Set forth below is the text of a comment that I recently posted to another blog entry at this site:
Rob, if you actually had evidence of financial fraud I’m sure you would have brought it to a court of law by now.
Why did Madoff get away with his fraudulent fund for so long, Sensible?
Do you think it was hard to see that it was fraudulent? It wasn’t. There was a CPA who did the numbers and showed with 100 percent certainty that the Madoff fund was fraudulent. He wrote to the SEC and told them. They did nothing.
Then the fund collapsed. People lost most of their retirement money. THEN the authorities acted.
I am 100 percent in favor of having this matter addressed in a court of law TODAY. That’s better for every single person involved. Doing it today would mean your prison sentence would not be as long. Doing it today would mean that all the Wall Street Con Men could move on to doing productive work again. Doing it today would mean that we could bring this economic crisis to an end and enter the greatest period of economic growth in our history. Doing it today would mean that I could get my $500 million settlement check in hand and take over ownership of the Bogleheads Forum and all that good stuff. It’s a win/win/win/win/win.
Guess what?
IT IS NOT UP TO ME.
I can say that I think it would be better to do it today. And I do. But I cannot make it happen by myself. We need to get lawyers involved. We need to get prosecutors involved. We need to get journalists involved. And on and on.
For that to happen, people need to feel safe about posting honestly.
Wade Pfau almost made it happen. Wade and I together could have gotten this 12-year saga written up on the front page of the New York Times. That would have been the end of Buy-and-Hold. The entire Get Rich Quick house of cards would have come tumbling to the ground in six months.
But it turns out that Wade is one of those darn humans! He is responsible for two small children. He didn’t take to the idea of losing his job. He noticed how brutally abusive you Goons are and how unwilling Bogle is to get involved and he took a pass on seeing his career destroyed for the “crime” of co-authoring the most important piece of peer-reviewed research published in the last 3o years.
I am 100 percent in favor of going to court TODAY, Sensible. It’s not my call.
That’s not how Get Rich Quick schemes work. Get Rich Quick schemes are POPULAR until they bust. That’s what pulls people like you in! You are in the process of losing most of your money. But it does not make you happy to lose most of your money. You are lying to yourself. You are deceiving yourself.
You will be mad like everyone else when the bubble bursts. Perhaps you will demand your own imprisonment! That would be a Twilight Zone twist, would it not?
I wish that I could spare you the pain. I wish that I could spare Bogle the pain. I wish that I could spare millions of middle-class investors the pain.
But I am not superman, my old friend. I am some guy whose only claim to expertise in this field is that I figured out how to get my words posted to the internet.
I am going to bring the thing to court on the day it becomes possible for me to do so successfully. I am not going to lollygag. I am going to act with great dispatch. But I need freakin’ lawyers who will take the case on a contingency basis to proceed with the civil suits. And I need freakin’ prosecutors to proceed with the criminal actions.
I get your point. The cases should have been brought YEARS ago. I am 100 percent with you re the core point. I contacted lawyers in September of freakin’ 2002!
But it is not my call.
The Buy-and-Hold Crisis hurts everyone alive on the planet today. We all need to pull together. This is not a one-man job. I didn’t see that in September of 2002. I sure as heck see it today.
I will do my part to get this thing going as soon as humanly possible. You have my pledge.
But there are limits to what I can pull off. This is bigger than just me.
I will continue to seek people willing to help out. But I cannot do this alone. It is just too big.
So you are going to need to be a bit patient, whether you like the idea or not and whether that makes sense to you or not. It’s one of those darn realities that we all just have to accept.
I hope that helps a bit.
My best wishes to you and yours.
Rob
Madoff was running a ponzi scheme, a$$wipe. It has zero to do with buy and hold. Regardless of your strategy for buying stock, you are still holding stock/bonds. It is just a matter of when you buy and sell (or don’t sell). The two have nothing do with each other.
Have you read Shiller’s book, Anonymous? If you have not done so, you need to do so. If you have done so, you need to read it again. I am not saying that as a dig. I have read it four times and I have learned important new things each time I read it.
Shiller explains in his book that, because of the way the market is set up, our default assumption should be that the U.S. stock market IS a Ponzi scheme; we should give consideration to the idea that it is not a Ponzi scheme only if strong evidence is presented that this is the case. And please remember that there is 140 years of return data backing Shiller up on this. There is NO evidence pointing in the other direction. Common sense says that the U.S. market should be assumed to be a Ponzi scheme and 140 years of return data shows that in fact that is what it has always been.
