Set forth below is the text of a comment that I recently posted at another blog entry at this site:
It sure does take this VII a LONG time to work. 15 years now and still vastly inferior returns to anyone using buy and hold. It would take now a greater than 65% drop in equities to even be on equal footing and that doesn’t even account for rebalancing and how much more conservative a persons portfolio would have become over the course of 15 years. VII where you can spend 20 years stashing your cash in a mattress during your peak working years then retire just to throw it all into equities.
You’re wrong, Anonymous.
If you do the math, you will see that you are wrong.
There have been six different people who have done the numbers on my personal situation. I have been following VII strategies for 18 years and I have been ahead of where I would have been had I followed BH strategies for a long, long time.
I’m not as far ahead now as I will be after the next crash. Today, it is a close call. But I am ahead. And I of course have been taking on far less risk. So I am as of today ahead while taking on less risk and I will be in a few years far, far ahead while taking on less risk. Then I will benefit from decades of compounding on the positive differential!
It’s all good, Anonymous. It’s good piled on top of good piled on top of good piled on top of good.
You yourself understand how great it is!
I know that you don’t say out loud how great VII is and I know that you don’t even dare entertain the thought in your own head. But I also know that on a second layer of consciousness you know how great it is. It’s because you know how great it is that you feel so much anger. You think about how many years you have wasted following long-discredited strategies and it causes you pain and you lash out.
Imagine how a person reacts when he is confident in his belief. If you were confident in your beliefs, you would laugh off any challenges to them. You would maintain your beliefs. But you would have zero problem being friends with me. I would post about VII and you would post about BH at the same boards and there would be zero problem.
You can’t do that. It hurts too much. Valuations is a sore spot with you. I just can’t stop digging at that sore spot. And it drives you freakin’ nuts.
That’s because you know. You silence the voice within you that knows. But you know. And it hurts. That’s the psychological reality here.
These psychological realities have been destroying the hopes of stock investors for many, many years. Shiller’s breakthrough lets us bring those days to an end. We know all we need to know to reduce the risk of stock investing by 70 percent. But we have to be able to talk about what we know for it to do us any good.
People like you will have to work up the courage to face their fears. And people like Bogle and Bernstein and Pfau and Burns will need to work up the courage to say some things that will cause people like you to get angry with them. That is the job. That’s how you help people become more effective stock investors. The job is to help people cope with that Get Rich Quick urge that resides within all of us and that destroys us if we are not fortunate enough to run into investment advisors who possess the courage to do the hard things that go with taking on this job.
I’m your friend, Anonymous. You hate me with a burning rage. I get it loud and clear.
A true friend still tries to help. It is the false friend who says “Oh, let me back off of telling you the truth about what the peer-reviewed research says, doing that might cause me to lose a sale.”
The test of friendship is whether the person is willing to tell you not what you want to hear but what you need to hear.
I have been a true friend to you. Believe it or not, that’s the story here.
I wish you all good things.
Rob
Doing the math says
“If you do the math, you will see that you are wrong. There have been six different people who have done the numbers on my personal situation. I have been following VII strategies for 18 years and I have been ahead of where I would have been had I followed BH strategies for a long, long time.”
That comment was posted July 2014. Took me just seconds to find an S&P 500 historical return calculator. The real return between July 1996 and July 2014, counting dividends, is 5.9%. You claim to have everything in 3.5% real TIPS. Please explain how 3.5% is greater than 5.9%, and show your work.
Rob says
You are right, Doing the Math.
I am going to add some complications below. But I checked what you say here and you are right in what you say in this post. The point you are making is important. So I am grateful to you for putting this post forward.
I do not retract my earlier comment. My personal situation has been analyzed on various boards MANY times (probably more than six times, but at least that many times) over the 13 years of discussions. I HAVE been ahead according to those earlier calculations. The unvarying response of you Goons when it was determined that I was ahead was to respond with acts of deception and intimidation. That has led to a LOT of confusion on both “sides.” In this care you are making a legitimate and important point. I wish that we could work together in future days to come to a better mutual understanding of the REALITIES rather than seeing the nastiness that has poisoned so many earlier discussions. The point you are making here is a POWERFUL one in support of the Buy-and-Hold position. I wish that we could all focus on that and learn what there is to be learned from it.
