got that one wrong. You are suffering from cognitive dissonance. You obviously know that it is wrong to advance 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. But you can’t figure out how to get yourself out of the trap you find yourself in. If you come clean today, you go to prison. If you continue with your Campaign of Terror against our board and blog communities, you go to prison for an even longer time following the next price crash. It’s not an enviable choice.
I love my country. I respect and admire and feel gratitude toward the Wall Street Con Men because of all of the many insights I have picked up from them and have used to build the Valuation-Informed Indexing model. Most of you Goons are friends of mine from the days before I worked up the courage to put up my famous post of the morning of May 13, 2002. I believe that we are the luckiest generation of investors ever to walk Planet Earth and that we will all come to see that not too long after the initiation of the next price crash, when we will all pull together to bury the smelly Buy-and-Hold garbage 30 feet in the ground, where it can do no further harm to humans and other living things.
Does that help?
The millions of middle-class investors whose lives are in the process of being destroyed care. And I care about them. And even the Wall Street Con Men and their Internet Goon Squads care on one level of consciousness. So, once you see the futility of further abusive posting, we will all pull together and focus on the positive side of this story (our ability to reduce the risk of stock investing by 70 percent just by opening every discussion board and blog on the internet to honest posting on safe withdrawal rates and scores of other critically important investment-related topics) rather than the negative (the prison sentences and the hundreds of billions in financial liabilities and so on).
The hand of kindness remains extended to you and to all the other Goons and to my Wall Street Con Men friends.
My willingness to post dishonestly re the numbers that my friends use to plan their retirements (and thereby to participate in the massive act of financial fraud and to thereby earn MYSELF a prison sentence) remains precisely zero.
I naturally wish you the best of luck in all your future endeavors regardless of what investing strategies you elect to follow.
Take care, man.
Rob
Pontificate all you want, Rob, but the facts say otherwise. We see that the middle class has minimal stock holdings and the evidence is clear that the savings rates are abismal. Your personal vendetta has clouded your judgement.
My best and warmest wishes to you, Anonymous.
Rob
I’m not a Buy-and-Holder, does that still make me a “Goon!”?
And what about someone who uses a Buy-and-Hold investment strategy with shares of their OWN company? Are they also wrong? Are all those hundreds of thousands of small and medium privately-held businesses across North America now Buy-and-Hold GOONS?!
I know a very wealthy man who has run a very successful private company for 40 years (that’s Buy-and-Hold in case you forgot). Were all his investors duped and lied to and defrauded? Is he a GOON?!
You obsess so intently on one point, Rob, that you willingly ignore the other 99.99% of the picture.
Kind of like Cameron being hypnotized by the Seurat.
The point that I focus on is the point that the Buy-and-Holders got wrong. They got everything else right! If they fix the one thing they got wrong (the idea that there is some mystical, magical world where it is not 100 percent necessary to exercise price discipline when buying stocks), it all works. If they fix the error discovered in 1981, they are Valuation-Informed Indexers.
You’re a Goon if you engage in or support the use of death threats or demands for unjustified board bannings or tens of thousands of acts of defamation or threats to get academic researchers fired from their jobs to block the millions of middle-class investors who need to know what the peer-reviewed research of the past 33 years says about how stock investing works.
Rob