I’ve posted Entry #195 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called “I Get Frustrated With the Slow Pace of Progress in Economics and Finance.”
Juicy Excerpt: I am in the process of writing to the 30,000 professors listed at the Social Science Research Network (SSRN) site to let them know about the Valuation-Informed Indexing concept and the research that has been done over the past 33 years showing the superiority of the new model to the discredited but still dominant Buy-and-Hold Model. I have received lots of wonderful responses, some agreeing with my arguments and some taking issue with them. In almost every case in which I have received a response from the professor contacted, I have learned something important.
The most interesting responses of all have been the ones that referred to the concept of paradigm change as described in the famous book by Thomas Kuhn, The Structure of Scientific Revolutions. I think the comments that were made in those responses are precisely on point. The reason why it has been such a struggle to get Valuation-Informed Indexing to replace Buy-and-Hold is that the root idea (that it is investor emotions that are primarily responsible for stock price changes rather than economic or political developments) represent a challenge to a deeply engrained belief.
Anonymous says
Mr. Bennett,
The reason you have failed to convince anyone of your position is because your claims of superiority can be quickly determined to be false. First, your label of buy and hold is generic. Second, we can see a number of portfolio strategies that have considerable long term success without requiring market timing. Third, there is no track record of trading under the strategy you suggest to see how it actually performed as you are purporting. In fact, I have yet to find any proof that it has been successful for you, let alone, providing anything superior to many of the popular “buy and hold” strategies.
In the end, truth and results are what matter and people have voted with their money.
Rob says
That’s not a bad post, Anonymous. I don’t agree with the points you make in it. But I would characterize the comments as real and the concerns expressed as truly felt. These are the sorts of issues that tens of thousands of people should be talking over on a daily basis at every investing board and blog on the internet.
The reason you have failed to convince anyone of your position is because your claims of superiority can be quickly determined to be false.
You are of course engaging in deception when you say that I have failed to convince anyone of the superiority of Valuation-Informed Indexing. I have convinced THOUSANDS of my fellow community members and a good number of the biggest names in the investing advice field. That is of course the entire “problem” from your point of view. If Valuation-Informed Indexing did not possess such great appeal, you would not feel threatened by discussion of it. The reality is that 20 percent of the population of every large board and blog LOVED having the opportunity to explore these exciting new ideas and you Buy-and-Hold Goons turned to abusive and in many cases even criminal behavior to stop the idea from spreading and eventually becoming dominant over the Buy-and-Hold idea.
The issue here is that the case for Valuation-Informed Indexing is too strong and the case for Buy-and-Hold is too weak. I would be better off if I could find a study somewhere supporting Buy-and-Hold. The existence of such a study would help the Buy-and-Holders to save face and we could enjoy more civil and reasoned discussions. But I cannot make stuff up! There has never been a study supporting Buy-and-Hold. Buy-and-Hold was a mistake, made at a time when we didn’t have available to us the research we needed to understand how things really work. The way for us to help our Buy-and-Hold friends to save face is to point to all of their many genuine and truly powerful insights for which we all should be grateful, not to lie about critically important matters by suggesting that there really is some magical, mystical study somewhere supporting Buy-and-Hold as it is promoted today by the Wall Street Con Men and their Internet Goon Squads.
First, your label of buy and hold is generic.
It’s not clear to me what you are trying to say when you say that my label of Buy-and-Hold is “generic.”
What I mean when I say that Buy-and-Hold never works is that Buy-and-Hold does not call for the exercise of price discipline (long-term timing). No market can function without the regular exercise of price discipline. Once a large number of investors becomes convinced that it is possible for a Buy-and-Hold strategy to work, that market is certain to collapse, causing an economic crisis because of the huge loss of spending power experienced by the millions of investors who have seen their retirement hopes destroyed. There has never in history been a single exception to this rule and it is not possible for the rational human mind to imagine how there ever could be one.
I endorse all other elements of the Buy-and-Hold strategy. I have incorporated all other elements of the Buy-and-Hold strategy into the Valuation-Informed Indexing strategy. VII is just BH updated to incorporate the findings of the last 33 years of peer-reviewed research. I view Jack Bogle as a giant and I am honored to be the person who took his many wonderful ideas to a place where they can work in the real world and in the long term.
