Set forth below is the text of a comment that I posted to another blog entry at this site:
All it proves is that you can find patterns in the data. Let’s see….each time the P/E10 ended in a “1? in February, it dropped 10% by the following May. There’s no causation – that’s all in your head.
If we were talking about a small number of years, it would make some sense to say that it is just coincidence. But the P/E10 level has been effectively predicting long-term returns for 140 years. The odds of the same coincidence playing out 140 years in a row are probably something like 10 billion to one. This is something real.
We don’t know all the details. I don’t say that we know everything there is to know. But Valuation-Informed Indexing is rooted in something real and important.
That’s why Shiller was awarded the Nobel Prize in Economics. As a society we are gradually working up the courage to acknowledge what a big deal this is. At an earlier time, the people who awarded Shiller the Nobel prize wouldn’t have done so. My guess is that, if you looked at the portfolios of the people who awarded him the prize, you would find that most of them are more believers in Buy-and-Hold than they are in Valuation-Informed Indexing. But they are experiencing doubts. That’s what led them to make that statement.
They didn’t feel safe making a bold statement.They gave the prize to Fama too so that they could not be viewed as “taking sides.” They didn’t take sides but they changed the playing field. In the old days, Fama was it, there was no Shiller. Those days are gone. Buy-and-Hold is still dominant, Valuation-Informed Indexing is still the thing that can only be discussed tentatively, not in bold and firm and clear terms. But that is in the process of changing when the guy who did the research that led to the revolution in understanding is being awarded a Nobel prize for his work.
This isn’t some kind of thing where people are saying “Buy stocks in January and sell in May.” The data is available at Shiller’s web site. Buy-and-Holders can study it as long as they want. And yet in 12 years of discussions no one has ever found a single hole in the new model. That tells us something, Anonymous.
I have no fear that Jack Bogle will ask me a question that I cannot answer. But Jack sure has fears that I will ask HIM a question that HE cannot answer.
Why? Because Buy-and-Hold is the thing that is in the process of dying and Valuation-Informed Indexing is in the process of being born.
In future days, we won’t look at it that way. In future days, we will be able to look back at what the Buy-and-Holders did and give them full credit for all of their wonderful contributions. That becomes possible when the Buy-and-Holders stop being so defensive and when we all can acknowledge that Buy-and-Hold was a FIRST DRAFT effort at a research-based investing strategy and that Shiller’s “revolutionary” (his word) findings moved the Buy-and-Hold project forward in a very, very, very important way.
You either believe in following the research or you don’t, Anonymous. If you don’t believe in following the research, then you are just guessing when you invest your retirement money. If you don’t believe in following the research, then you really are back with the people who say “Buy in January and sell in May” and all the other garbage that follows from a guessing approach.
If you truly believe in following the research, you cannot ignore what Shiller discovered. His discovery that valuations affect long-term returns changes everything in a fundamental way.
Buy-and-Hold could once be promoted as a research-based strategy. It cannot honestly be promoted as that today. Once peer-reviewed research was published showing that valuations affect long-term returns and the Buy-and-Holders neglected to change their strategy to incorporate this revolutionary finding, Buy-and-Hold stopped being research-based and became just another case of investing superstition.
The Buy-and-Holders have two choices today. They can accept that they made a mistake and change the Buy-and-Hold Model so that it reflects the last 33 years of peer-reviewed research as well as the research that came before that. Then they go down in history as the people who developed the foundation for the first research-based strategy and then later made the changes needed for that model to work in the real world.
Or they can continue with the death threats and the demands for unjustified board bannings and the tens of thousands of acts of defamation and the threats to get academic researchers fired from their jobs. Then they go down in history as fools and con men and felons.
There is no middle ground. You cannot say “this is a research-based strategy” and ignore the last 33 years of peer-reviewed research.