I do NOT look at these sorts of numbers very often at all. I don’t care about them. I care about long-term results, and, as you know, I am firmly convinced of the long-term merit of Valuation-Informed Indexing strategies. So these sorts of numbers don’t matter much to me.
That said, these numbers DO tell us something important. Buy-and-Hold has done well from 1996 forward even though prices were insanely high in 1996. That’s a LONG time-period. The fact that Buy-and-Hold has done that well for that long a time-period is compelling evidence in support of the Buy-and-Hold strategy, in my assessment. An argument could be made that I should look at these numbers more often than I have in the past. I certainly think that most other investors would want to know about these numbers. I am surprised by the numbers you have presented. I am going to write a column at the Value Walk site pointing out these numbers and noting that they make a strong case for the Buy-and-Hold strategy and that they undermine the case for Valuation-Informed Indexing a bit.
I hope you won’t see me as being defensive if I make a point that applies in my personal case that makes the numbers for my personal portfolio significantly different from the numbers you have presented. I am not presenting this information to undercut your point, which I think is a good one. I am presenting them in the interests of having readers of these words exposed to the complete picture.
I had a very small portfolio in the Summer of 1996, when I moved the money that I had in stocks first to CDs paying roughly 4 percent real and then to TIPS and IBonds paying 3.5 percent real when those became available. Until February 1996, I was directing all of my savings to paying off my mortgage. I owned only a small amount of stocks (perhaps $30,000 worth) when I made the transfer to CDs in the Summer of 1996. I was saving large amounts of money in those days in preparation for my early retirement in August 2000. For example, in the last 12-month period before I handed in my resignation, I saved $88,000. The numbers are VERY different for that segment of my portfolio (and to a lesser extent different for ALL of the post-1996 saving amounts).
The calculator that I used to confirm your numbers shows the annualized return for stocks (with dividends reinvested) from January 2000 forward until today as 2 percent real. My 3.5 percent real return soundly beats that number. And the $88,000 amount we are talking about here is much larger than the roughly $30,000 amount for which the Buy-and-Hold strategy soundly beat the VII strategy. My sense given these numbers is that I am STILL ahead of Buy-and-Hold today, given the size of the disparity.
My recollection, however, is that the earlier analyses showing that I was ahead did not incorporate that factor. So what you are showing DOES appear to me to show a change. That is significant. It also shows that Buy-and-Hold has done very well since 1996 despite the sky-high prices that applied in 1996. In fairness, it also shows that Buy-and-Hold has performed poorly since January 2000, especially in comparison with the results shown for TIPS and IBonds over those years.
This is an interesting development. My expectation is that you are going to respond with nasty Goonishness and undermine the learning experience that we both could profit from as a result of your helpful post. I hope that my unfortunate expectations will prove to be unfounded. My take is that these numbers offer support for BOTH the BH and VII positions. The 1996 numbers really support BH and the 2000 numbers really support VII. Intelligent investors should be thinking about what that combination of realities means re what is likely to work best on a going forward basis.
Anyway, I AM grateful for you willingness to correct the record on this point. I want to state things properly and I was not aware that the numbers were so supportive of the BH position from 1996 forward. I’ve learned something important this morning and I would not have learned that thing if you had not taken time out of your day to help us all out.
Take care, man.
Rob
Anonymous says
“obsequious”
[uh b-see-kwee-uh s]
adjective
1. characterized by or showing servile complaisance or deference; fawning.
2. servilely compliant or deferential.
Rob says
I am not servile or deferential to Buy-and-Holders, Anonymous.
I say that the continued promotion of Buy-and-Hold for 33 years after the peer-reviewed research showed that there is precisely zero chance that a Buy-and-Hold strategy could ever work for even a single long-term investor has ruined millions of middle-class lives.
That said, I feel great respect and affection for all of my many Buy-and-Hold friends.
Why? Because they provided us all with many genuine and powerful insights. They made all of our lives better. I am grateful for that.
Both things are so. The Buy-and-Holders did amazingly great things. And they f’d up big time when they failed to correct the one huge mistake they made when it was uncovered by Shiller’s research back in 1981.
