Set forth below is the text of a comment that I recently put to another blog entry at this site:
We do agree on this, Anonymous.
Most people don’t care about theory. But the EXPERTS care about theory. The experts root their advice in theory. And most people DO care about what the experts say. So in a practical sense most people today are following the Buy-and-Hold theory. They are not dogmatic about it. And they do not know precisely why they are doing what they are doing. They are relying on a belief that the experts are shooting straight with them. They leave it to the experts to worry about theory.
I say that the experts are not shooting straight with them. It’s not that the experts are dishonest by nature. The experts are deceiving THEMSELVES because they have so much riding on the Buy-and-Hold theory; they feel that their entire careers are at stake if Buy-and-Hold is found to be deficient. The experts tell themselves that Buy-and-Hold is good enough and that it is okay not to trouble their clients and readers with discussions of the implications of Shiller’s findings. The ordinary investors don’t even know that there is an issue. They don’t look into things carefully enough to discover this. So, when I put forward views that are very much at odds with what the experts say, the ordinary investors see that what I am saying makes perfect sense but presume that there must be something wrong with what I am saying because if I were right the experts would be saying the same thing.
This is why I am always talking about the importance of Bogle giving an “I Was Wrong” speech. We need a major event that is widely publicized to turn things around. If Bogle gave such a speech and it were written up in all the major papers, all of the experts from that point forward would feel comfortable giving the Shiller take on things along with the Fama take on things. As more and more people came to understand the Shiller take, hundreds of blogs would pick up on these questions and we would see the launching of a national debate. We need to see a national debate re this stuff very, very badly!
I feel that you are suggesting a non-dogmatic approach to things. I can live with a non-dogmatic approach. But I am not clear re how what you are suggesting would play out when it comes time for me to compose posts.
Say that I am posting at the Bogleheads Forum. Someone comes on and says “I am about to retire and need to decide how much I am going to withdrawal each year.” Someone else posts a link to FIRECalc. What do it do?
Do I post a link to The Retirement Risk Evaluator?
How does Mel Lindauer respond when I do that?
Am I subjected to The Treatment?
Or does he let it pass out of deference to this new non-dogmatic approach?
I don’t feel any need to say “Buy-and-Hold is wrong” so long as there are no Buy-and-Holders saying “Valuation-Informed Indexing is wrong.”
If you are saying that we ALL should be non-dogmatic, I am cool with the idea. But Valuation-Informed Indexing cannot grow if, every time a VII idea is put forward, it is smashed down by people who claim that Buy-and-Hold is Scientific Truth. I need protection from that sort of thing. The protection that I have relied on in the past is the 33 years of peer-reviewed research supporting the VII strategy (and discrediting the earlier research that was thought by many to support the BH strategy). If we go the route you propose, do you intend to jump in when Buy-and-Holders say that their approach is Science and let them know that the majority of the board is non-dogmatic and that it is disrespectful to them to say that kind of thing? If not, how do you propose that I respond, given that I believe in Valuation-Informed Indexing and want to persuade people of its merits while also wanting to always be 100 percent respectful of the views of other community members?
Rob
Anonymous says
Rob,
How do I plan my international exposure with VII? Do I need to calculate PE10 for every single country I plan to hold equity in? Has any research been done to assess how well PE10 works in international markets. Or do you suggest a portfolio that has absolutely no international exposure. Seems risky….
Rob says
Yes, there is research re international aspects of the questions. Shiller has a chapter in his book on it.
Is it risky to invest only in the U.S. market? That’s not a question that applies only in the VII context. It applies in the Buy-and-Hold context too. We are still in the primitive stages of understanding how stock investing works. Different people have different opinions on these questions and they all need to be heard if we all are to arrive at sound understandings over time. This is one of many reasons why I so strongly oppose the Ban on Honest Posting that you have been posting in “defense” of for 12 years now.
You of course should always take into consideration the price of anything you purchase. P/E10 will not offer as good guidance in economies not as developed or as stable as the U.S. economy. Sometimes it will make sense to invest in other markets, sometimes it will not. You need to look at all of the circumstances that apply. If you can find tools as powerful as P/E10 to make use of in other markets, you certainly should take advantage of those tools.
If you cannot find equally powerful tools, you should make use of the best tools available to you. You should always act in your own self-interst when investing, not with the aim of making the Wall Street Con Men happy. It’s not only the Wall Street Con Men that matter. We ALL matter. We all need to pursue our self interests when investing.
Or at least that’s my sincere take re this terribly important matter, Anonymous.
I hope that hearing it helps you out a small bit.
Please take good care.
Rob
Yogi Bear says
“You should always act in your own self-interst[sic] when investing, not with the aim of making the Wall Street Con Men happy. ”
Super.
But, now, how is it that “Wall Street Con Men” can supposedly get wealthy over Grandma Betty buying and holding a market basket of stocks, cash-equivalents, and a dollop of bonds for thirty or forty years, with perhaps some annual rebalancing thrown in?
