Set forth below is the text of a comment that I recently put to another blog entry at this site:
Rob,
Do you think you will ever see one of your predictions come true in your lifetime? Your batting average hasn’t been that great so far.
Every substantive-based prediction has come true, Iron. I reported on the errors in the Old School safe-withdrawal rate studies 10 years before the Wall Street Journal reported on them. I predicted the economic crisis long before it became a reality. I told people to lock in those 4 percent real returns that were once available in TIPS and IBonds before they disappeared. I reported that stocks offered a strong long-term value proposition when prices dropped to moderate levels in early 2009 and those who invested in stocks at that time have seen the decision pay off. And on and on and on.
You are right, though, that my batting average has been ATROCIOUS on the process side. I expected to get beaten up by you Goons for two or three days when I worked up the courage to post honestly on safe withdrawal rates back on the morning of May 13, 2002. I was a wee bit off re that one. And, if you had asked me back at that time what the odds were that people like Scott Burns and Jack Bogle and the owners of the Motley Fool site and the Morningstar site and the Index Universe site would tolerate the behavior we have seen from you Goons, I would have put the odds at one-million to one.
What we are seeing is that, when it comes to the stock market, emotion dominates everything.
We learned something amazing back in 1981. The Buy-and-Holders achieved some major advances. They missed out on one big issue (price discipline), the issue that is more important than all the other issues put together. We ALL benefit by fixing that mistake. But so far as a society we have just not been able to work up the courage to do it. I never imagined that it would be this difficult.
To understand why this is so, it helps to look at how negative emotions can cause people to act irrationally on non-investing contexts. It is the same humans who destroy themselves in non-investing contexts who destroy their portfolios by failing to exercise price discipline in the investing context. To understand how investing works, we need to understand how the humans who buy and sell stocks work.
Say that there is a man who has a great deal to offer to the world who becomes an alcoholic. Over time, he loses everything — his wife, his children, his house, his money, his job, his friends, his self-respect, perhaps even his freedom (if he ends up in jail). Sad stuff. Now say that he hits bottom and gets to work solving the drinking problem. You look at him five years later and he has it all together again. He is able to build a wonderful new life.
He always had it in him. He just couldn’t do what he needed to do because admitting that he was an alcoholic hurts his feelings of false pride. So for years he engaged in choices that seemed to everyone who knew him to be 100 percent irrational. The actions WERE irrational in an objective sense. But in the mind of the poor fellow suffering from alcoholism they made perfect sense. He was hurting so much that he just had to protect his feelings of false pride no matter how much destruction they caused. In fact, the more destruction they caused, the more defensive he became re the root problem!
That’s where we stand re Buy-and-Hold today, Iron. It is killing us. It is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind. It caused the economic crisis. It threatens to put us in the Second Great Depression if we don’t sober up soon. But the idea of coming clean re the bad investing advice we have been giving for decades now scares us all to death.
It means rewriting all the textbooks. It means fixing all the calculators. It means seeing wealthy and powerful people reduced to saying the words “I” and “Was” and “Wrong.” It means thousands and thousands of lawsuits to recover financial damages. In a few extreme cases (like yours, Iron Man!), it means prison sentences. It’s a hard, hard, hard, hard business.
I underestimated how hard this would be. You got me re that one, Iron.
I also vastly underestimated how wonderful the results would be on the substantive side. If you had told me on the morning of May 13, 2002, that my working up the courage to post honestly on safe withdrawal rates would a number of years later lead to me becoming the co-author of peer-reviewed research showing millions of middle-class investors how to reduce the risk of stock investing by 70 percent, I would have said you were loco. But here we are.
You’re feeling great pain, Iron. I don’t say different. Millions and millions of others are feeling great pain. It is horrible for me to contemplate that it is likely going to take another price crash for us to open the internet to honest posting. But we are in a Catch-22. We cannot open the internet to honest posting without causing millions to for a time experience even greater pain than they feel today. And we cannot relieve the pain of these millions of people in a permanent sense without opening the internet to honest posting. It’s a mess!