When I say “the way it is set up,” what I am referring to is the fact that it is investors in the market who set the prices of the shares they own. If I handed ten employees of my company blank checks and said “this is in payment for the services you provided last year, you can fill in any number you like but you all must agree on the same number,” what do you think are the chances that they would choose a number that reflects fair value for their services? The chances are ZERO.
You are ignoring centuries of evidence as to how human nature works to think those ten people would assign themselves fair payment for the work they did. They might not assign themselves 20 times fair payment. They need to live with themselves. So there would be a voice inside them telling them “don’t go too absurdly high.” But they would go at least somewhat absurdly high all the same. It is not hard to imagine them assigning themselves three times fair value, which is what those who owned shares in the U.S. stock market assigned themselves in 2000. That’s human nature.
All markets that work have a counter to this flaw in human nature. Car dealers would like to ask $90,000 for cars that are properly valued at $30,000. The reason why the car market works is that there exists a counter to their desire to do that. The car dealer who sets his prices at three times above fair value is driven out of business by the competition. His customers educate themselves as to fair value and refuse to pay too much more than that when buying a car.
That’s the element that is lacking in the stock market whenever Buy-and-Hold strategies become popular.
If we could educate people about how much return is reduced when prices go to insanely high levels, the stock market would work just the way the car market works. We collectively would have a desire to push prices up, just as we do now. But some among us would sell their stocks whenever we did that and those sales would CORRECT for our greed. Prices could never again get out of hand once we opened the internet to honest posting because investors would be informed that letting prices go too high is not in their best interests.
Participants in a market must be INFORMED as to what is in their best interests for the market to function properly. Buy-and-Hold was built on a mistaken understanding of how markets work and the Buy-and-Holders are dead-set determined to block the spread of knowledge of what we have learned from the last 34 years of peer-reviewed research. Until that problem is addressed, the stock market cannot function like other markets. The only means by which it can bring prices down is through crashes. And crashes hurt us all in very serious ways.
The U.S. stock market is a Ponzi scheme whenever it is wildly overpriced, as it has been since 1996. Shiller says this in his book and there is now 34 years of peer-reviewed research showing that what he says is indeed so. The only reason why everyone who knows anything about stocks doesn’t know this today is that the Buy-and-Hold Mafia is so ruthless in its use of intimidation tactics that the people who know the story are afraid to tell what they know in language clear enough for most of the rest of us to fully appreciate what they are saying.
Your point that people who buy U.S. stocks own something real is only partly correct. The stock market in 2000 was comprised of one-third real stuff and two-thirds cotton-candy nothingness. P/E10 is the metric that tells us how much reality there is to the market at any given point of time. That’s why we all need to know about it and make use of it.
It’s of course a good thing that the market was one-third real rather than 100 percent fake in 2000. But the dollar value of the cotton-candy nothingness in the U.S. market was many, many times bigger than the dollar-value of the cotton-candy nothingness in the Madoff fund. Jack Bogle is Bernie Madoff timed 5,000 re the number of human lives he has destroyed. Not intentionally. I get that. But still…
You show with your own behavior that you know this to be so on one level of consciousness. So does Bogle. So does Burns. So does Shultheis. So do all the others. We ALL know it to be so. The question before us is when we are going to acknowledge openly what we know deep down inside and thereby empower ourselves to take constructive and productive and life-affirning steps. Each day that we delay we cause more human misery. Each time the human misery we have caused increases, the shame we feel for our failure to act thus far increases.
But at some point we must act. There is no other way out of this economic crisis. Given that we must act sooner or later, it is better to do it sooner, when the human misery we have caused and the shame we feel for causing that misery is less.
The U.S. stock market becomes a giant Ponzi scheme whenever Buy-and-Hold “strategies” become popular. Common sense and the entire historical record and the behavior of the Buy-and-Holders when they are challenged by the findings of the past 34 years of peer-reviewed research all show this to be so.
I am not your enemy, Anonymous. Your enemy resides within you. Your enemy is the Get Rich Quick urge that causes you to behave in the manner in which you have behaved for the past 13 years. The job of an investment advisor is to help you CONTROL that Get Rich Quick urge, not encourage you to give in to it to the greatest extent imaginable.
That’s my sincere take re these terribly important matters, in any event.
I naturally wish you the best of luck in all your future life endeavors regardless of what investing strategies you elect to pursue, my old friend.
Rob
Your use of the word “asswipe” in your comment tells a tale, Anonymous.
We don’t agree on some investing questions. Why does it bother you so much? What’s that about?
I don’t like it that honest posting is banned at so many boards and blogs. That’s something different. That’s a violation of a core cultural norm of ours.
