Set forth below is the text of a comment that I recently posted to another blog entry at this site:
You don’t get to force people to change studies they may have done, even if you feel a variable could be included that wasn’t.
That’s not how it works in any field of endeavor other than stock investing, Anonymous.
If the tobacco companies tried putting out a study showing that smoking four packs of cigarettes a day adds ten years to life expectancy, you would see an uproar that would force them to acknowledge that the study is pure b.s.
In future days, that’s how it will work in the investing advice field too. Humans possess a deep need to evidence ethical behavior. That’s true of people working in this field as much as it is of people working in other fields.
In fact, I believe that one of the reasons why the reactions we have seen from you Goons are so intense is that it causes you pain NOT to act ethically. You don’t want to abandon Buy-and-Hold. And you have no effective response to the 33 years of peer-reviewed research showing that there is zero chance that it could ever work for even a single investor. So you feel that you have no choice but to behave unethically. But you don’t like the idea of people seeing that. So you demand that honest posting on the last three decades of research be banned. I obviously don’t approve of this “solution” to your problem. But I think in fairness it should be said that it shows that there is a desire somewhere deep within you to be seen as ethical. That reality will help us all bring this to a resolution somewhere down the road a bit.
I cannot force anybody to do anything, Anonymous. We certainly agree on that limited point. But I can expose the corruption in a field in which errors in retirement studies become public knowledge and those studies remain uncorrected for 12 years, no? That’s not me, Rob Bennett, forcing something by myself. It is an entire society taking action to demand that one field of human endeavor — the investing advice field — adhere to the same ethical standards as every other field in our society.
That’s a big deal. Once we have investing advisors adhering to the same ethical standards as people who work in every other field, Buy-and-Hold is finished. It’s been hanging on only because the Wall Street Con Men have had enough money and power and influence to make this field an exception to the usual rules for a time. I think it would be fair to say that those days are coming to an end. The house of cards is in the process of toppling to the ground. We are going to see reasonable ethical standards apply in this field.
And you know what? It’s going to be people WITHIN the field who are going to end up leading the effort. I have seen LOTS of evidence of that during the first 12 years. MOST people in this field want to feel free to honor minimal ethical standards. And so that’s how it is going to be.
I hope that, when as a society we bring about that change, you won’t feel that you are being “forced” to correct those darn Old School SWR studies.
And you’ve already agreed with my statement that most folks are just like you – informed about Valuations, and making personal decisions about whether or not to modify their allocations based on them.
I don’t AT ALL agree that people are adequately informed. For people to become informed, we need to permit honest posting on every board and blog on the internet.
I agree that people accept that valuations matter.
The problem today is that the Buy-and-Holders will not permit the effect of valuations to be quantified. Most people have NO IDEA how big the valuations effect is.
The perfect illustration of this is Bogle’s claim that there is no need for investors to lower their stock allocations by more than 15 percentage points even when valuations are insanely high. That’s not even close to being right. There’s never been a more dangerous statement put forward in the history of personal finance. That statement is in the process of causing MILLIONS of people to suffer failed retirements. It has caused a mountain of human misery.
Why don’t journalists call out Old Saint Jack on that statement on a daily basis?
Why don’t policymakers give speeches demanding that he either offer research-based support for a statement that is destroying our economic system or stop making the foolish and irresponsible statement?
Why don’t academic researchers declare their freedom from the dictates of the Buy-and-Hold Mafia by publishing peer-reviewed study after peer-reviewed study showing the reality that a percentage change of 60 percent is needed when prices reach insanely dangerous levels?
They are all afraid.
That’s all.
And they are ashamed of being afraid.
So they tell themselves that this is not such a big deal, that we will somehow struggle along with Big Shots like Bogle offering loony tune numbers that he pulled out of his backside.
But we won’t. Bogle HURTS people by offering loony tune numbers that he pulled out of his backside.
And he hurts HIMSELF too.
We will work up the courage to react appropriately to such dangerous claims. Because as a society we have no other realistic options.
And then you will see Rob Bennett doing everything in his power to help people understand WHY my good friend Jack behaved so poorly for so long a time. Because we must have healing to get to all the exciting stuff on the other side of The Big Black Mountain.
Before the healing comes the truth telling. That’s the priority today. But healing will be a priority in Stage Two of this process.
