I’ve posted Entry #209 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called No P/E10 Value Signifies the Same Thing At All Times.
Juicy Excerpt: It’s also important to keep in mind that P/E10 values do not pop up randomly. There is a pattern that has applied for the entire 140 years of stock market history. Prices start out low. Then they rise steadily for perhaps 20 years. Then they fall sharply and remain low for perhaps 10 years. Prices behave in that matter because the natural impulse of investors is to push prices up. They continue doing this until their common-sense understanding that there are limits to how high prices can go kicks in to cause prices to crash. Then the economic devastation that follows from the huge loss in consumer buying power causes investors to hate stocks for a good bit of time.
A P/E10 value of 15 represents fair-value pricing for stocks. But a P/E10 value of 15 signals something very different when prices are on their way up to a P/E10 value of 25 or more than it does when prices are on their way down to a P/E10 value of 8 or less.
Evidence Based Investing says
“Posted date: August 19, 2014”
The time lag on your blog has now reached 7.5 months. The chances of this blog ever developing into something other than a repetitive argument between you and the goons recedes ever farther into the distance.
Rob says
The argument is not really between me and the Goons, Evidence. It is between the people of the United States and the Goons. It is the people of the United States who enacted the laws against financial fraud, not me. I support those laws. But it was a much larger group that enacted them.
I believe that we will as a society begin enforcing the laws against financial fraud against the Wall Street Con Men and their Internet Goon Squads following the next price crash. I am not able to imagine any reason why we wouldn’t. Millions of people will have suffered big losses and they will be able to recover at least a portion of their losses by bringing civil suits against the Wall Street Con Men and their Internet Goon Squads. Are you able to think of some reason why they would not do this? I sure am not. And, once the civil suits are filed, is there some reason why prosecutors would not bring criminal actions? Again, I am not able to imagine circumstances in which that wouldn’t happen.
I don’t have a crystal ball. I cannot say for certain. But that’s what I think is going to happen. I acknowledge that there’s a chance that I will be proven wrong. I certainly have been proven wrong re other things. But I sure ain’t going to risk going to prison myself by joining you in this massive act of financial fraud.
We are just going to have to wait to see how things turn out. Presuming that I end up getting that $500 million settlement check, I don’t think that I will have any problems building this site into the #1 personal finance site on the internet. Fair enough? We surely won’t be seeing just a repetitive argument between me and you Goons then, right?
I’ve done all that I can do. I will continue to take opportunities that appear before me when they appear before me. Is there something else that you want from me?
Not all of the conversations that I have with you Goons are repetitive. Some certainly are. Some are learning experiences. I have been following a practice of cutting off the repetitive stuff more and more as time goes on. I like the learning-experience stuff. I am grateful when you put forward stuff that generates a learning experience. If you want to continue to do that, please do. If you do not, I of course understand. There is obviously no requirement.
Does that cover it?
I think things will get better. I think things will get a LOT better. I do not think that I can force things. I have taken lots of steps to encourage people to help me make things better. But there are limits to what I can do. I am not Superman. I think I will get better reactions following the next crash. I sure hope so. If I don’t, I guess that’s that. But I don’t exactly have any other options. I’ll give it my best shot. I can do no more and I can do no less.
I naturally wish you all the best that this life has to offer a person regardless of what investing strategies you elect to pursue.
Take care, Goon friend.
Rob
Dizzy says
I have been following a practice of cutting off the repetitive stuff more and more as time goes on.
Google this (with the quotes): “Rob Bennett” “I am not Superman”
and you’ll get 34 unique hits. Quite a lot of disclaimers, given the lack of even one link where someone suggested you are Superman.
Rob says
Every time you Goons put up a post suggesting that I drop the “hocomania” you are suggesting that I am Superman, Dizzy. You use the term “hocomania” to refer to my discussion of financial fraud and prison sentences and all that sort of thing.
I discuss the massive act of financial fraud because there is no way to bring this economic crisis to an end without discussing the massive act of financial fraud. I love what the Buy-and-Holders have done for us. They have made huge contributions. I consider Jack Bogle to be the second most important investing analyst of all time (I rank him second only to Robert Shiller and I consider it a fairly close call). I was a Buy-and-Holder myself at one time. I consider Valuation-Informed Indexing the biggest advance in the history of personal finance and I have said many times that there would be no Valuation-Informed Indexing today if the Buy-and-Holders had not built the foundation on which it is constructed (there is only one difference between Buy-and-Hold and Valuation-Informed Indexing — all the rest of the VII Model is the product of the work effort of the Buy-and-Holders).
The obvious question is: Why the heck isn’t Valuation-Informed Indexing being discussed on a daily basis at every investing discussion board and blog on the internet? The obvious answer is that the Buy-and-Holders f’d up. We learned in 1981 that there is precisely zero chance that Buy-and-Hold can ever work for even a single long-term investor either in this solar system or in any other. Bogle should have walked up to the front of a room in 1981 and said the words “I” and “Am” and “Wrong” (or at the very bare minimum the words “I’m” and “Not” and “Sure”).