But you have a burning hate for anyone who believes in Nobel Prize Winner Robert Shiller’s research.
Huh?
That ain’t confidence, man. That’s the OPPOSITE of confidence. It’s FAKE confidence. It’s bravado.
There’s a difference.
Rob
You harm your ability to learn important stuff when you use a word like “asswipe,” Anonymous.
I hang in there.
Lots of good and smart people don’t.
This is the future of investing analysis. This is what everyone in this field should be talking about today. There is only one investing strategy that inspires its adherents to use words like “asswipe” when referring to people who try to help them learn important stuff.
We all know well which one that is.
The POPULAR one.
The GRQ one.
The discredited-by-34-years-of-peer-reviewed-research one.
Rob
It is just a matter of when you buy and sell (or don’t sell).
Then what’s with all the emotion?
You don’t talk about this stuff as if we are two people with different strategic ideas re when to buy and sell. You talk about this stuff like I am insulting your freakin’ religion.
Huh?
How did Buy-and-Hold, which started out as a research-based thing, become a faith-based thing?
I am a person of faith. But, when it comes to my retirement money, I like having the numbers on my side.
Call me madcap.
Rob
Of course it could be that the 140 years of return data available to us today is all one gigantic coincidence.
Who’s to say, right?
None of us has a crystal ball. None of us can say for absolute certain.
Is that not so?
Rob
It is just a matter of when you buy and sell
It’s a matter of whether you exercise price discipline or not.
Rob
(or don’t sell).
The Wall Street Con Men often make it sound like selling overpriced stocks might be a bad thing. I wonder why.
The reality is that there is no other way to get your stock allocation down to where it needs to be when prices have reached insanely dangerous levels. Selling is magical. Selling is what permits investors to Stay the Course in a meaningful way. Investors who refuse to sell stocks end up with stock allocations that are inappropriate for investors with their risk tolerance. Huh?
Thank the heavens that we are still permitted to sell. Let’s just hope that the Wall Street Con Men don’t get any funny ideas and try to get a law passed making it the selling of stocks that is the felony.
Yowsa!
Rob
Your use of the word “asswipe” in your comment tells a tale, Anonymous.
Kind of like calling Jack Bogle “fucked up”?
No, it’s not like that, Anonymous.
I called Jack Bogle “fucked up.” I ALSO said that Jack is a GIANT in this field. I ALSO said that Jack is my second favorite investing analyst OF ALL TIME. I ALSO said that Jack is a Hero to the Middle Class.
I believe strongly that Jack fucked up on the long-term timing/price discipline thing. But the context in which I said that is that this is a guy that I love, a guy that I have have learned from, a guy that I consider a friend. When your friend f’s up, you have an obligation to let him know and to urge him to get on a better path. I didn’t betray my friendship with Jack by saying that he fucked up re this one important question. I DEMONSTRATED it.
That’s not at all the spirit in which you called me “asswipe.”
The two situations are not in any way comparable. I said that Jack fucked up even though my business will suffer as a result because I love the guy and because I could not live with myself if I did otherwise. You called me “asswipe” out of hate. You did it because you know on one level of consciousness that you fell for a Get Rich Quick scheme and it hurts to acknowledge that and I keep bringing up what the last 34 years of peer-reviewed research shows us to be so.
I called Jack a “fuck-up” to help him escape from a trap he fell into. I did it to liberate my friend.
You called me “asswipe” to silence me. You did it so that you won’t have to face up to the shame you feel for your behavior over the past 13 years. You did it to keep me and you and Jack and millions of middle-class investors enslaved to the ignorance we all suffered in the years before Shiller published his “revolutionary” (his word) research findings of 1981.
I love Jack Bogle.
Can you say that you love me, Anonymous?
Or has your hate grown great enough to enslave you to the ignorance of the past?
You know what I think.
Rob
Saying that Jack is f’d up makes your worse than an a$$wipe.
Not saying it would likely cause his f-up to continue for an even longer time.
How does that help anyone, Anonymous?
It hurts Jack, it hurts you, it hurts me, it hurts millions of middle-class investors.
The asswipes are the ones who are too afraid of what Jack will do to them to call him out on his b.s.
His true friends are the ones who call him out. Think where Jack would be if he had had more true friends back in 1981. In a very different place than where he is today.
The difference between me calling him out and not calling him out is that this way I can look him in the eye. I don’t have to lie about him or to him. I prefer it that way. If the tables were turned, that’s what I would want him to do for me. If I didn’t call him out on his b.s., I would feel that I was suggesting that he is an ethical zero who doesn’t care about destroying millions of middle-class lives so long as it helps him turn a quick, smelly buck.
