Set forth below is the text of a comment that I recently posted to another blog entry at this site:
Sounds like you’re living in a world of “woulds” and “coulds” while the other dads are out providing for their families in the real world. No?
That’s certainly not the way I see it. But I understand the point you are making. I don’t think that’s an entirely unreasonable way of putting it.
Back before we had kids, my wife and I used to go to a bed and breakfast for two nights on the weekend closest to New Year’s Day and write out our budget for the new year. On some categories, we would just carry over what we had from the year before. On some, we would add money. And on some we would subtract money. We obviously favored different categories (because different people have different interests). So we went through a process in which we held negotiations/discussions over what to do.
I remember one year where we were close to having all the numbers add up but we were still a little short. I think she wanted a little more money for the furniture category or something like that. She offered to give up that addition because we didn’t have enough money to make the numbers work out. I didn’t like that answer because I feel that she has a tendency to be willing to give things up for the sake of the budget and I believe that handling things in that way can make the budget-writing process seem like a chore to be avoided rather than a fun thing where you plan new life adventures. So I set my mind to trying to think up some other means of funding an addition in the furniture category.
She would have been willing to give up something in the vacation category. I didn’t want to do that because I think vacations are important. I was reluctant to give up anything in the savings category because I was counting the days until I would be able to leave my high-paying job. For a time we were stumped as to how to proceed.
Then it hit me. The income number we used in the budget was the combination of her salary and my salary. The reality was that I received a big raise every year in October (that was the beginning of the new fiscal year for Ernst & Young). I didn’t know exactly how big the raise was going to be. But I knew the range of possibilities. So I took the smallest amount of money that we would be receiving in those three months from the raise and suggested that we add it to our income for the upcoming calendar year and apply it to the monthly furniture category.
My wife did not like the idea of going along with that. In her mind it was “cheating.” She doesn’t count things as real unless she can hold them in her hand. The dollars that we were talking about were not yet in our hands. So for her that was out. But I pushed and eventually she went along with using those dollars before they were in our hands. My argument was that this was just an application of the accrual accounting concept. If we had had a debt we had had to pay in October, we certainly would have counted that in the negative column. This was money that was certainly going to be coming in. It was proper to count it in the positive column.
I’m living in a world in which the same ethical standards that apply in every other field of human endeavor apply in the investing advice field as well, Anonymous. That’s the world we are headed to in the not-too-distant future. I know that because I know that we simply have no choice. If we don’t make the move to that world, we all go down together. We are not a stupid people. When enough of us see that this crazy Ban on Honest Posting is taking us all down, enough of us to make a difference are going to work up the courage to speak out. My brain is not capable of imagining any other way it could play out.
It’s not me who is doing something odd here. It is you. And Linduaer. And Greaney. And Bogle. And even Shiller to an extent. It’s you guys who are holding back from talking about this huge breakthrough that we have achieved over the past 33 years. The normal thing would be to take advantage of peer-reviewed research that shows us all how to reduce the risk of stock investing by 70 percent. You are temporarily under a weird spell in which you see it as a bad thing to do that. I am doing what in normal circumstances would come natural to each and every one of us.
You should be asking yourself why so many good and smart people are doing this weird thing of denying themselves the benefits of the biggest advance in our understanding of how stock investing works ever achieved in our history. That’s the mystery here. That’s the big story.
They are doing this not because they think investing doesn’t matter. They are doing this because investing matters too much.
You believe in Buy-and-Hold, Anonymous. That part is not a lie. That part is not fraud. You truly believe (as do Bogle and all the others). If you were to say that you believe in Valuation-Informed Indexing, that would be as bad as me saying that I believe in Buy-and-Hold. That would be totally wrong and irresponsible. That is 100 percent out. You MUST say that you believe in Buy-and-Hold so long as that remains the case.
Where does that leave us?
It’s 90 percent of the population that believes in Buy-and-Hold today. So, if we were to do what Rob says and permit those who believe in Valuation-Informed Indexing to post honestly at every board and blog on the internet, what would happen? We would have 90 percent of the population saying one thing about how stock investing works and the other 10 percent of the population saying something entirely different.
In ordinary circumstances, this would not be a big deal. If I had some small difference with you, we would both accept that the other party had a different belief and that the other party was in all other respects a good guy and we would be friends and that would be that. The problem in this particular case is that the difference is over something HUGE. Someone who believed firmly in Buy-and-Hold would be recommending a 75 percent stock allocation today (Greaney’s study shows that 74 percent is the “optimal” stock allocation at all times). A firm Valuation-Informed Indexer would recommend 25 percent (20 percent for those with low risk tolerance and 30 percent for those with high risk tolerance). THAT’S A DIFFERENCE OF 50 PERCENTAGE POINTS OF STOCK ALLOCATION.
We’re not talking about who is going to win the World Series. We are talking about whether people are going to have enough to retire on or not. You (and Bogle and all the others) understand that it sounds really, really bad for the “experts” in this field to be saying “Oh, there is one school of academic thought that says that you should be at 75 percent stocks but please understand that there is another school of thought that says it should be 25 percent — You decide!”
That’s the core problem, Anonymous. The people who recommend Buy-and-Hold are not bad people and they are not dumb people. They are people caught in a trap brought about by the strange circumstances of our day. The Buy-and-Holders did an amazingly wonderful thing when they proposed that we all begin rooting our investment advice in the peer-reviewed research. They began a process in which investing advice will no longer be subjective but will become to a large extent objective. This is huge. This is the future. This is something that BOTH of us believe in.