I LOVE the Buy-and-Holders. That’s why I am NOT obsequious towards them. Too many people HAVE been obsequious towards them. That’s why they have not corrected their errors to this day. I DEMAND correction of the errors. That’s what a true friend does when speaking to a friend.
My best wishes to you and yours regardless of what investing strategies you elect to pursue.
Rob
x says
If the vast majority of your savings went into 3.5% real TIPS (a fantastic deal which was only available a short time), in or around the year 2000, and have made no investments since then, then yes, you probably are a bit ahead. You can say that was a great call that proves VII. Others might say it was luck. The fact remains that 1999-2001 is the only time period where that strategy would have worked. Until the next big crash, of course.
Rob says
The 3.5 percent real TIPS was a fantastic deal. We agree re that part.
Buying the 3.5 percent real TIPS was not a “great call,” nor was it “luck.” It was the product of understanding that the value proposition of stocks depends on the price at which they are selling. When a better deal is available in a super-safe asset class, you should buy that asset class.
TIPS were not paying that amazing return for some random reason. TIPS were paying that amazing return because people were in love with stocks at the time. To persuade people to buy TIPS, you had to offer an amazing return.
The reason why TIPS do not pay so high a return today is that people are not as much in love with stocks today. People are still kinda, sorta in love with stocks. But not to the extent that they were in 2000. People have moved to TIPS to escape stocks. That pulled the return on TIPS down.
It does NOT follow that TIPS are a worse deal today than they were in 2000. If we see a 65 percent crash in stock prices, TIPS purchased today are going to have been seen to have offered an AMAZING long-term value proposition. The long-term return on stocks will shoot up to 15 percent real. The low-return TIPS can then be exchanged for stocks paying 15 percent real. That’s a better deal than the TIPS that were paying 3.5 percent real!
This strategy ALWAYS works. You need to go through every year in the historical record and make a sincere effort to apply the strategy in that year and then see how things end up. It will ALWAYS work (on a risk-adjusted basis) in the long term. That has been so for 140 years running.
The easy way to perform the comparison is to use the Scenario Surfer. You can generate hundreds of realistic 30-year sequences. The calculator reports results for the VII strategy you follow as well as for 80 percent stocks Buy-and-Hold, 50 percent stocks Buy-and-Hold and 20 percent stocks Buy-and-Hold. 50 percent almost always beats 20 percent, 80 percent almost always beats 50 percent, and VII almost always beats VII.
In about 10 percent of your scenarios, 80 percent stocks will beat VII on a nominal basis. But of course there is much more risk in a strategy that only generates better numbers in 10 percent of the possible scenarios. So it is fair to say that on a risk-adjusted basis, VII always wins.
I am not saying that because I want to be a big shot, because I want to brag. I am saying it because it is so. This is what Shiller’s research says should be so. And it is indeed so. And this is very, very important. We should be telling everyone.
You are right that the upcoming crash plays into it. If we don’t see another crash for many years, there will come a time when BH will put you ahead. If we were working together, we could calculate how many years we would have to go without a crash for BH to stay ahead indefinitely. That’s the kind of question that I was exploring with John Walter Russell before he died and with Wade Pfau before you Goons flipped him. If you want to know the answer to the question, we can find it out by asking people like Wade to work with us. It’s always you Goons who drive people away, never me. I want to know the freakin’ answers!
I am not God, X. I don’t say that I am. I don’t know everything, I don’t say that I do.
I say that there will be a crash in the not-too-distant future because that’s what has happened every time in history that we have let prices rise so high. You and everyone else is entitled to believe otherwise. But that is what the research says. We should all be allowed to talk about what the research says. That should not be a controversial assertion.
You say that the 140 years in which VII has produced superior numbers is a “coincidence.” Really? To say that the entire historical record is a coincidence is to say that using research as a guide is a waste of time. I thought that Buy-and-Hold was a research-based strategy. So why do Buy-and-Holders now say that the looking to what the research says is a waste of time?
If you don’t believe that there is going to be another crash soon, you are of course free to invest pursuant to that belief. But you are holding millions of middle-class people back from learning what the research says. Are you going to cover their losses if stocks continue to perform as they have for the past 140 years. It seems to me that, if you hold those millions back from learning what they need to learn to make the decision as to how to proceed THEMSELVES, you are liable for their losses. That is certainly what I am going to tell them following the crash.