Find someone else.
Rob
Car dealers would like to ask $90,000 for cars that are properly valued at $30,000. The reason why the car market works is that there exists a counter to their desire to do that. The car dealer who sets his prices at three times above fair value is driven out of business by the competition. His customers educate themselves as to fair value and refuse to pay too much more than that when buying a car.
And the way they educate themselves as to fair value is by checking what the market value is. Kelley Blue Book reports the market value of new and used cars. So if a dealer tries to sell for significantly above market value, as in the example you give, they most likely won’t be able to sell the car.
Today Microsoft was selling between about $41-$42/share. That is what the price quote websites will tell you and what tomorrows newspapers will report. Certainly if someone tried to sell a MSFT share for about $120, they won’t make a sale.
You seem to recognize that the market price for cars is the right value but you think that the same does not apply to shares.
The mechanism you allude to for car buyers (checking what a particular car is selling for elsewhere) is exactly the same mechanism that is used in stock markets every day.
Not quite, Evidence.
All of what you are saying is so for individual stocks. There is reason to believe that individual stocks are priced properly relative to each other.
But what you are saying is NOT so for the market as a whole. P/E10 reveals the Kelly Blue Book value for the market as a whole. The Buy-and-Hold Mafia blocks discussions of P/E10 and what it means re how much investors need to change their stock allocations at different times.
If the Ban were lifted, the market would price stocks properly. But investors cannot make rational choices without access to good information. We need to open every board and blog on the internet to honest posting on the last 34 years of peer-reviewed research.
Rob
All of what you are saying is so for individual stocks. There is reason to believe that individual stocks are priced properly relative to each other.
But what you are saying is NOT so for the market as a whole.
That’s like saying Ford and GM cars are priced correctly individually, but the car market as a whole is way overpriced. If that were the case, of course, by definition no one would be buying.
Car prices may rise or fall in the future. Doesn’t make today’s price “wrong”.
It’s like saying that a car with a fair value of $20,000 is selling at $60,000 and a car with a fair value of $30,000 is selling at $90,000. The cars are priced properly relative to one another. But both cars are wildly mispriced.
There is no ban on sharing information about the pricing of the stocks of individual companies. No one sees his or her career destroyed because he gives honest and accurate information on the pricing of individual companies.
The only thing that the Buy-and-Hold Mafia destroys people over is when they share information about the 34 years of peer-reviewed research showing that long-term timing (price discipline) is the key to long-term investing success. The entire Buy-and-Hold Model was built on a mistake that was made in 1965 and not discovered until 1981. Once the Buy-and-Holders covered up that mistake for a number of years, they realized that it would look really, really, really bad for them to come clean about it. Now that they have caused an economic crisis, they understand that those with the greatest responsibility for the mistake will be going to prison when the millions of middle-class investors learn what this trickery has done to their retirement hopes.
The only way out for all of us is through the announcement of prison sentences. Once your prison sentence is announced, the news will go viral and the term “Buy-and-Hold” will be perceived as an obscene phrase by every investor alive on Planet Earth. Once the Buy-and-Holders are no longer around to hold us back, we all will be free to enjoy the benefits of the first true research-based strategy, Valuation-Informed Indexing. Why wouldn’t we?
The announcement of prison sentences for you Goons is the key to our nation overcoming this economic crisis, Anonymous. We were smart to make financial fraud a felony in our legal system.
That’s my sincere take re these terribly important matters, in any event.
Rob
It’s like saying that a car with a fair value of $20,000 is selling at $60,000 and a car with a fair value of $30,000 is selling at $90,000.
If a car sells for $60,000, and that’s the price the buyer and seller are both happy with, then it’s the fair price. It may not be the price Rob Bennet likes. But that’s you’re problem.
No. You can’t say that it is the fair price if the buyer has been denied the information that he needs to determine fair price and if fraud has been practiced. Markets cannot function properly in such circumstances.
If we permitted honest posting, then obviously it would be the fair price. But we don’t. So you cannot say that.
The stock market is the only market in which a Ban on Honest Posting applies. That’s why it is so messed up. Information is what makes markets work. Deny market participants the information they need to make good decisions and you destroy the market.
Prior to 1981, there was nothing we could do about this problem. It was just one of those things. Post 1981, we know how markets work. The last step in the process is getting the word out to every investor alive on Planet Earth. That’s what the last 13 years has been all about. We are almost there.
Hang in there, Anonymous.
Rob