At any rate, people are NOT informed. People are afraid. People are ashamed. And they are afraid and ashamed because they are NOT informed. Their common sense tells them that valuations MUST matter. But they have for 33 years not been able to bring their intellects into alignment with their common sense because the Buy-and-Holders have been so brutal in their use of intimidation tactics to keep the findings of the last 33 years of peer-reviewed research covered up.
People WILL become informed. That’s my “agenda,” as you call it.
It’s going to happen. It is well on its way to happening. We have done amazing things over the first 12 years of our discussions. But it is not time to declare victory just yet. Not every battle has been won as of this morning.
Give it time.
My best wishes to you, old friend.
Rob
The Pink Unicorn says
Rob,
You continue to leave out the part about REBALANCE.
Rob says
No I don’t.
Everyone knows that Buy-and-Holders believe in annual rebalancing. I certainly have never said different.
It is the rebalancing part of the Buy-and-Hold concept that makes Buy-and-Hold a Get Rich Quick strategy. Rebalancing puts you back at the stock allocation you started with at time when valuations have increased. Huh?
To rebalance is to fail to exercise price discipline when buying stocks. Not good.
I fully acknowledge that Buy-and-Holders rebalance. That’s why I oppose Buy-and-Hold.
There is zero peer-reviewed research showing that rebalancing ever worked for even a single long-term investor.
I have hopes of becoming known as the most severe critic of rebalancing alive on Planet Earth today.
I believe that investors should follow research-based strategies. I oppose rebalancing.
I hope that helps a bit, Pink.
Rob
x says
It is the rebalancing part of the Buy-and-Hold concept that makes Buy-and-Hold a Get Rich Quick strategy…I fully acknowledge that Buy-and-Holders rebalance. That’s why I oppose Buy-and-Hold.
I’m reminded of an old Star Trek episode. A planet run by androids. Spock says to one fembot “I love you.” He turns to another and says “However, I hate you.” She protests “But I am identical in every way with Alice 27!” Spock replies “That is exactly why I hate you. Because you are identical.” That total illogic causes their robot brains to fry.
However, your brain sputters merrily along.
Rob says
Okay, X.
At least that one was a little different.
Rob
Anonymous says
When stock valuations are high your portfolio would be skewed stock heavy and with rebalancing you would thus lower your stock allocation. Similar to VII except it doesn’t rely on a single gimicky technical metric thats historical trend (which has been steadily creeping up) has no guarantee to persist.
You realize you could find any number of random data correlations that when backtested could have impressive results. What is special about PE10 specifically from a theoretical standpoint? It has simply been backtested and shown to have good results if implemented in the most favorable way possible by the author of the study.
I have no doubt any other combination could produce superior results. Why not PE12 or PE7.5. I’m sure if tested those metrics could be shown to have produced even better than PE10 especially if the author of the study wants that to be so.
You of course have not tested any other metric but instead simply latched on to the work of other people. You don’t have the abilities conduct your own research. The people who actually have the knowledge and ability have long since moved on and don’t advocate using this research as an actual investment strategy.
Rob says
What is special about PE10 specifically from a theoretical standpoint?
This is the right question. You are FINALLY at least asking the right question (although you still bury it in a lot of garbage verbiage).
What’s special about P/E10 is that it is a metric that permits the investor to practice price discipline when purchasing stocks.
Exercising price discipline is 80 percent of the game, Anonymous. The research shows that investors who practice price discipline cannot fail to obtain good long-term results even if they mess up everything else. And investors who fail to exercise price discipline cannot obtain good long-term results even if they get everything else right.
Price discipline is the name of the game in all markets other than the stock market. And — Surprise! Surprise! — there is now 33 years of peer-reviewed research showing that price discipline is the name of the game for those participating in the stock market too.
P/E10 is the price tag of stocks.
It is by looking at the price tag that we all become empowered to practice price discipline when buying stocks.
That’s the magic of P/E10. It is the freakin’ price tag. And anyone who buys stocks or anything else without first looking at the price tag is a friggin’ fool.
Do you see?
Rob
Anonymous says
But what is special about 10 years? Why not 7.5 years or 12 years. Why not the average of the last 15 years throwing out the highest and lowest value? Since there is no theoretically grounding in why 10 years was selected it is just cherry picked to produce good results. Any of the above combinations could be shown to produce superior results. Yet none should be expected to persist.
Do YOU see?