Rob says
Taylor Larimore, co-author of The Bogleheads Guide to Investing, had a line that he often used during the time I posted with him at the Bogleheads Forum. He would point to his retirement home and refer to it as “the house that Jack built.” The idea was that it was by following the Buy-and-Hold strategies advocated by Jack Bogle that he earned the money to buy that house.
The Wall Street Con Men get rich by lying to people about the nature of the “gains” they “earn” in bull markets.
Taylor earned 6.5 percent real per year on his stock investments, just as everyone investing in the U.S. stock market has earned for 140 years now. To the extent that he overpaid for his shares, he obviously brought that return down. Bogle’s phony baloney investing advice obviously pulled down Taylor’s return dramatically. Get Rich Quick strategies always do. We now have 33 years of peer-reviewed research showing that not only are Get Rich Quick strategies not the answer, they are the problem.
There are millions of people like Taylor, people who have fooled themselves into believing that the Wall Street Con Men are doing them some sort of favor by lying to them about what the peer-reviewed research in this field says about how stock investing works in the real world. The Wall Street Con Men love to pretend that this might be the first time in history when a Buy-and-Hold strategy will work for one or two long-term investors because, when they can trick people like Taylor into believing that, the Con Men get credit for creating those false and phony and temporary and meaningless “gains.”
When Bernie Madoff was exposed, there was a thread in which people were referring to what he did as “fraud” and one guy came on the thread and said “oh, it wasn’t fraud.” Why wasn’t it? Because this fellow got out of the fund before it collapsed and was ahead by more than $1 million. This fellow had “a house that Bernie built” So to this fellow it was Saint Bernie who was operating the fund, not some con man who merited prison time for his trickery.
But of course the reality is that Bernie was a con man. And of course the reality is that Old Saint Jack is one too. If Buy-and-Hold weren’t a con, we never would have seen the Buy-and-Holders put forward a single death threat or a single demand for a single unjustified board banning or a single act of defamation or a single threat to get a single academic researchers fired from a single job. People who are promoting legitimate strategies do not behave in that manner. Not ever.
People who make use of such tactics have something to hide. People who make use of such tactics are operating a con. It may be that they conned themselves before they conned others. That happens. Saint Bernie told a reporter for New York magazine that he felt that he was doing good for others. My good friend Jack has said similar things.
The bottom line is that those are the marks of a con and Academic Researcher Wade Pfau checked the entire literature and never was able to find the tiniest sliver of research-based support for Buy-and-Hold anywhere in the academic literature. And of course the response of you Goons was to threaten to get him fired from his job. And Old Saint Jack had no problem with that. That tells the tale, Yogi.
There are always some people who make money from a Ponzi scheme. The difference between the Ponzi scheme built by Old Saint Bernie and the one built by Old Saint Jack is that the one built by Old Saint Jack destroyed 10,000 times more human lives. Old Saint Bernie let us all off easy. Old Saint Jack has us on the path to the Second Great Depression.
If you think that’s funny, then you think that’s funny.
I don’t get the joke.
And you know what else? I have a funny hunch that Grandma Betty is not going to find the joke too terribly funny when we all find ourselves on the other side of the next price crash.
But we’ll see, right?
I’ll be there and you’ll be there and Old Saint Jack will be there and Grandma Betty will be there. We’ll all talk it over at that point in the proceedings and decide together how long the prison sentences shall be.
Could anything be more fair?
Rob
Yogi Bear says
So… Taylor’s house isn’t real? That’s your premise?
Rob says
Taylor’s dishonesty is real.
Taylor’s shame is real.
Taylor’s suffering is real.
Taylor’s liability for the civil claims that will be filed against him will be real.
Taylor’s prison sentence will be real.
The millions of failed retirements caused by Taylor are real.
The millions of lost jobs caused by Taylor are real.
The dark cloud that surrounds Taylor today is real.
The pains that Taylor’s conscience sends out to the rest of him are real.
The smelly Get Rich Quick garbage that he touts? Not so much.
My sincere take.
Rob
Yogi Bear says
You sound… angry.
And fat.
And broke.
Rob says
I’ll answer the same question in a different way.
If you take on hundreds of thousands in credit-card debt because you want to live the high life but cannot afford to do so on the money you earn at your job, are all the possessions you acquire by racking up more and more and more debt real?
That’s your answer. The possessions themselves are real. And so is the ruin you have brought to your life by buying in to the garbage pushed by marketing men who care a great deal about taking as many dollar bills as possible out of your pocket and putting them into their own and not a fig about how much human misery they cause doing so.
Not this boy.
Please try to find someone else.
Rob
Rob says
You sound… angry.
And fat.
And broke.
And honest.
Please don’t forget honest, Yogi.
That one means a lot to me.
Take good care, man.
Rob