He didn’t do that. He was suffering cognitive dissonance and he rationalized holding off on doing that. Now he has caused the worst economic crisis in U.S history. Now he REALLY doesn’t want to take the walk to the front of a big room and come clean re the mistake he made many years ago. Is that my doing? Why the heck are you Goons angry at me? I am the one trying to help everyone out. I am the one trying to make everyone’s life better, including all of your Goon lives. If you’ve got a beef, it is with Bogle. Go yell at The Big Guy, you know? Go yell at the guy who committed the big f-up that started all this horrible stuff in motion.
If Bogle had a time machine, he would go back to 1981 and play it right this time. I get that. He doesn’t have a freakin’ time machine. So what do you suggest we all do?
If Bogle comes clean or if Motley Fool comes clean or if Morningstar comes clean or if Wade Pfau comes clean, lots of people will be going to prison when they learn about this massive act of financial fraud, a cover-up that has been going on for 34 years. Is there anything that I can do to bring an end to this that I have not done? There is nothing. I have been working my butt off for 13 years now to bring an end to this and to spread the word about Valuation-Informed Indexing to every investor alive on the planet today. So I am clean.
What do I need to get the job done? I need people to work up the courage to stand up to the Wall Street Con Men and to their Internet Goon Squads. Once we have 10 people who show that they will speak up in the face of your attacks, it is all over. The day when 10 people speak up is the day that we all make it to the other side of The Big Black Mountain and begin to enjoy the biggest economic surge that we have ever seen in the history of our nation. So getting those 10 people to speak up should be the goal of everyone alive on this planet today Fair enough?
If you Goons would not be going to prison as a result of what people are going to learn on that day, you would support us all learning what we need to learn. Right?
But I don’t freakin’ have the power to grant you an amnesty, do I? That’s what I mean when I say that I am not Superman. If I could offer you an amnesty and thereby get the entire internet opened to honest posting on safe withdrawal rates and scores of other critically important investment-related topics, I would do it in ten seconds. I don’t have that power. That’s something that we can only do as a nation. So the thing that you want is something that I cannot give you.
I would like to see you come clean by the close of business today. That would help everybody. The millions of middle-class investors who need to know what the last 34 years of peer-reviewed research says about stock investing would learn what they need to learn about how to plan their retirements. And you Goons would get your prison sentences shortened a bit. It would be a win/win/win/win/win, no?
But I don’t have 10 people. Amazingly enough, most people don’t like to see their careers destroyed, most people don’t like to see the lives of their loved ones threatened, most people don’t like to see tens of thousands of acts of defamation directed at them. Who’d a thunk it, right?
I think that will all change following the next price crash. Millions of people will have suffered devastating losses and they will be able to recover at least a portion of those losses by bringing legal actions against those who have put up posts in “defense” of Mel Lindauer and John Greaney and Jack Bogle. If you are able to imagine some scenario in which they would not bring those lawsuits, you are able to imagine something that I am not able to imagine. I am just grateful that we enacted the laws against financial fraud before you Goons came on the scene. It’s because we were wise enough as a people to do that that we now have a good way to proceed following the financial devastation we will see with the next price crash.
If I could wave a magic wand in the air and have you Goons put in prison today, I would do it, Dizzy. I don’t have access to a magic wand. So we all are just going to have to wait until the next price crash to bring an end to the ugly side of this and start enjoying our good fortune in being the first generation of investors to have 34 years of peer-reviewed research showing us how to reduce the risk of stock investing by 70 percent while also enjoying far higher returns than anyone imagined possible back in the Buy-and-Hold Era.
I am not Superman. I say it because it’s so! If I could get your prison sentence reduced a bit through my own efforts, I would do it this morning. I cannot do it alone! I need Bogle’s help. I need Bernstein’s help. I need Pfau’s help. I need Piper’s help. I need Tresidder’s help. I need Richards’ help. And on and on and on and on and on.
When I get help from those people, we will act as a nation to set things right. It appears to me based on what I have seen over the first 13 years of The Debate About Having a Debate that I am not going to get the help I need from those people until we see the next price crash. I don’t like that reality. Not one tiny little bit. But there is nothing that I can do about it. I need to accept it whether I like it or not. It is a reality that I do not like but it is a reality all the same. I am not Superman.
Do you see?
Rob
Anonymous says
Rob,
Good ideas — ideas that pass logical and empirical muster — simply cannot be long suppressed. Even if one ‘inventor’, ‘discoverer’, or vocal proponent is somehow squelched, others inevitably will come forth with almost simultaneous discovery. Witness the ‘discovery’ of radio, telegraph, the calculus, and many other examples. The annals of history are replete with such occurrences, and in fact, one theory is that even if a genuinely good idea is actively suppressed, the energy used to suppress it will form a sort of springboard to bounce it back into the eye of humanity. That is if it has merit. So you should not despair, if your REAL objective is to get the ‘truth’ out there. Because, totally without you being involved at all, the truth still will come forth. It always does. Reading this does not bring you comfort, though, does it? No. Because it undermines your twisted need to be a martyr and somehow obtain personal public recognition, no matter what the cost.