It’s bigger than me, Iron. I will continue working this as hard as I can every day of my life. It’s my patriotic duty to do so. But I am more or less resigned to the apparent reality that it is going to take another price crash for us to pull together to bury Buy-and-Hold 30 feet in the ground, where it can do no further harm to humans and other living things. I am not Superman. I am some guy whose only claim to expertise in this field is that he figured out how to get his words posted to the internet. I’ll do what I can do. I can do no more and I can do no less.
The fact that it has been so hard to get the word out re the importance of price discipline to the millions who very much need to hear it does not tell us that taking investor emotions into consideration when setting one’s stock allocation is unimportant. It tells us that it is 500 times more important than I realized on the morning of May 13, 2002. The reason why we are able today to reduce the risk of stock investing by 70 percent is that our knowledge of how stock investing works has been so primitive that huge advances remain possible. Investor emotion is BY FAR the most important factor in any investing analysis. Our mistaken decision during the Buy-and-Hold years to give zero consideration to the most important factor has caused more human misery than any other mistake ever made in the history of personal finance. By a factor of 500.
I will soldier on, despite my horrible batting average, my long-term Goon friend.
With love in my heart for the Wall Street Con Men and the Lindauerheads and the Greaney Goons as well as the millions of middle-class people that comprise the group that truly drives my efforts.
I naturally wish you the best of luck in all your future life endeavors.
Rob
bizarro says
Are you attending FinCon this year?
Rob says
I am.
It’s in 3 weeks in New Orleans.
Rob
Anonymous says
Are you presenting?
Evidence Based Investing says
I told people to lock in those 4 percent real returns that were once available in TIPS and IBonds before they disappeared.
When did you tell them this?
Rob says
Are you presenting?
I am doing an Ignite session, like last year. That’s where you present 20 slides for 15 seconds each, for a total talk length of five minutes. My title is: “How to Predict Stock Returns for Fun and Profit.”
Rob
Anonymous says
Rob,
Why aren’t you doing a keynote speech since you are the foremost financial expert and have the most irritant message of anyone on this planet?
Rob says
When did you tell them this?
I was saying this when TIPS first came out, Evidence. When they came out, they were paying 4 percent real. I thought that was an amazing value proposition compared to stocks. There was virtually nobody else saying that and for a few months I didn’t have the guts to pull the trigger. By the time I worked up the courage, the return had dropped to 3.5 percent real.
I was at Ernst & Young in those days. My friend Brian and I used to talk about this stuff all the time at great length. He thought I was crazy. But he wasn’t Goonish about it. He told me that I was crazy but in a warm and friendly way. When the Wall Street Journal came out with its article saying that I was right about safe withdrawal rates, Brian called me and told me that he felt compelled to tell me that I had been vindicated on my “crazy” ideas.
Brian said that I should put a post up at the Bogleheads Forum about the Wall Street Journal article and get reinstated there. I told him that I would be re-banned in two seconds if I did that. He said that he couldn’t believe that and that he would put up a post there himself to test what I said. He put up a post and he was promptly banned. Science!
If you go back to the Motley Fool Retire Early Board, you will find a few cases where even before May 13, 2002,I made the case for TIPS and IBonds given the prices at which stocks were selling in those days. I was careful in how I said things. I of course knew that Greaney was an abusive poster and I didn’t want him coming after me. But I did put up a few posts along those lines. Of course everything exploded after the May 13, 2002, post (which was brought on by the smear campaign against Wanderer in February of that year).
Anyway, I have been saying the same basic thing to everyone who showed any interest and was willing to listen for a long, long time. I possess a far greater knowledge of the realities today than I did then. But the basics remain the same — price matters when buying stocks just as it does when buying anything else. The idea that price doesn’t matter when buying stocks was discredited by Shiller’s 1981 research and the Buy-and-Holders should have incorporated Shiller’s findings into their model at that time. If they had done so, we would all be Valuation-Informed Indexers today.
Rob
Rob says
Why aren’t you doing a keynote speech since you are the foremost financial expert and have the most irritant message of anyone on this planet?
I should be giving the Keynote talk, Anonymous. Absolutely.