I view myself as the true Buy-and-Holder (as that term was understood in earlier and happier times), the person who has realized Jack’s vision of providing a safe and smart and simple investing strategy for millions of middle-class investors. Jack got off the path he once favored when he elected not to update his strategy to reflect Shiller’s “revolutionary” findings of 1981. Bogle and I should be working together to get things back on track. I have offered to work with him in a positive and constructive and life-affirming spirit many, many times and I very much look forward to doing so in the days following the next price crash, when I believe Jack’s heart will melt in the face of the massive amount of human misery that he has caused with his stubborn and self-destructive and idiotic and shameful pridefulness (he’s a giant but he’s clearly also one of those darn humans).
Second, we can see a number of portfolio strategies that have considerable long term success without requiring market timing.
It is not possible for a strategy that excludes the possibility of exercising price discipline ever to be successful in the long-term. It’s not just that there has never been an instance of this happening in the historical record. It is that this is a logical impossibility. To buy stocks without considering price is like driving a car without brakes. It always ends badly. It always ends in a crash. Ignoring price when buying stocks always increases risk dramatically while also reducing return dramatically. That is the OPPOSITE of what the smart investor aims to do.
Price discipline is 80 percent of the game. The peer-reviewed Bennett/Pfau research shows beyond any doubt whatsoever that price discipline is the name of the stock-investing game. There were numerous posters at the Bogleheads Forum who saw that immediately when Wade presented our findings to that community. That’s why you Goons threatened to destroy his career if he continued to “cross” you by publishing honest research. That’s why Jack Bogle failed to take action when he learned of these criminal acts.
The day on which the Bennett/ Pfau research is featured on the front page of the New York Times is the day on which the smelly Buy-and-Hold garbage is finally buried 30 feet in the ground, where it can do no further harm to humans and other living things. And good riddance! No?
Third, there is no track record of trading under the strategy you suggest to see how it actually performed as you are purporting.
There is 140 years of historical return data showing that price discipline is always 100 percent required. There are zero years of historical return data showing that a Buy-and-Hold strategy might one day work for one or two long-term investors on some distant and magical, mystical planet. When my retirement money is at risk, I will go with the strategy backed by 140 years of data over the one backed by 0 years of data every time. Call me madcap.
In the end, truth and results are what matter and people have voted with their money.
Prison sentences matter too, Anonymous. The fact that your addiction to a Get Rich Quick strategy is so great that you feel compelled to commit criminal acts in “defense” of it reveals the key flaw in Buy-and-Hold. True research-based strategies make investors LESS emotional, not more so. The core idea of Buy-and-Hold, that all the rules of stock investing have been turned on their heads and that price discipline is no longer the most important feature of any long-term strategy, is a lie, a myth, a marketing gimmick.
I want no part of it. I have hopes of becoming known as the most severe critic of Buy-and-Hold alive on the planet today. I would be grateful for anything that you might be able to do to spread the word all across the internet. Every little bit helps.
Hang in there, my old friend. It gets better. A LOT better.
Rob
Anonymous says
Your prison talk is old and worn out. No one is a bit scared of you. Take your threats elsewhere.
Rob says
Okay, I’ll go post them at my own site.
Um….
Rob
Rob says
The reality, of course, is that EVERYONE should be writing about this massive act of financial fraud and working to bring it to a quick and complete stop.
The newspapers should be featuring it on the front page.
There should be keynote speeches about it at the next financial bloggers conference.
Academic researchers should be publishing peer-reviewed research showing how much better off we all would be if we followed research-based strategies rather than the stuff that is always being shoved down our throats by the Wall Street Con Men.
Policymakers should be telling people about the true cause of the economic crisis, the relentless and reckless and ruthless promotion of Buy-and-Hold strategies for 33 years after the peer-reviewed research showed that there is precisely zero chance that such strategies could ever work for a single long-term investor.
Economists should adopt a code of ethics, as was recommended shortly after the Buy-and-Hold Crisis hit in September 2008.
Financial fraud is a loser.
Really.
Bogle would like to be able to do honest work again. His writings prove that.
Bernstein would like to be able to do honest work again. His writings prove that.
Burns would like to be able to do honest work again. His writings prove that.
Piper would like to do honest work. Tresidder would like to do honest work. Roth would like to do honest work. And on and on and on and on.
We need to escape this trap we have built for ourselves.
Look at Greaney. He is the leader of the Goons, right? He is the most dishonest of all of us, right?