Please read:
http://en.wikipedia.org/wiki/Multiple_discovery
“”When the time is ripe for certain things, they appear at different places in the manner of violets coming to light in early spring.”
Rob says
I strongly agree with what you are saying here, Anonymous.
I have spent the last 13 years of my life developing the Valuation-Informed Indexing concept. And I of course am very proud of the work I have done. We have discovered some absolutely amazing things. And I have played a big role. So good for me, you know?
But I certainly could not have done what I have done without Jack Bogle. And I certainly could not have done what I have done without Robert Shiller. And I certainly could not have done what I have done without John Walter Russell. And I certainly could not have done what I have done without Wade Pfau. And I certainly could not have done what I have done without Mike Piper. And I certainly could not have done what I have done without Todd Tresidder. And on and on and on.
I’ll go even a step further. I couldn’t have done what I have done without you Goons! Imagine that!
These ideas cannot be long suppressed. I agree 100 percent. They have been suppressed for 34 years now. But that’s not a long time in the grand scheme of things. The humans have been trying to come to a better understanding of how stock investing works for hundreds of years. The shift from Buy-and-Hold to Valuation-Informed Indexing is BY FAR the biggest advance we have ever achieved. That has been the entire problem going back to the first day. If I had shown how to reduce the risk of stock investing by 5 percent, I would be on the cover of Time magazine. Unfortunately (!), I showed how to reduce the risk of stock investing by 70 percent. Something that big makes the people pushing the outdated approach feel bad. That’s why we have seen death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs. WhaChaGonDo?
I can’t change things so that this is only a small advance to make the Buy-and-Holders less defensive. The peer-reviewed research says what the peer-reviewed research says. ALL of the research supports VII. NONE of the research supports Buy-and-Hold. The Buy-and-Holders need to come to terms with that. We all want the same things. When the Buy-and-Holders come to terms with our good fortune and realize that it is in their best interests to look forward rather than backward, we will get to the other side of The Big Black Mountain and enjoy together our good fortune in being the luckiest generation of investors ever to walk Planet Earth.
I am not despairing. Something that I have said hundreds of times now is that the good news here is 50 times more good than the bad news is bad. We are on the verge of achieving the greatest advance ever achieved in the history of personal finance. I am humbled to have played a big role in bringing it about
And, yes, I believe 100 percent that “the energy used to suppress it will form a sort of springboard to bounce it back into the eye of humanity.” That’s exactly how things usually work out in life, in my experience. John Walter Russell said something along these lines many years back. He said that this is all going to work out in way better than any of us can imagine. Those words struck me as having the ring of truth to them. That’s how I believe it is all going to turn out.
I hope that helps you understand two things: (1) why I want to do whatever I can to help out you Goons; and (2) why I never, ever, ever want to engage in any acts of financial fraud myself. My focus is on the rebuilding effort. I want to turn from the negative to the positive. So I don’t want people getting caught up in some sick desire to seek revenge on your Goons. And I know that the key to my helping you out is maintaining credibility in the eyes of the millions of middle-class investors whose lives are in the process of being destroyed. So I try to be as careful as possible not to do anything to aid this massive act of financial fraud.
Thanks for putting forward a super post, Anonymous. I think you are making a very important point with this one.
Take good care, my long-time abusive posting friend.
Rob
Anonymous says
How long will you wait for a 65% crash? I know you predicted it would come by the end of this year. However, what if another 10 years pass and that crash hasn’t occured. What then?
Rob says
We now have 145 years in which Valuation-Informed Indexing has proven superior to Buy-and-Hold for the long-term investor. We have 0 years in which Buy-and-Hold has proven superior.
If Buy-and-Hold provides superior results for the next 145 years, the two strategies will appear equally strong. At that point, I think it would make sense for people to start taking a serious look at Buy-and-Hold.
Stock prices will crash in the next few years in the event that stocks continue to perform in the future anything at all as they always have in the past. But it’s not like we need to see a crash for the Valuation-Informed Indexers to go ahead of the Buy-and-Holders. From 2000 forward, VII is FAR ahead today. From 1996 forward BH is ahead on the numbers but not on a risk-adjusted basis. From 1996 forward, BH had provided a return of about 5.3 percent real VII had provided a return of about 4 percent real. My rule of thumb is that BH needs to provide 2 additional points of return to compensate for the added risk involved when following this strategy. On a risk-adjusted basis, VII is ahead from 1996 forward.
I expect to see a 65 percent price crash. But the price crash is not the thing that will put VII ahead. VII is already ahead for the entire 145 years for which we have records of stock returns. The price crash will put it much farther ahead. Buy-and-Hold/Get Rich Quick has never performed well in the long term. Not once.
Of course that is just what you would expect from a strategy that ignores the need for the investor to exercise price discipline. Price discipline is the key to success in ALL markets. The idea that a strategy not calling for the exercise of price discipline could ever work for even a single investor is of course 100 percent preposterous. It is a logical impossibility.