They didn’t award Shiller the Nobel Prize because he is some clown who forgot to take his meds. When you say that Valuation-Informed Indexing cannot be discussed on the internet, you are saying that the last 33 years of peer-reviewed research cannot be discussed on the internet. That makes you the clown.
An unethical clown.
A clown headed on his way to a prison cell.
Not good.
That’s my sincere take re this terribly important matter, in any event.
My best and warmest wishes to you, my long-time clown friend.
Rob
In reality, as you’ve admitted, there’s no such thing as “buy and hold” or “VII”, but only one group: investors who are mindful of valuations (and many other things) and make allocation decisions based on personal preferences.
I increased my stock allocation in 2009, you didn’t. Doesn’t make you “buy and hold” and me “VII”. There are no such sides.
I disagree with your first claim, that there is no such thing as Buy-and-Hold or Valuation-Informed Indexing. BH is the model for understanding how stock investing works that is rooted in Nobel Prize Winner Eugene Fama’s work. VII is the model for understanding how stock investing works that is rooted in Nobel Prize Winner Robert Shiller’s work.
But I agree with your second claim that the practical reality is that we are all in the same boat in that we are all “investors who are mindful of valuations (and many other things) and make allocation decisions based on personal preferences.”
Few investors are pure Buy-and-Holders. A pure Buy-and-Holder would always go with a stock allocation of about 80 percent. My sense is that most go with an allocation of about 60 percent stocks. That approach is properly referred to as Strategy C. Strategy C is for investors who like Buy-and-Hold but perhaps don’t think it is perfect in every respect and are hedging their bets a bit.
Even fewer investors are pure Valuation-Informed Indexers. A pure Valuation-Informed Indexer would today be going with a stock allocation of about 20 percent. My sense is that most investors who are impressed with Shiller’s work are today going with a stock allocation of about 40 percent. This is Strategy D. Strategy D is for investors who like Valuation-Informed Indexing but see it as too extreme to go as low as 20 percent stocks.
That covers the waterfront. An investor can today go with an allocation of anything from 20 percent to 80 percent based on a belief in either the principles of Buy-and-Hold or the principles of Valuation-Informed Indexing or a modified version of one of the two academic models.
Where does that leave us, Anonymous?
I think it would be fair to say that you hate me with a burning hate. Is that not right?
I don’t hate you. But I believe that I have every right in the world to post my honest views re stock investing at every discussion board and blog to which I post. Given that you hate me so much that you cannot tolerate seeing my words appear at any board or blog to which you post or really even to boards and blogs to which you do not post, we have a certain situation here.
There are not sides among investors. You are right about that. But there are Goon posters who very, very, very much want to silence those of us who favor the 20 percent and 40 percent allocations and who want to make the case to our fellow community members as to why those allocations make good sense and are supported by the peer-reviewed research.
I can get along with you easily. You cannot get along with me at all.
If you want to address the problem, please tell me what your proposed solution is.
If you don’t want to address the problem, it’s real hard for me to understand why you show up here every day. You are welcomed to do so. But I think it would be fair to say that it is a strange business.
The vast majority of investors agree with you that all should be permitted to post their sincere views. The problem is with the tactics employed by you Goons to intimidate those with whom you are not in agreement. It is my strong belief that the root of the disagreement is that you are persuaded of the merit of principles that have been advocated by those who believe in Buy-and-Hold. But, if you want to say that that’s not the case, fine. It doesn’t matter what the cause of the hate is.
What matters is ending the hate.
Do you have suggestions for how we might go about ending the hate?
The hate disrupts the conversations that all of our fellow community members are trying to have. The boards and blogs cannot function so long as we have all this hate evidencing itself.
It is my view that the way to end the hate is to educate people that there are two schools of academic thought re how stock investing works, not one. Once people get that, they will be tolerant of those who subscribe to the other school and we will all be able to get along and be friends and learn from each other. But so long as there are posters suggesting that those who don’t believe that 4 percent is always the safe withdrawal rate are off their meds, there are going to be conflicts.