If you are not God either and if you acknowledge that it is possible that you could make a mistake too, then you should be taking action to open every board and blog on the internet to honest posting on the last 33 years of peer-reviewed research by the close of business today. We will find out soon enough whether stocks will continue to perform as they always have before or whether it is all going to be different this time. If it turns out that it is NOT all going to turn out different this time, then I think it would be safe to say that you will be a LOT better off following the crash if we open the internet to honest posting at the close of business today rather than keeping the Ban in place until we experience the crash.
Does that not follow?
Rob
x says
“It does NOT follow that TIPS are a worse deal today than they were in 2000. If we see a 65 percent crash in stock prices, TIPS purchased today are going to have been seen to have offered an AMAZING long-term value proposition.”
Compared to a stock crash, then sure, TIPS, money markets and mattresses are the way to go. Load up on those I-Bonds paying a lofty 0.0% real.
Keynesian says
But if the ban is lifted all at once surely those millions of investors will actually precipitate the crash by pulling out of the market simultaneously. Would a phased lifting, one discussion board at a time, be more prudent?
Rob says
Load up on those I-Bonds paying a lofty 0.0% real.
A zero return is better than a huge negative return. There’s no doubt about it.
Buy-and-Holders will point out that this is a crazy situation. It is.
But the craziness in place today is rooted in the craziness promoted by the Buy-and-Holders for many years, the craziness that posits that there is a magical asset class that is worth buying at any possible price. Common sense tells us that that cannot be. And there is now 34 years of peer-reviewed research confirming what common sense tells us.
The Buy-and-Holders can be excused for the mistake they made. We didn’t know it all prior to 1981. People who don’t know it all make mistakes.
It is much harder to excuse the 33-year cover-up. Shiller provided us all with the piece of the puzzle that we had been missing before he published his “revolutionary” (Shiller’s word) research. Now we know. Now Bogle needs to walk to the front of a room and say the words “I” and “Was” and “Wrong” and thereby make everyone in this field feel safe to tell the truth about what the research in this field really says.
The longer Old Saint Jack delays, the more prison sentences we see. The longer Old Saint Jack delays, the longer the prison sentences for those who receive them will be.
Huh?
That’s the craziest part of this story, not the part about a zero return being an appealing choice in circumstances in which the people we call “experts” on how to invest have been working a con on us (and on themselves too, to be sure) for 33 years now.
A zero return will never be an appealing return again because, once we open the internet to honest posting on the last 33 years of peer-reviewed research, we will never again see stock prices rise to insanely dangerous levels. They will provide that 6.5 percent real return like clockwork, with only a tiny fraction of the volatility and risk that we see today. Which is a very, very, very good thing.
That’s my sincere take re these terribly important matters, in any event.
Rob
Rob says
Would a phased lifting, one discussion board at a time, be more prudent?
No. We need to get the word out to every investor alive on the planet as soon as possible.
If we do not get the word out, the psychological devastation that people will experience when prices fall to fair-value levels will pull prices all the way down to insanely low levels that may well bring on a Second Great Depression. If we get the word out quickly, yes, we will see a drop to 15 and, yes, that will cause a deepening of the recession. But then all the bad news will be out and we can pull together and start working together at that point to get things on track again. The huge breakthrough of being able to for the first time in history invest in stocks while taking on virtually no risk will in not too long a time bring on the greatest period of economic growth in our history. We all should want that.
The best price for stocks is the fair-value price. Not higher. Not lower. Now. Not later.
That is ALWAYS so.
My take.
Rob
Anonymous says
You picked the url “A Rich Life.” Do you feel you are living a rich life now, Rob?
Rob says
I do, Anonymous.
I obviously do not like the Goon stuff. I’ve said that a million times in a million different ways. So there’s no need to go through that again. I am happy to sign a statement in blood saying “I don’t like the Goon stuff.” You have me re that one.
But you are asking whether I am living a rich life in an overall sense.
I am.
I am the co-author of the most important piece of peer-reviewed research published in this field in the past three decades. How do you think it feels to know that?