The 145 years of historical return data available to us today only CONFIRMS what common sense tells us must be so.
Rob
Anonymous says
You stated that if the 65% stock price crash didn’t happen by the end of this year, there was likely a piece of the puzzle you were missing. What piece do you think that might be?
Rob says
If I knew what pieces of the puzzle I was missing, I wouldn’t be missing them, Anonymous.
If we don’t see a crash by the end of 2016, I think that that would be sufficiently outside of what we have been led to expect by the 145 years of historical return data available to us that we should be all be trying to figure out whether we are missing any pieces of the puzzle. One thing that comes to mind as a possible “miss” is that we now have the Federal Reserve acting to keep stock prices up and that was not a factor in earlier days.
I don’t consider this a big issue because my view is that the Federal Reserve is only doing what we as a society want it to do and, if we wanted the Federal Reserve to let stock prices drop, it would do so. I believe that it all comes back to investor psychology whether the Federal Reserve takes actions or not. But if we continue at these prices for another two years, I think that that is something that perhaps people should look at.
It might be that in two years I will have some new ideas as to why the high stock prices will have remained in effect for so long. There’s nothing else that comes to mind today. But I am always on the look-out for good explanations of the riddles that present themselves to us.
I hope that that helps a bit.
Rob
Anonymous says
a possible “miss”…I don’t consider this a big issue … if we continue at these prices for another two years, I think that that is something that perhaps people should look at. It might be that in two years I will have some new ideas… I am always on the look-out for good explanations…
LOL!
Just like every other doomsday fortune teller, once the absolute deadline for your guaranteed disaster passes, (or even beforehand), the excuses and new timetables roll out, allowing the self-delusion to be perpetuated… or at least, to stave off dealing with reality for another bloc of time….Meanwhile, well-adjusted people have been living full and rich lives, doing meaningful activities, and producing useful work. Cranks gotta crank though, right Rob?
Rob says
Every word of your comment is false, Anonymous.
I never offered any absolute deadlines. I have pointed out correctly that there has never once in the history of the U.S. market been a time when we had a secular bear market end before the P/E10 value dropped to 8 or lower. So that’s what I expect to see happen this time. You asked when I expected to see that happen. I said that I expect it by the end of 2016. That’s not an “absolute deadline.” It is one person’s expectation (based on what we have seen in the historical record).
It’s not a “disaster” if stock prices fall. The disaster was letting them get go high in the first place. Stock prices MUST fall if the market is to continue to function. Had Jack Bogle acknowledged his mistake back in 1981, when the peer-reviewed research in this field revealed it, we never would have experienced a bull market in the 1990s and there would be no need for stock prices to fall and no “disaster.”
Buy-and-Hold has put us all in a terrible spot. There’s no “disaster” in us going through the process that we need to go through to get out of that terrible spot. The disaster was getting in the spot in the first place. The good news is that, once people learn what the last 34 years of peer-reviewed research says, the Wall Street Con Men will never be able to trick us again.
I wish you all good things, Goon friend.
Rob
Anonymous says
You said years ago that the crash should come by 2015. Are you now denying that?
Rob says
You know the answer to your question, Anonymous. We have gone over this about 50 times.
Short-term timing doesn’t work. There is 50 years of peer-reviewed research showing that. So I could not possibly know when the crash is coming. Nor could anyone else.
Still, long-term timing ALWAYS works and is ALWAYS 100 percent required. Any investor who does not engage in long-term timing is not practicing price discipline. There is of course zero chance that that could ever work out well in the long run.
You Goons frequently demand that I say when the crash will come. I always say that I don’t know because that is the truth. But I do think it is fair for you to demand an in-the-neighborhood assessment of when the crash will come. So I try to respond to those sorts of questions to the best of my ability.
In one response, I said that I thought that the crash would come by the end of 2015. I thought some more about it as time passed and changed that to the end of 2016. That’s what I say today.
It may be that the crash will come by the end of 2016. It may be that it will not. We will have to wait and see. My personal take is that we will probably see it before the year 2016 comes to an end.
Does that help?
Rob
Anonymous says
And if it doesn’t come in 2016, you will keep changing the date. How convenient.
Just say the words: ” I was wrong”.
Rob says
If the crash doesn’t come by the end of 2016, I am certainly going to say that I was wrong in my prediction that it would come by the end of 2016, Anonymous. I had a column prior to the 2012 election in which I said that I thought that we would see the crash within a year or so of that election. I said that I was wrong about that one, didn’t I? Why would I handle the 2016 prediction any different?
And, yes, of course I am going to have to change the date if the 2016 prediction fails. What would you expect me to do, continue saying that I expect a crash by the end of 2016 in 2017 and thereafter? Huh?
The bottom line is that short-term timing doesn’t work. No one can say when the crash will come. There is 50 years of peer-reviewed research showing that.
If you Goons don’t like to hear predictions that don’t work out, stop demanding short-term predictions of me! I do the best I can. But no one can make effective short-term predictions of where the market is headed. All of the peer-reviewed research in this field shows that to be the case.