I do strongly believe that there is such a thing as BH and such a thing as VII. But I do agree with your second statement. Most investors don’t care too much about the theory. They believe what they believe for a great variety of reasons, some rooted in theory and some not. There are far more who favor allocations in line with the Buy-and-Hold theory than there are who favor allocations in line with the Valuation-Informed Indexing theory. Most investors are not even aware of what the VII theory is. That’s why you see me writing so many long posts; people need to be educated re the VII theory while the BH theory is already well understood by just about everyone. But most don’t get super worked up about the theories. As you say, most make allocation decisions based on personal preferences (which are influenced but by no means controlled by the two theories).
Where do we go from here, Anonymous?
I am open to anything that does not require me to commit a felony under the laws of the United States. If I say that Greaney’s study contains a valuation adjustment, that is a felony. If I say that there is not 33 years of peer-reviewed research showing that a valuations adjustment is needed, that’s a felony. If I say that Greaney corrected his study within 24 hours of learning of the error he made in it, that’s a felony. So those three things are out.
Is there something that I can do that works for you?
Or not?
If not, why not just say that and let this go? I don’t want that answer but at least that answer makes a tiny bit of sense. Going around and around in circles make no sense unless there is some desire to bring things at some point to a positive resolution. I want to bring things to a positive resolution. You don’t give the impression of wanting to do that.
I say that the typical investor should today be going with a stock allocation of 20 percent or 30 percent. Is that okay by you? Do you consider that some sort of crime? Do you think I am off my meds to believe that? Do you hate me for believing that? Do you feel a need to silence me when I say that?
I believe that the entire problem is that VII has not been pushed enough by the experts in this field. So people don’t know enough about it. Thus, when they hear someone adopt a strategic position based on it, they are shocked and feel a need to respond to the claim that they wouldn’t feel if these issues were more widely discussed. Does that sound right to you?
If that’s the problem, the only way to avoid having the boards and blogs become what you call “The Rob Bennet Show” is to have MORE discussion of the implications of Shiller’s work, not less. I am fine with having people other than Rob Bennett make the case. That suits me just great. But where are we going to find these people unless we start being warmer and friendlier to them when they show up? We had Microlepsis. We had John D. Craig. They’re not around anymore, as you know. So how do we go about keeping our discussions from turning in to the Rob Bennett Show?
Those are my sincere thoughts re this terribly important matter, in any event.
I hope that helps a tiny bit.
Blast away, Goon Man!
Rob
My thoughts are more influenced by Shiller and your thoughts are more influenced by Fama. That’s the difference.
People mix things up in all sorts of ways. I do that. You do that. Everyone does that.
But the bottom line here is that you and I end up in different places because my thoughts are more influenced by Shiller and your thoughts are more influenced by Fama.
Different viewpoints permitted?
Rob
Yes, I agree. People should end the hate and stop calling people goons and telling them they are going to prison. That is smelly rotten garbage.
It’s not, Anonymous.
The sooner we get the word out about Valuation-Informed Indexing, the shorter your prison sentence will be.
We cannot go back in time. So eliminating your prison sentence altogether is not in the cards.
But it is the millions of middle-class people whose lives you have destroyed who will be demanding that prosecutors bring cases against you Goons. And it is 12 of the people whose lives you have destroyed who will be sitting on your jury. Do you not see that helping those people out helps you out too? The more we help those people out, the less angry they will be. The less angry they are, the shorter your prison sentence. Does that not follow?
If we don’t open the internet to honest posting, we will be seeing a price crash of 65 percent within the next two years. If we DO permit honest posting, it will become impossible for the P/E10 value to drop below 15 (the fair-value level). That means that the price crash will be less damaging and we will not go into the Second Great Depression. Do you not see how that helps you?