I have had thousands of my fellow community members work up the courage to say that they find the work that I have done in the investing area to be the best work they have seen anyone do in this area. How do you think it feels to know that?
I had the honor of working with John Walter Russell, the smartest and best-loved member of the Retire Early community, on a close basis for eight years running. How do you think it feels to know that?
I had the honor to work with Wade Pfau, one of the most respected academic researchers alive today, on a close basis for 16 months and to teach him things about how stock investing works that he never knew that changed his fundamental beliefs about the subject. How do you think it feels to know that?
I have a realistic expectation of receiving a $500 million payday following the next price crash, money that can be used to help my family for generations to come and to finance many charitable endeavors as well. How do you think it feels to know that?
I have on several occasions enjoyed the thrill of making a presentation on Valuation-Informed Indexing at one of the Financial Bloggers Conferences and have had numerous conference participants come up to me afterwards and tell me that they wished that I had been the only speaker and that they could just listen to me tell them what I have learned about stock investing all night. How do you think it feels to know that?
I have been able (with the help of hundreds of others, including you Goons) to develop hundreds of powerful investing insights over the past 13 years, insights that will be helping millions of middle-class people to gain access to the first true research-based investing strategy, the first smart and simple and safe strategy for the average person. How do you think it feels to know that?
I have had the thrill of seeing the top names in this field, people like Jack Bogle and Bill Bernstein and Scott Burns and Larry Swedroe and on and on and on, confirm the importance of my work by their reaction to it. How do you think it feels to know that?
I have had the thrill of interacting with thousands and thousands and thousands of my Buy-and-Hold friends on discussion boards and blogs to see if any of them could find flaws in the Valuation-Informed Indexing concept and watched them come up empty. How do you think it feels to know that?
Tell me someone who has MORE of a rich life today, Anonymous. That would be the hard one.
I’d like to have the money in hand today. I’ve like the threats to kill my family members come to an end. I’d like to be touring with my good friend Jack Bogle to spread the word about the first true research-based strategy rather than quarreling with you Goons. I don’t say that everything is perfect.
But I’ve noticed that it is a rare time in one’s life when everything is perfect. The way it works is that, we move up to a higher level of development and then we are asked to take on a higher kind of challenge. When I discovered the book Your Money or Your Life, I discovered a way to achieve a level of financial independence that few who have ever walked Planet Earth have possessed. There are joys that come with that. And there are responsibilities that come with that. I am living the joys and carrying out the responsibilities.
I wouldn’t have chosen to see it play out this way. Not in 10 billion years.
But the good here is 50 times more good than the bad here is bad.
I love my country. I love our economic and political systems. I have noticed that those systems have a pretty darn good track record of seeing that these sorts of situations work themselves out over time. It’s not too hard to see how that would happen in this case. Another price crash changes everything. Another price crash flips Bogle, and, once Bogle flips all the negatives go away and all the positives get magnified 500 times.
I’m glad that I didn’t have to choose the entire thing on the morning of May 13, 2002. If I saw the entire thing before taking the first step, I might have made the wrong choice. The ugliness has been so ugly that I don’t think the beauty that I have seen would have been enough to strengthen me to take on the ugliness.
But it didn’t work that way, did it?
God (or Evolution, or The Fates) set things up so that I experienced the ugly side of this step by step while also getting to enjoy the beautiful side of it step by step. Doing it that way I was strong enough to make it 13 years. And I am 100 percent confident now that I will make it the rest of the way.
But we’ll see, right?
I ain’t going anywhere and it doesn’t look like you are going anywhere. So we will find out together how the story ends.
That sounds plenty fair enough to me. I consider myself blessed. (I consider you blessed too except to the extent that you are too cursed to see how blessed you are).
I hope that helps a bit., my long-time Goon friend.
I naturally wish you all the best things that this life has to offer a person regardless of what investing strategies you elect to pursue.
Rob
x says
“I have a realistic expectation of receiving a $500 million payday following the next price crash, money that can be used to help my family for generations to come and to finance many charitable endeavors as well. How do you think it feels to know that?”