Fair enough?
Rob
Anonymous says
You Goons frequently demand that I say when the crash will come. I always say that I don’t know because that is the truth.
No, you don’t always say “I don’t know”. Shiller says “I don’t know”. You made specific predictions, both in timing and size of drop.
If you’ve now come to the conclusion that you don’t actually have a crystal ball, then what you’re saying is: “Someday, the stock market will crash”.
Gee really? I had no idea.
Rob says
You’re being deceptive on numerous points, Anonymous.
Shiller doesn not say “I don’t know.” Shiller predicted that there would be a crash in 2014. He was proven wrong. I think he was wrong to say what he said. But that is what he said. He did not say “I don’t know.”
I am not saying “someday the stock market will crash.” And I am not offering a precise prediction either in regard to the size of the crash or in regard to the timing of the crash. What I do is to report what the last 34 years of peer-reviewed research tells us. I believe that it is irresponsible in the extreme not tell people what the research says. Buy-and-Holders lie about this all the time. I don’t feel comfortable committing financial fraud. So I don’t do that. The Buy-and-Holders hate me for telling the truth re these matters because it makes them look bad. It does make them look bad. It makes them look horrible. The Buy-and-Holders should tell the truth re these matters.
There has never once in U.S. history been a secular bear market that ended before the P/E10 level dropped to 8. That’s a drop of more than 65 percent from where we are today. So I say that that should be our default expectation. I also say that it is possible that we will see a drop of as little as 50 percent or of as much as 80 percent. But I don’t lie and tell people that they should not expect a drop of 65 percent or so.
I do not say precisely when the crash will come. I say that, if stocks continue in the future to perform somewhat as they always have in the past, we should expect to see the next crash by the end of 2016. It is possible that we will see it a bit sooner and it is possible that we will see it a bit later. Again, it would be irresponsible in the extreme not to let people know that. So I let people know. I don’t believe in engaging in trickery just to make a smelly buck by exploiting people’s emotional weaknesses. What a terrible person I am!
I wish you all the best that this life has to offer a person.
Rob
Anonymous says
There has never once in U.S. history been a secular bear market that ended before the P/E10 level dropped to 8.
That’s just hunting for patterns in historical data. There’s never been a decade when both the Ravens and the Lions won Superbowls. So what?
Rob says
It’s not hunting for patterns, Anonymous. It follows from Shiller’s “revolutionary” (his word) findings of 1981.
Prior to 1981, we thought that the market was “efficient.” That means that investors are rational and that stocks are priced properly. If investors were rational, all mispricings would be quickly discovered and exploited for profit and thereby eliminated. Valuations don’t matter much in the Buy-and-Hold Model because prices can never get too out of control under the Buy-and-Hold Model. Risk is constant under this model. Price changes fall in the pattern of a random walk.
Shiller showed that none of this is so. Price changes do NOT fall in the pattern of a random walk. At least not in the long term. In the short term, they do. But in the long term, valuations have been following the same pattern for the entire 145 years for which we have records. Valuations always go up gradually for a long period of time and then crash and remain low for a significant stretch of time. They always rise to at least a P/E10 of 25 on the way up and they always drop to at least a P/E10 of 8 on the way down. The statistical odds against stocks just happening by coincidence to follow such a pattern for 145 years running are probably one million to one. It is just impossible to imagine the same basic pattern repeating over and over and over again without a single exception ever being recorded for 145 years.
The pattern is an EMOTIONAL pattern. Investors like high prices because it is free money for them to see the values of their portfolios go up. But of course they possess common sense. So they always maintain doubts about the high prices, doubts that grow larger as prices become more insane. Eventually the fantasy can be maintained no longer and prices crash. They do not drop only to fair-market levels, they drop far below fair-market levels. This is because the Buy-and-Holders have destroyed their hopes of achieving old-age retirements for themselves. They have lost out on years or even decades in which they could have been planning effectively for their futures. This causes self-loathing, which causes them to undervalue their portfolios as much as they overvalued them in earlier times. Emotional extremes beget emotional extremes.
No one had to look hard to discover this pattern, Anonymous. It has applied every day for the 145-year history of the stock market for which we have records. To ignore this pattern is like ignoring the fact that it gets hot in Summer and cold in Winter. Buy-and-Holders cannot understand why six months after the Independence Day parades there always seem to be snow plows on the road. What a funny coincidence that that same basic story plays out over and over and over and over again. Who could ever explain such a strange coincidence?!
The P/E10 level always drops to 8 by the end of a secular bear market because the Buy-and-Holders always become depressed that they have destroyed their futures with their Get Rich Quick fantasies. It’s not just that Get Rich Quick isn’t the answer, the last 34 years of peer-reviewed research shows that Get Rich Quick is the problem!
That’s my sincere take re these terribly important matters in any event, my fantasy-believing friend.
Rob
Dizzy says
If I could offer you an amnesty…I would do it in ten seconds.