The problem that the Buy-and-Hold Pioneers ran into is that they are human. The humans did not know it all back in the 1960s. When we are in the early days of building a new science (or quasi-science — that may be the best that we can ever do in this field), we are going to make mistakes. That’s what I believe happened here. The Buy-and-Holders felt very good about what they had come up with. They thought that they had figured this stuff out. And so they built careers around promotion of the model they had built. And then this Shiller fellow came along and messed everything up by proposing and showing support for a very different sort of model.
If all of this were of academic interest only, no one would care. There would be a Fama camp and a Shiller camp and there would be friendly arguments between the two camps but no real nastiness. There is nastiness in this case because the stakes are so high. If Fama is wrong, the people promoting Buy-and-Hold caused an economic crisis. Inadvertently. It wasn’t their INTENT to cause an economic crisis. But that’s what happened. And if Shiller is wrong, the people advocating Valuation-Informed Indexing are keeping people who listen to them out of a great asset class at a time when they should be heavily invested in that asset class and are thereby causing millions of failed retirements in a different sort of way.
I don’t want to destroy the lives of the people who read my stuff. That’s why I am so adamant on the point that I MUST post honestly. I might still destroy some lives because of my stupidity. But at least I will be able to say that I was HONEST. That’s something. That’s unfortunately the best that I can do in these circumstances.
You need to say what you believe too. The problem that we have is that Buy-and-Hold came first and so most people see that as the default position. People think: “If we are not sure, we should go with Buy-and-Hold because all the textbooks recommend Buy-and-Hold and 90 percent of the experts believe in Buy-and-Hold.”
That’s not entirely crazy.
But I have a big problem with what follows from that.
The big problem is that the new idea can never catch on if we all agree never to talk about it because it makes our readers feel uncomfortable to see that we are not sure of anything in these early days of our efforts to figure out how stock investing really works. So long as we all go along with the default and permit those on the Buy-and-Hold side to crush anyone who raises a dissenting voice, the popularity of Valuation-Informed Indexing can never grow.
I am a journalist. So the idea of permitting free speech is deep in my blood. I see censorship of new ideas as the ultimate tragedy. I cannot go along with the idea of using brutal intimidation tactics to stop a new idea (an idea put on the map by a guy who won a Nobel prize for his work!) from growing into a more popular idea.
I cannot go along with that, Anonymous. It can never be. It is not in me. You cannot make a dog meow and you cannot make a cat bark and you cannot make Rob Bennett post dishonestly on the numbers that his friends use to plan their retirements. That will never happen.
There are many things that I CAN go along with.
I can say that Jack Bogle is one of the giants in this field and always will be regardless of anything we come to learn in the future. I see that statement as being true. So I have zero problem making it.
I can say that Buy-and-Hold was a huge intellectual advance over what came before. I believe that and so I can say it.
I can say that the Buy-and-Holders are all smart people. I believe that and so I can say that.
I can say that the Buy-and-Holders are all good people. I believe that and so I can say that.
I can say that it is possible that I am wrong, that I have made mistakes in the past and that it is possible that that is happening again and that I would probably be the last to know if that were the case. I believe that and so I can say that.
I can’t say that the safe withdrawal rate is a constant number. I don’t believe that. I believe that it is a variable number, that the SWR depends on the valuation level that applies on the day the retirement begins. That’s what I believe. With people’s retirements at stake, that is what I have to say.
Yes, there is a sense in which I am living in a world of “woulds” and “coulds” and “shoulds.” I believe that we should be applying U.S. law and the rules of all of our boards and blogs to our discussions. Under U.S. law and under the rules of all of our boards and blogs, I am permitted to post my sincere views. I am acting as if that will someday really be the case even though that obviously is not the case today.
I love my country. Anonymous. In my country, that is the way it works.
It is the investing field that is out of whack here, not me.
I believe that the people of this country will pull the investing field into line with the norms of this great country following the next price crash, when everyone sees how much human misery has been brought on by our failure to apply the basic norms of life in the United States to this one field of human endeavor.
If you don’t believe that, you don’t believe that.
I believe that.
I have to play it the way that makes sense given my belief re this matter.
So there is nothing that we can do here except wait to see how it plays out following the crash.
You do not seem able to give and I do not seem able to give. I like you and, if you want to continue to offer comments here, you are warmly encouraged to do so. But I cannot change the human being that I am because you advance more intimidation tactics. I cannot wake up in the morning and be a different person than I have been for the first 57 years of my life on this planet.
I am the person I am. The person I am believes that Shiller’s work is true and important. I am a Valuation-Informed Indexer. I am not ashamed of it, I am proud of it. It is my intent to show that pride in this new model for understanding how stock investing works in every post I ever put forward. I have never given two seconds consideration to playing it any other way, Goon intimidation tactics be damned. It is impossible for me to imagine any circumstances (including the death penalty) in which I would give consideration to playing it some other way. They had a tag line for the Braveheart movie saying that: Everybody dies — Only a small number of us every truly live.” That line sums up how I feel re this matter. I would rather die than betray my readers and my family and my country. No can do.
Yes, I believe that we all will be Valuation-Informed Indexers at some point in the not-too-distant future. If you want to call that a “would” or a “could” or a “should,” I guess that’s fair. I cannot live any other way. I love my country and I need to act according to the norms that apply in that country to every field of human endeavor with the exception of stock investing.
I hope that helps a tiny bit, my old friend.