You have one big card to play — the fact that we are the luckiest generation of investors ever to walk Planet Earth. You should be playing that card. You can’t play it without coming clean. So I think you should be coming clean. Perhaps I shouldn’t be giving strategy tips to Goons. But I think of you as a friend. And that’s my sincere take re this one.
I want to focus on the substantive stuff. That’s what people care about. That’s where the real action is. They key to getting to the substantive stuff is getting your prison sentences announced. Once your prison sentence is announced, there won’t be one person advocating the smelly Buy-and-Hold garbage. So we will all be freed to post honestly re the last 33 years of peer-reviewed research. Do you see?
I am your best friend in the world. You don’t see it today, but that’s so. I am going to try to argue that you have been suffering from cognitive dissonance. That’s your best defense. There is tons of material at this site supporting that claim. So I am better positioned to help you out of your jam than anyone else alive on Planet Earth today.
If I agree to commit financial fraud myself, that hurts my credibility. That means that you lose out on the help that I can provide you. Huh? That makes sense from your standpoint how exactly?
You may have seen the story in the Washington Post today showing that the woman who claimed rape at UVA was lying about a lot of the claims she made. Stories like that travel fast on the internet. Say that we really do experience a 65 percent crash sometime over the next two years. And say that lots of people get angry about the losses they have experienced when they are too old to make the money back. And then say that a big paper like the New York Times runs a story about what you did to Wade Pfau.
How many web sites do you think will pick up that story? How many links do you think there will be to my site then? How much credibility do you think Jack Bogle will have then? How many lawyers do you think will be setting up shop to spend the rest of their lives bringing legal actions on behalf of the millions of people whose lives you have destroyed?
Guess who will still be speaking up on your behalf on that day? Old Farmer Hocus will be. No one else.
But how much effect will my words have at that time? I’ll do what I can do. But I will not be able to do then even a small percentage of what I can do today. People will be too angry to listen to my words in defense of you. Do you see how this works? To win people’s sympathies, you have to come clean BEFORE the next crash. I am sure.
I don’t tell the truth about these matters solely because I want to see your prison sentence reduced. I want to bring the economic crisis to an end. I don’t want to see us fall into the Second Great Depression. I want to get that $500 million check into my grubby hands and take my family on a trip to DisneyWorld. There are lots of reasons. But ONE of my reasons for telling the truth is that it helps you Goons, whom I have always thought of as friends and whom I have always treated as friends.
The hand of kindness is outstretched, Anonymous. I am open to anything that does not involve me committing a felony under the laws of the United States. I won’t post dishonestly on the numbers my friends use to plan their retirements. Not in 12 years. Not in 12 billion years. For obvious reasons. Outside of that crazy insane idea, I am open to pretty much anything you can name.
I hope that all makes good sense to you.
I naturally wish you all the best in your future life endeavors regardless of what investing strategies you elect to pursue.
Rob
Oh all powerful Rob, everyone is so scared of your prison threats. Look how that has worked out for you.
Well, I guess there are some people in a “mental” prison. Any guesses as to who these people might be?
The Great and Powerful Rob wishes you all the best that this life has to offer a person, Anonymous.
Hang in there, man.
Rob
I can get along with you easily. You cannot get along with me at all.
Well sure. That’s always the way it is with sociopaths. They get along with everyone just fine. But if the Goons and hatred and conspiracies are the real story, why not talk about that during your 5 minutes of fame at FinCon?
People don’t want to hear it, Anonymous.
It makes people feel very uncomfortable to discuss that stuff.
The people who promote Buy-and-Hold are not bad people. They made a perfectly understandable mistake. Then they covered it up, thinking it probably wouldn’t be a big deal to do so. Then valuations went so high that it became a very big deal indeed. By that time they felt that it would make them look awful to come clean. The trap that they have fallen into just keeps pulling tighter and tighter and tighter as time passes.
People don’t like to think that Jack Bogle is a criminal or that Mel Linduaer is a criminal or that John Greaney is a criminal. I don’t like to think it myself. You didn’t see me calling these people criminals until they had engaged in so many criminal acts that it was impossible for me to look the other way anymore.