(3 paragraphs later)
If I could wave a magic wand in the air and have you Goons put in prison today, I would do it
(next paragraph)
If I could get your prison sentence reduced a bit through my own efforts, I would do it this morning
So you want to give me amnesty, then put me in prison, then get my sentence reduced. Your “if I coulds” are flailing every which way.
Rob says
The normal way of doing things is that, when someone discovers that he has made a mistake, he says “I was wrong, I’m sorry” and everyone else says “I understand” and then we all move on to something better. The reason why we are in an economic crisis today is that the Buy-and-Holders did not do that back in 1981, when Yale Economics Professor Robert Shiller published his research showing that there is precisely zero chance that a Buy-and-Hold strategy could ever work for even a single long-term investor.
If Bogle could wave a magic wand in the air and go back to 1981 and do it over, I am 100 percent confident that he would walk to the front of a big room and say the words “I” and “Was” and “Wrong” or at the very bare minimum say the words “I’m” and “Not” and “Sure.” Bogle doesn’t have a magic wand and neither do I. So that’s out.
We have to fix the problem, Dizzy. There are millions of middle-class people who need to invest in stocks to finance their retirements. They need accurate information about what the peer-reviewed research in this field says. There are thousands of academic researchers who want to give it to them. There are thousands of investment advisors who want to give it to them. There are thousands of journalists who want to give it to them. There is one thing holding all of these people back from making all of our lives better in many important ways.
The thing holding us all back is The Buy-and-Hold Mafia. The 34-year cover-up of Shiller’s findings is the biggest act of financial fraud in U.S. history. The people who know about the last 34 years of peer-reviewed research and yet have failed to tell the millions of middle-class investors about it will be going to prison for a long time. These are wealth and powerful and well-connected people. They have over the past 13 years (I was not around to witness their behavior in the years before that) demonstrated a ruthless willingness to destroy anyone who talks honestly about these matters and thereby makes them “look bad.”
I cannot change that reality, Dizzy. I would if I could but I cannot. I obviously didn’t know that this was the reality prior to the morning of May 13, 2002. I know now. But, like most others today, I did not know before. I know that we need to lift the Ban on Honest Posting. I know that this is the most important piece of business before our nation today. It’s not just that we are likely going to fall into the Second Great Depression if we fail to address this matter. Following the Buy-and-Hold Crisis of late 2008, we saw people both on the left (the Occupy Wall Street Movement) and the right (the Tea Party Movement) losing confidence in our political system because of its failure to address this matter. This is not an option piece of important business. Addressing this matter is 100 percent imperative. We have only one good choice here — the Ban on Honest Posting on the implications of the last 34 years of peer-reviewed research in this field needs to be lifted by the close of business today.
I do not have the power to grant you amnesty, Dizzy. I don’t have the power to give the owners of Motley Fool amnesty. I don’t have the power to give Bogle amnesty. I don’t have the power to give the owners of the Early Retirement Forum amnesty. I don’t have the power to give Carl Richards amnesty. I don’t have the power to give Mike Piper amnesty. And on and on and on and on and on.
I don’t oppose amnesty for any of these people. If as a nation we decide to give amnesty, I am fine with that. I will go along with whatever we decide as a nation. But I ain’t gonna say that the Greaney retirement study contains an adjustment for the valuation level that applies on the day the retirement begins. That’s financial fraud. That’s a felony. That’s prison time. Going to prison is not on my bucket list. Find someone else, you know?
I will do anything in my power to help my Buy-and-Hold friends. I will not commit financial fraud. That’s an insane thing to expect anyone to do. So that’s out. I will do anything that does not involve crossing The Felony Line.
It’s not up to me. I do not speak for the entire nation. I love my country. So I follow its laws. That one is non-negotiable. Everything short of committing a felony is on the table.
I know that it would be 20 times easier to get your prison sentence reduced if you came clean today than it will be if you only come clean following the next price crash. The length of your prison sentence is going to be decided by how angry the millions of middle-class investors are over how they were tricked out of their retirement money. They are a whole lot less angry today than they will be following the next crash. So the sensible thing is for you to come clean today.
But you are a Goon. Goons don’t ever do sensible things. So I don’t expect you to come clean by the close of business today. I expect you to wait until the days following the next crash, when Jack Bogle will come clean and you will no longer feel that it is possible to continue the cover-up whether that is your inclination or not.
Ask me for anything that does not constitute committing a felony under the laws of the United States and I am in.
Ask me to betray my country and I have to ask you to kindly try to find someone else.
Fair enough, old friend?
Rob
Anonymous says
“precisely zero chance”
Words. They mean things. They represent ideas and concepts. Sane people utilize them to try to establish communication, clarity, understanding and exchange of information.
Rob says
Yes, what you are saying is so, Anonymous. It’s not an accident that I use the phrase “precisely zero chance.” I use that phrase with deliberate intent. To communicate something. Just as you say.
I believe that the Buy-and-Holders made many important contributions. I don’t think that they intended to do harm to people. So, if I see that they made a mistake that has done harm to people, I feel a responsibility to tell them that, to help them out in that way.