Was Greaney being dishonest when he set up his Retire Early Home Page site? It sure doesn’t seem so to me.
So what is it that pushed him onto the wrong track? He got the numbers wildly wrong in his retirement study. So he lied about it. Then he covered up the lies to cover up the lies to cover up the lies.
Why did he lie in the first place?
He lied in the first place because he saw the authors of the Trinity study doing it and he felt that he should be permitted to tell the same lies they told.
Why did the authors of the Trinity study lie?
Because they saw Bogle doing it and felt that they should be permitted to tell the same lies that Bogle told.
Where does it end, Anonymous?
It can never end until Bogle walks to the front of a big room and says the words “I” and “Was” and “Wrong” like he should have done way back in 1981.
Then everyone feels safe telling the truth again. From that point forward no one worries that the Buy-and-Hold Mafia will crush him for committing the terrible crime of posting honestly about what the last 33 years of peer-reviewed research in this field tells us about how stock investing works in the real world.
Each new lie makes it worse. Each new lie takes us further downward. Each new lie causes more financial losses. Each new lie brings on an increase in the prison sentences that will be announced following the next price crash.
The only way out is by coming clean.
Yes, there will be a price to be paid. Of course. But the sooner we all come clean the less that price will be. No?
We have one big positive to work with. Valuation-Informed Indexing is the biggest advance in the history of personal finance. The length of the prison sentences will be determined by how angry the millions of middle-class investors are about their losses. We are the luckiest generation of investors ever to talk Planet Earth. The sooner we come clean, the sooner we can tell the millions of middle-class investors what the peer-reviewed research says. The sooner we tell them, the fewer losses they suffer. The fewer losses they suffer, the less angry they are. The less angry they are, the shorter the prison sentences for those who have participated in this massive act of financial fraud.
Coming clean doesn’t just help the millions of middle-class investors. It helps YOU, Anonymous.
There is no threat involved in my efforts to get your prison sentence shortened a bit. That’s an act of charity, an act of love, an act of friendship.
You control how long your prison sentence is going to be, Anonymous.
You won’t always have the ability to shorten your sentence. After the crash, you pretty much lose the ability to do anything to help yourself.
That’s my sincere take re these terribly important matters, in any event.
I naturally wish you all good things, regardless of what investing strategies you elect to pursue.
Rob
Rob says
The announcement of your prison sentence turns it all around, Anonymous.
People want to feel safe when they stand up to the Wall Street Con Men.
Can you blame them?
Rob
Anonymous says
Rob,
You are extremely delusional. No one, but a qualified mental health professional can help you.
Rob says
Yeah, yeah.
Rob
grandpop says
“Why did the authors of the Trinity study lie? Because they saw Bogle doing it”
I weep for your children. Seriously.
Rob says
I weep for Bogle and for the authors of the Trinity study, Grandpop.
I don’t think they entered this field with the aim of causing an economic crisis and millions of failed retirements.
And now they find themselves caught in a trap with no escape that doesn’t involve coming clean.
And coming clean translates into prison sentences and huge financial liabilities.
But I don’t ONLY weep for them. I am trying to do something to help them out as well.
My best and warmest wishes to you.
Rob
Rob says
No one is telling any lies, Grandpop.
That explains why I put up my famous post pointing out the errors in the Old School SWR studies on the morning of May 13, 2002, and not one of those studies has been corrected TO THIS DAY.
Makes sense!!!!!!
Rob
Anonymous says
The fact that you feel the need to respond multiple times and with volumes of words on a consistent basis, indicate that you fear that you have been wrong all along and are trying to compensate somehow by giving long-winded responses.
Rob says
No.
It’s because there is a lot of genuine confusion re these matters.
It breaks my heart to use phrases like “financial fraud” in reference to my many Buy-and-Hold friends. There is a good bit of tragedy in all this.
I spend a good bit of time every day thinking about how I need to phrase things to reach the hearts of my Buy-and-Hold friends. So, yes, I try different angles.
All that said, I could be wrong re some or even many aspects of the question. That’s another tragedy. The more people we had participating in the discussions, the more likely it would be that any mistakes that I have made would be discovered and corrected.
The current state of play is the worst of all possible worlds.
With one exception.
It was even worse when these matters were being ignored altogether.
This is a step up from that.
I don’t think I am wrong re that one.
Rob