Why were all those Catholic priests not turned in when they engaged in sexual crimes? People didn’t want to accuse them. People didn’t want to cross powerful people. People were embarrassed. These things happen.
I would prefer it if someone else would expose this matter. I would prefer that about 10,000 times over. Do you see anyone else stepping forward?
Every academic researcher wants to be freed to do honest work. Every blogger wants to be freed to post honest blog entries. Every investment advisor wants to be freed to give honest investment advice. Every economist wants to be freed to tell people the true cause of our economic crisis.
Why don’t all those people speak out?
The same reason why those people don’t speak out is the reason why I don’t focus on the ugly side of this in my presentations at FinCon. People do not want to hear it. People are not ready to hear it.
We will have another chance following the next price crash. At that point people are going to be very afraid. We may be in the Second Great Depression. At that point, I think we may get Old Saint Jack himself speaking out. If not, we will get other people who will say things that will put Jack in a spot where he will eventually need to speak out. Once Jack comes clean, everyone will feel safe to speak honestly. People want to feel safe.
Do you have any great ideas on how to solve this problem? If you do, I am all ears.
You know darn well why I don’t address the nasty side of this at FinCon. The Buy-and-Hold Mafia is a brutally corrupt entity. People are afraid their careers will be destroyed. People are afraid they will be sued. People are afraid that these powerful and corrupt people will not link to them. People are afraid that even people who are not Buy-and-Holders will not link to them because those people will be afraid of the Buy-and-Hold Mafia turning on them if they have a relationship with people who have posted honestly. People are afraid that their readers will not like them if they pop their Get Rich Quick fantasies.
You know the answer to your question.
And somewhere in your consciousness you know why we need to solve this problem. We have as a society put the responsibility on workers to finance their own retirements. We must provide some means for them to access accurate and honest reports re the last 33 years of peer-reviewed research in this field. This is imperative. The future viability of our economic and political systems depend on it.
I write about the nasty side here. So there will be plenty of materials when people are open to looking at them.
I wrote about the nasty side in my 30,000 e-mails to academic researchers.
I recorded several RobCasts on the nasty side of things.
I have contacted numerous journalists and bloggers re this side of things. Not just on the personal finance side. I have contacted people on the political side. I will obviously contact lots more people in days to come, especially following the next price crash.
Is there anyone you can name who has done more than me? I obviously would like to do more. But I think it would be fair to say that I have done more than anyone else. No?
Do you think we should ignore this? Do you think that Bogle and all the others are going to stop committing financial fraud if we all act like it doesn’t matter? How do you think that will work exactly? If doing nothing is the right answer, why is it that people are still promoting Buy-and-Hold 33 years after the peer-reviewed research showed that there is precisely zero chance that it could ever work for a single long-term investor?
Do you think that I did a good thing pointing out the errors in Greaney’s study or a bad thing? I obviously think I did a very, very good thing. What do you think?
Would Greaney be in the position he is in today if someone had posted honestly about those studies years before I did so? I obviously don’t think he would be. What do you think?
Do you think that Jack Bogle wishes that he had come clean years ago instead of letting this massive act of financial fraud get so out of control? I sure do. What do you think?
What do you want from me, Anonymous?
I have offered to do anything in my power to help you short of committing a felony myself.
Is there something else?
What can I do to make you happy that would not require me committing a felony under the laws of the United States?
Is there anything?
Rob
Hey Rob. Come back over to “goon central”. We would love to have a few un-edited and non deleted posts with you. You know. HONEST posting, for a change.
I’ll pass re that one, Anonymous.
Rob
“Few investors are pure Buy-and-Holders. A pure Buy-and-Holder would always go with a stock allocation of about 80 percent.”
Why the heck would they always go with an 80% stock allocation? Is this in your make believe world where 65 year olds have 100% stock allocations and are subject to a ‘2/3 decline’ in their portfolio?