The Buy-and-Holders believe that Buy-and-Hold works. I get that.
But what if it doesn’t?
If Buy-and-Hold doesn’t work, is that a small thing? Or is it a very big thing?
It is a very, very, very big thing.
I am not a troll. I post my sincere beliefs.
I believe with my entire heart, mind and soul that there is precisely zero chance that failing to exercise price discipline could ever be a good thing. If I said that about buying a car or about buying a banana or about buying a sweater, there is not one person on the planet who would disagree. When I say it about stocks, you object. You should be trying to examine why that is. What makes stocks so different? Why is it that millions of people believe that the basic rules that apply in every other market do not apply in the stock market?
I think that that the same rules that apply in every other market also apply in the stock market. I think that we made a mistake in thinking for a time that that was not so. I think that we are in the process of correcting that mistake. I think that we are all going to begin living far richer lives when we gain the ability to acknowledge that mistake and correct it.
The two of us can never resolve this matter to the world’s satisfaction. We need Bogle participating in the discussion. We need Shiller participating in the discussion. We need Pfau participating in the discussion. We need Piper participating in the discussion. We need a national debate.
We all need to put our heads together and focus in on the question — Is there precisely zero chance that it could ever be a good idea to fail to exercise price discipline when buying stocks? Or are there circumstances where failing to exercise price discipline could be a good thing?
Is Rob Bennett right about that one or is he wrong? This is the most important personal finance matter before the court of opinion today. We need to get down to discussing it on every discussion board and blog on the internet by the close of business today.
That’s my sincere take re this terribly important matter in any event.
My best wishes to you, Anonymous.
I assume by your comment that you believe that there might be circumstances in which it would be a good thing to fail to exercise price discipline when buying stocks. Are you able to say why you believe this?
Rob
Anonymous says
I believe with my entire heart, mind and soul that there is precisely zero chance that failing to exercise price discipline could ever be a good thing.
And everyone else agrees with you. That’s why stock prices constantly adjust to new information, including, by definition, valuations.
Try to layer anything on top of this, like “prices are about to drop 65% beyond market current values”, and you only wind up looking stupid, and with zero credibility.
Rob says
Stock prices do NOT adjust to new information. They should. But they do not. Not today. That’s why we are in an economic crisis.
For stock prices to adjust, investors need access to accurate and honest information re what the last 34 years of peer-reviewed research tells us. It is information re Shiller’s “revolutionary” findings of 1981 that is suppressed. Discussion of the implications of Shiller’s findings is prohibited at every investing board and blog on the internet. The Wall Street Con Men have spent hundreds of millions of dollars promoting the purest and most dangerous Get Rich Quick approach ever concocted by the human mind. We now need to spend hundreds of millions promoting the first true research-based approach. When people have been able to learn what they need to learn, we will be able to work together to bury Buy-and-Hold 30 feet in the ground, where it can do no further harm to human and other living things. That’s where things are headed.
Criminal prosecutions are part of our system of government, Anonymous. So we will use criminal prosecutions to break through the obstacles standing in our way. We will do this as a nation following the next price crash, when we see that we have no other realistic options.
You obviously have the right to believe otherwise. I love my country. I have no choice but to believe what every post put forward during the first 13 years of The Debate About Having a Debate tell me — that we very, very, very much need to move to the debate proper.
I naturally wish you all the best that this life has to offer a person.
Rob
Anonymous says
Stock prices do NOT adjust to new information. They should. But they do not.
Right, and even though cars should cost $7,000, they cost $21,000. A great 65% car price crash is coming any day, I can just feel it! The system never fails!
Rob says
The car market works because we permit free discussion of car prices, Anonymous.
The stock market does not because we do not permit free discussion of stock prices. There are too many of us caught up in the Get Rich Quick/Buy-and-Hold fantasies.
But that is changing.
The promotion of Buy-and-Hold has caused four economic crises. Following the first three, we started the boom/bust cycle all over again. The next crash will be the first time in history when we got to the end of a boom/bust cycle and had 34 (or more) years of peer-reviewed research showing us what we need to do to avoid destroying ourselves again.
I believe that we are going to take advantage of the huge opportunity to live richer lives that that reality presents to us. I am not even able to imagine any reason why we would not.
But we’ll see, you know? I could be wrong. I’ve been wrong before. If it were happening again, I would probably be the last to see it.
I naturally wish you the best of luck with all your future life endeavors regardless of what investing strategies you elect to pursue.
My best wishes to you and yours, man.
Rob
Anonymous says
Please explain why PE10 is somehow any better a single financial metric to use alone as your solitary investment trigger, versus something like Book to Bill ratio adjusted for GDP. Or 5 year Rate of change for same store sales versus debt leverage. OR… [any of a million other cute little indices one might track]?
Rob says
Good question.
P/E10 is the best valuation metric, Anonymous.