Valuation-Informed Indexing is the biggest boon for financial bloggers in the history of financial blogging. We have the ability to show our readers how to reduce the risk of stock investing by 70 percent. We have the ability to show our readers how to increase returns enough for them to be able to retire five to ten years sooner than they ever imagined possible in the Buy-and-Hold Era. We have the ability to bring the economic crisis to an end and to bring on the greatest period of economic growth in U.S. history. We have the ability to eliminate the possibility of seeing future bull and bear markets and probably even future economic crises.
And we have the potential to make BILLIONS doing this. Most of the experts in this field are afraid to talk about the implications of the past 33 years of peer-reviewed research in this field. That leaves it to us bloggers! Those who have the courage to stand up to the Wall Street Con Men and their Internet Goon Squads become the new experts! I have a RobCast titled “I Am 12 Years Ahead of John Bogle in My Understanding of How Stock Investing Works — And You Can Be Too!” That doesn’t just go for me. That goes for anyone with the courage and smarts to bypass most of today’s experts and post honestly on the past 33 years of peer-reviewed research.
All of my blogger friends should be taking advantage of this great opportunity to make tons of money while doing tons of good for their readers. It’s a freakin’ no-brainer. There shoudn’t be one person leaving this opportunity behind. Even people who still believe in Buy-and-Hold can get in on the action. Just because you believe in Buy-and-Hold doesn’t mean you cannot present the case for Valuation-Informed Indexing and thereby help your readers and thereby make a nice buck.
So, yes, it would make all the sense in the world for me to be the Keynote speaker at FinCon14. I believe that I WILL be the Keynote speaker at the first FinCon that takes place following the next price crash. I believe that we will devote an entire conference to teaching all financial bloggers what they need to know to help their readers make the transition from Buy-and-Hold to Valuation-Informed Indexing. This is the most important advance in our understanding of how stock investing works ever achieved in our history and we all should be working together to get the word out far and wide before the Wall Street Con Men do more damage.
People are scared.
People don’t like to see the lives of their family members threatened. People don’t like to see their businesses destroyed. People don’t like to be banned from discussion boards that they have spent years of their lives building up. People don’t like to be defamed.
We need to do two things. We need to eliminate all of the penalties that the Wall Street Con Men and their Goon Squads impose on those of us who believe that we should be posting honestly about what the last 33 years of peer-reviewed research says. And we need to see that those of us who do work up the courage to stand up to those engaged in this massive act of financial fraud are rewarded for their efforts.
The announcement of your prison sentence is going to change things in a big way. No one will be pushing the smelly Buy-and-Hold garbage after your prison sentence is announced. And the announcement that I have received a settlement check of $500 million is going to change things in a big way. Everyone is going to be writing articles and developing calculators and recording podcasts promoting the first true research-based investing strategy after my receipt of the $500 million settlement check has been announced.
We are in an economic crisis today because as a society we have made the rewards of promoting Get Rich Quick garbage too great and because we have made the penalties for reporting accurately and honestly what the peer-reviewed research in this field says too great. I believe that we will turn that around following the next price crash. I will be thrilled at that time to handle giving the Keynote speech at the FinCon event and at lots of other events.
I hope that helps a bit, Anonymous.
Rob
Anonymous says
“I should be giving the Keynote talk, Anonymous. Absolutely.”
The only keynote talk you should be giving is at a mental health convention. I think we know what the topic would be.
Rob says
When you consider how superior Valuation-Informed Indexing is to Buy-and-Hold and how much evidence of this superiority is available to us all in the peer-reviewed academic research in this field and how long that mountain of evidence has been available to us, I think it would be fair to say from one way of looking at things to give a keynote presentation to the residents of Planet Earth is to give a keynote presentation to the residents of a mental health institution.
The other side of the story is that it is us humans who came up with the breakthrough 1965 insight that short-term timing never works and that it is us humans who came up with the breakthrough 1981 insight that long-term timing always works and is always 100 percent required for those seeking to have some realistic hope of long-term investing success and that it is us humans who are in the process of working up the courage to combine the two powerful insights and thereby create the first true research-backed investing strategy, one that will permit us all to retire many years earlier while reducing the risk of stock investing by nearly 70 percent.
So we’re not all bad.
Mental Institution Residents of the World Unite!
You Have Nothing to Lose But Your Internet Quarrels!
Oh, my!
Rob