Rob says
The 10-year metric was not cherry-picked. It was suggested by Benjamin Graham in the 1930s. It was picked up by Robert Shiller, who was awarded a Nobel Prize for his work in this area. The idea that Benjamin Graham was Robert Shiller would engage in cherry picking is 100 percent preposterous. It is a lie.
There is a very strong theoretical grounding. The conventional valuation metric is P/E1. That compares prices to earnings. That’s what you want to do — you want to know how many dollars you are paying for each dollar of annual earnings you obtain. But there is a problem with P/E1. It is too influenced by current economic conditions. It give an unreliable reading when the economy is either particularly strong or particularly weak. Ten years is a long enough time for us to see the economy in both good and bad times. So using ten years corrects the deficiency of P/E1.
The Buy-and-Holders use NO valuation metric. This is the pure Get Rich Quick approach that has caused four economic crises and ruined the financial futures of millions. Buy-and-Hold is now 0 for 140 and P/E10 is now 140 for 140. The only “arguments” that the Buy-and-Holders have come up with to “defend” their practice of using no valuation metric whatsoever are death threats and threats to get academic researchers who do honest work fired from their jobs.
Those “arguments” are compelling indeed.
Truly outstanding!!!!
Rob
Rob says
Yet none should be expected to persist.
The first 140 years of stock-market history were the result of pure coincidence.
The pure Get Rich Quick approach is going to start working any day now.
I am so totally sure.
Rob
Rob says
Do YOU see?
I see that those making use of 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 will be going to prison following the next price crash.
I see that not only is pure Get Rich Quick not the answer but that pure Get Rich Quick is actually the problem.
I see all that clearly enough, Anonymous.
Please take good care, my Goon friend.
Rob
Trebor Martin says
Rob,
I just paid spring semester college tuition using my cotton candy profits that aren’t real. Funny, the college had no problems cashing the check of collecting payment
Rob says
That’s one of the things that throws people, Trebor. So long as enough of us continue to pretend in the fantasy, the Pretend Gains appear to be real.
But when they disappear, the economic effects are negative. We lost trillions of dollars of wealth in 2008 and we will lose trillions more in the next price crash. There are millions of people unemployed today because of those earlier losses and there will be millions more unemployed following the next crash.
I love my country. I want no part of it. We all should be working together to rebuild our broken economy.
That’s my sincere take re this terribly important matter, in any event.
Rob
Anonymous says
“That’s one of the things that throws people, Trebor. So long as enough of us continue to pretend in the fantasy, the Pretend Gains appear to be real.”
My cotton candy profits paid you tuition for 2 of my children, paid off the house and a couple vacations. Was this pretend as well? If so, what do I need to do to really pay for these things? I thought they were all paid off?
Rob says
If you paid for all these things by credit card, would you say that you had paid for them in the same manner as if you paid for them by the earnings of a job?
Credit-card debt must be paid off eventually. So paying for something by taking on credit card debt is not the same thing as paying for it by earning money at a job.
Bull market profits are like credit card debt. Yes, bull markets permit you to buy things that you otherwise could not buy. But using bull market “gains” to buy things is not the same as using real gains to buy things. Bull market debt must be repaid, just like credit card debt.
When stock prices went up by 30 percent a year, the money didn’t just fall out of the sky, Anonymous. It was taken from future investors. We are those future investors. It is because of the insane bull market “gains” of the late 1990s that we have seen such poor returns from 2000 forward. It is because of the insane bull market gains of the late 1990s that there are millions of people unemployed today. It is because of the bull market gains of the late 1990s that we have another 65 percent price crash in our future, one that may well put us in the Second Great Depression.
The Wall Street Con Men are not our friends, Anonymous. Get Rich Quick investing strategies are not the answer. Get Rich Quick investing strategies are the problem.
When we put you Goons into prison, it all flips. No one is going to recommend Buy-and-Hold once your prison sentence has been announced. People will be running from it. “Buy-and-Hold” will be considered an obscene phrase. After your prison sentence has been announced, we are all going to feel free to tell the truth about the past 33 years of peer-reviewed research and we all will naturally want to do that and to obtain the benefits that follow from doing that.
There’s a reasons why as a society we adopted laws against financial fraud. We wanted to protect ourselves from the sorts of individuals who have put up posts in “defense” of Mel Linduaer and John Greaney and my good friend Jack Bogle. We wanted to protect ourselves from people like you!
Fair enough, my old friend?
Rob
Rob says
You May Already Be a Winner!
Rob says
A con man said it.
It must be so!
Rob