You don’t need to look at any metrics that don’t measure mispricing because they all reveal things that are reflected in the price. Other people have already looked at those things and exploited any inefficiencies and thereby caused those things to be reflected in the price of stocks. Overvaluation and undervaluation are different from any other factor because it is only overvaluation and undervaluation that are not reflected in the market price. It is obviously not possible to price in mispricing. That’s a logical impossibility.
All factors that bear on the price of stocks are rational except for overvaluation/undervaluation. Mispricing is EMOTIONAL, not rational. Determining the price of stocks is a two-step process: (1) Look at all of the rational factors, which are reflected in the market price; and (2) apply the adjustment needed to incorporate the emotional factors, which are revealed through use of the P/E10 metric.
Fama’s mistake was to assume (he never showed that this was so, he just assumed it) that all factors are reflected in the market price. No! All rational factors are reflected in the market price but not the emotional factors. Shiller’s 1981 research was “revolutionary” (his word) because it showed that stock prices are not determined solely by economic factors (if they were, prices would fall in the pattern of a random walk both in the short term and in the long term) but also by emotional factors.
That changes everything. We now know how to virtually eliminate risk just by looking at the P/E10 level and telling people when stocks will be providing good long-term returns and when they will be providing horrible long-term returns. Or course, we don’t see the benefits of this huge advance until as a society we give ourselves permission to tell the millions of investors who need to know about the advance what they need to know.
We live in exciting times, Anonymous.
Rob
Laugh says
Rob goes on and on about short term timing not working. Well, when does the failure become ‘long term’. My vote is that 1996 till now is long term and vii clearly doesn’t work. Especially when it really historically only worked in the ‘mid term’ as per research that Rob himself posted here.
Rob says
The question of whether stock prices are set primarily by economic developments or primarily by emotional developments is a fundamental one, Laugh. It’s like the question “Do you believe in God?” Atheists and believers see the same things take place in the world every day. They interpret what they see differently because of the different core belief. If there is a hurricane and thousands of people die, the atheist might say: “This is further proof that there is no god because a god that loved us would never cause or even permit such horrible suffering. He’s not much of a god if he let this happen!” And the believer, seeing the same thing, might say: “This is further proof that we all need to put God first. Death can come at any moment and we all need to be prepared for it. This is God warning us that we need to reform our lives. God is good to try so hard to help us overcome our indifference to him with this act!”
The people on the two sides of the fundamental belief are essentially speaking different languages. The first difference of opinion takes them down a different path and each day takes them further down that path and further away from the beliefs of those walking the other path.
From my point of view, we have gone through four of the boom/bust cycles that are inevitably created when Buy-and-Hold strategies are widely promoted. You are right that it has taken more time to resolve this one than it took to resolve any of the three earlier ones. But that reality is not inconsistent with the theory that Shiller has put forward. Shiller says that mispricing is caused by investor emotion. P/E10 reached a far higher level this time than it did in any of the three earlier cycles (P/E10 went to 44 this time, it only went to 33 in the cycle that caused the Great Depression and it only went to 25 in the two other cycles). That means that investors became far more emotional this time than they ever became before. That means that we should expect it to take more time for the investor emotion to resolve itself than it has ever taken before.
If a P/E10 of 44 means what Shiller’s research says that it means, it should take longer for the short-term to turn into the long term than it has ever taken before. And that is just what we see! What is going on is consistent with the Shiller theory.
And of course we see emotion in the other way it evidences itself. We haven’t just seen high P/E10 levels. We have seen board bannings and death threats and defamation and efforts to get academic researchers fired from their jobs. All of that stuff is rooted in emotion. And we are seeing more of that than we have ever seen before. Just as we should have expected things to play out if Shiller is right!
I of course understand that you see things from a different perspective. You interpret every event differently than how I interpret it. So you naturally come to different conclusions.
I cannot “prove” that I am right in an ultimate sense. I feel that I have proven it many times over. But you feel that you have proven the opposite many times over. We both have staked our lives on what we have proved. So we both are sincere at least in that one very important respect. But no human being can ever prove anything to a 100 percent certainty. Because all human beings are FLAWED. We can convince ourselves that we have proven something even when we are wrong. We are imperfect, flawed creatures.
The question you are asking is a perfectly good one, Laugh. What you are not appreciating is that, if the penalties for posting honestly re these matters were not so great, you would be hearing THOUSANDS of people offer words of support for my perspective on a daily basis. That would change you. Your mind is able to resist what Rob Bennett says. But you wouldn’t be able to resist what thousands of people saying the same thing as Rob Bennett says said.
It’s a chicken and egg problem. You don’t believe me because there are not thousands of people supporting me. But the only reason why there are not thousands of people supporting me is that no one is able to hear these arguments. And the only reason why no one can hear these arguments is that you don’t believe me.
The only way that the new model can grow is for people to learn about it. The only way that people can learn about it is for people who believe in it to refuse to silence themselves. So I refuse to silence myself. I acknowledge that I could be wrong. I feel the greatest and respect for those on “the other side.” But I believe that I have an obligation to my country (which includes my millions of Buy-and-Hold friends!) to say what I believe. So I do that.
I hope that helps a bit.
Rob