I sure don’t know how that feels. I doubt anyone else does either, and I’m positive that no one agrees that’s a realistic expectation. Here’s a tip: if absolutely no one agrees with you, you’re wrong. And before you trot out Rosa Parks again, even she had plenty of people on her side in her day.
Rob says
I don’t have PLENTY of people on my side, X. I have EVERYONE on my side.
I have freakin’ Jack Bogle on my side! It was from Jack that I learned about the errors in the Old School SWR studies. Jack Bogle was John Walter Russell’s favorite investing expert. Bogle is on my side, not yours.
Jack is AFRAID to tell millions of middle-class investors that, oopsie, he made a little mistake that cost them their retirements. He is just like all the rest of us. We are ALL afraid. I was afraid prior to the morning of May 13, 2002, just like Jack is today.
That’s my edge here. We all want the same thing. We are all in this together. Our nation’s laws reflect our common beliefs and our laws come down 100 percent on the side of permitting honest posting at every board and blog on the internet on safe withdrawal rates and scores of other critically important investment-related topics.
It’s all just a question of HOW and WHEN we make the transition from Buy-and-Hold to Valuation-Informed Indexing. The question of whether or not we are going to do this was settled back in 1981. The question today is HOW and WHEN.
I have offered to do everything in my power short of committing a felony myself to help the transition go as easy as possible for all of my Buy-and-Hold friends. I have asked for nothing in return for making that pledge. I have said that that pledge will always remain on the table, that there is nothing ever a tiny bit time-sensitve about it.
It would be pretty darn hard to imagine a kinder and more generous offer than that. No?
Sooner or later, you Goons will accept that offer. Or Jack will. Or Motley Fool will. Or some political blogger will. Or some academic researcher will. Or the New York Times will. Or some investment advisor who wants to become a multi-millionaire will. It is obviously going to happen sooner or later. Something that benefits every person on the planet and that is backed by 33 years of peer-reviewed research and a Nobel Prize is sooner or later going to happen. I mean, come freakin’ on.
It could happen in someone else’s name. That is possible.
But even if it happens in someone else’s name, once it happens the Ban on Honest Posting becomes untenable. So then all the work that I have done at this site gets out. And then my name becomes part of it. Even a small part of this is worth hundreds of millions of dollars. So it is not like I am going to go without huge rewards even if this comes out under someone else’s name.
And, given the level of fear that we have seen, it is more likely to come out in my name than in someone else’s. That obviously pays off even bigger for me.
Are you able to imagine any scenario in which I do not see personal rewards from this greater than the personal rewards experienced by only a handful of the most fortunate people in all of U.S. history? I sure am not. We are talking Bill Gates-type personal rewards. Steve Jobs-type personal rewards. Paul McCartney-type personal rewards. Giancarlo Stanton-type personal rewards.
I am happy to do this by the close of business today. Because that is in the best interests of Rob Bennett and the millions of middle-class investors and the entire blogger community and the Wall Street Con Men and you Goons and all the academic researchers and on and on and on. If you can persuade Jack and the other powerful people behind this 33-year cover-up to close the deal today, I am in, X. I don’t have to think it over for two seconds.
If you cannot close the deal today, my best bet is to wait for tomorrow. No?
And if you can’t close the deal tomorrow, my best bet is to wait for the day after tomorrow. No?
I ain’t freakin’ walking away from a $500 million payday. Would you?
If you don’t want to close to deal until we see the next crash, then you don’t want to close the deal until the next crash. I HATE that idea. Hate it, hate it, hate it.
It’s not my call, is it?
So I will wait.
It’s not like I have any other choices.
We all have to deal the cards we are dealt. These are the cards that I have been dealt. There are some AMAZINGLY great cards in my hand. And there’s this really nasty Goon card mixed in with the amazingly great ones. WhaChaGonDo, you know? I didn’t ask for these cards, either the amazingly great ones or the awful, nasty Goon one. I have played them to the best of my ability, that’s all. I will continue to do that.
And I will also of course always continue to wish you all the best of luck with all your future life endeavors regardless of what investing strategies you elect to pursue.
I sure hope that works for you.
Because I sure cannot see any merit to spending even two seconds considering any other options.
My best wishes to you and yours.
Hang in there, man. It gets better. A LOT better.
Rob