“People don’t want to hear it”
Isn’t it your big ‘job’ to inform the world of the ‘big problem’ and get it solved? Sounds like you aren’t too certain in your conviction.
Rob,
When you take over the boglehead board, will you edit and delete posts there as well?
When you take over the boglehead board, will you edit and delete posts there as well?
I will certainly delete posts that violate the published rules of the site and especially posts that violate the laws of the United States. That’s the job of a site administrator. I doubt that I would need to delete many. Once a site administrator sends a signal that he intends to enforce the board’s rules in a reasonable manner, the vast majority of community members make a sincere effort to follow the rules. The current owners of the site have sent the wrong signal and that has caused a lot of problems that otherwise wouldn’t exist.
I doubt very much that I would ever edit a post. For many years, I did not do that here. Sometime over the past year or so, I have begun doing it. I think it would be fair to say that the behavior of you Goons raises unique challenges for a site administrator.
You often put forward posts that contain elements that are insanely abusive and other elements that raise good questions. I don’t want people to miss out on the good questions. But I also don’t want people to be exposed to too much of the insanely abusive stuff. So I now edit some of the Goon posts.
I don’t like doing so. I view it as an extreme measure for an extreme situation. I think that it makes sense to edit some posts when the circumstances that apply with you Goons evidence themselves. But in a general sense I view it as an exceedingly bad practice. A poster should have control over the words that appear above his name.
Rob
Why the heck would they always go with an 80% stock allocation?
Many of the “experts” in this field say that that’s “optimal,” Laugh.
Jeremy Siegel says in “Stocks for the Long Run” that the optimal allocation for those with a 30-year holding period is in excess of 100 percent stocks regardless of valuations.
John Greaney says in his retirement study that the optimal stock allocation is always 74 percent.
You don’t have to think this through very long to see why people claim this. Fama argued that stock investing risk is constant. That is, valuations don’t affect long-term returns. If that were so, investors should always be going with the asset class that offers the best average long-term returns. That’s stocks.
All of this is wrong. Stock risk is variable, not constant. There are times when 80 percent stocks is optimal. But there are also times when 20 percent stocks is optimal.
But the Buy-and-Hold Model does not accept that this is so. The Buy-and-Hold Model has been discredited by 33 years of peer-reviewed research. But many of the “experts” in this field continue to promote it as if it were still a valid strategy.
I hope that helps a bit.
Rob
Isn’t it your big ‘job’ to inform the world of the ‘big problem’ and get it solved? Sounds like you aren’t too certain in your conviction.
Yes, I see that as my job.
I am not sure what you mean when you say that I do not sound certain in my conviction. Rarely do I hear anything along those lines. The usual comment that I get is that I am TOO certain in my conviction.
There are not too many who feel my conviction as strongly as I do. That’s what makes it hard for me.
It holds me back that there are not too many who feel as much conviction as I do. I don’t think that there is any lack of conviction on my end.
Rob
Basically you are only talking about the grand conspiracy on the less traveled parts of the web but when you get in front of a real audience you shy away from it because ‘people don’t want to hear it’.
Obvious really.
Once the story is written up on the front page of the New York Times, it will be everywhere.
No one talked about Watergate for a long time. No one talked about the sex scandals in the Catholic Church for a long time. No one talked about baseball players using performance enhancing drugs for a long time. No one talked about the scandal at Penn State under Joe Paterno for a long time.
Things get out.
And, once this one gets out, we never need to worry about promotion of the smelly Buy-and-Hold garbage again. This is the first time in history that we experienced an economic crisis that we could have avoided if only we permitted honest posting about the peer-reviewed research on the internet. I think it’s fair to say that the term “Buy-and-Hold” will be an obscene phrase after this one gets out.
Hold on tight — It’s going to be a bumpy ride up ahead for you Goons!
Rob