Set forth below is the text of a comment that I recently posted to another blog entry at this site:
What specific texts did you study that Greaney and other Motley Fool members were unaware of? I am planning my own early retirement and would like to learn, as you did. Please don’t say “Irrational Exuberance.” I already have that one, and I believe Greaney as well as most members of Motley Fool have either read it, or are certainly familiar with it’s essential elements, so that doesn’t fit your claims. Looking for those other hallowed texts that you had access to, and informed your opinions, but others somehow overlooked. Thanks.
It’s not just what you read that matters, Yogi. It’s what you do with what you read. If all that mattered was what you read, we would all be even; we all have access to all the same books. But Bogle obviously doesn’t share all the same views as Shiller. And Shiller obviously doesn’t share all the same views as you. And you obviously don’t share all the same views as Wade Pfau. And Wade obviously doesn’t share all the same views as me. And on and on.
We all have access to the same materials. And to a considerable extent we read the same things. But we come to very different conclusions about how stock investing works as a result of reading generally similar materials. Why?
Part of it is that we have different personalities. I am an INFJ under the Myers-Briggs personality assessment system. Greaney is an INTJ. That’s a HUGE factor here. An INFJ and an INTJ can read precisely the same materials and come to very different conclusions re the subject they are examining. The two personality types process information in very different ways.
There are many more INTJs (and personality types that are similar to the INTJ type) in this field than there are INFJs. That’s a big factor here. That will change as Behavioral Finance becomes the dominant school of thought. But we are not there yet. Most people who work in this field today have a numbers focus. It’s as if we had a bunch of people who are engineers trying to wrote novels. That’s never going to work out well. There have been exceptional cases. But as a general rule the things that engineers are good at and the things that novelists are good at are very different things. For many years we thought that investing was a field of human endeavor in which engineers would do a good job. In recent years we have been learning that novelists possess more of the necessary skills (while engineers also have important things to contribute, to be sure).
Another factor is the life experiences held by the people who read the materials.
Say that Shiller had published his “revolutionary” research in 1961 rather than in 1981. That means that there never would have been an industry of wealthy and powerful and well-connected people built up around the promotion of Buy-and-Hold before it was discredited. Had things played out that way, we would ALL be Valuation-Informed Indexers today. Bogle would have had zero trouble understanding the implications of Shiller’s work had he not been a Buy-and-Holder for 16 years before Shiller published it. The cognitive dissonance kicked in because he felt that his reputation was tied up in the continued popularity of Buy-and-Hold.
Bogle felt that he had something to defend. So he was not capable of looking at things objectively. You often put up sarcastic comments suggesting that it is crazy that I say that I am 12 years ahead of Bogle in my understanding of how stock investing works. You are ignoring the fact that I have a big edge on Old Saint Jack. I don’t pretend to be an expert. So I don’t feel any need to be defensive when I learn about new ideas. My edge over Jack Bogle has nothing to do with what books I have read or what books he has read. It is largely the result of the fact that he got famous promoting Buy-and-Hold and I didn’t and so I had nothing to lose by discovering the implications of Shiller’s revolutionary findings.
A third factor is that it is not just how open you are to reading certain materials and the extent to which your personality is attuned to taking in the insights that can be mined from those materials but also how hard you work it when you come across materials that make points that have never been made before. You say that you have read Irrational Exuberance. How many times?
I have read it four times. Please understand that I did not get all there is to get from reading the book the first three times I read it. I would probably profit from reading it a fifth time.
This is a strange phenomenon. It is highly counter-intuitive. The same words were on all the pages the first three times I read the book. Why is it that I did not mine all the insights that are available to someone reading the book on the first occasion on which I read it? If I was smart enough to gather those insights on the fourth read, surely I was smart enough to gather them on the first read.
It doesn’t work that way.
I was able to mine SOME of the insights that are available for mining in Shiller’s book on the first occasion on which I read it. But not all of them.
What happened is that I read the book the first time and mined some insights and then went about my business. When I went back to it a year or two or three later, I had one or two or three more years of arguing with you Goons behind me. So I had looked at lots more questions. And I had struggled with lots more puzzles. And I had SOLVED lots more puzzles. So the Rob Bennett who read Irrational Exuberance the second time possessed a very different mind (at least when it comes to its understanding of investing matters) than the Rob Bennett who read Irrational Exuberance the first time. There were scores of insights that Shiller planted in his book that skipped right by me when I read it the first time and that I jumped on when I read it the second time. You may have read the book and missed a large number of the insights available in it for mining, Yogi!
Those are three big factors that explain why you did not get out of Irrational Exuberance what I got out of it. However, the full truth here is that we cannot come to a full understanding of the puzzle that you are trying to solve here (why did Rob Bennett see the errors in the Old School safe-withdrawal-rate studies way back in May 2002 even though the Wall Street Journal did not acknowledge those errors until nearly 10 years later?) by looking only at Irrational Exuberance, as important as that book is.
I’ll let you in on a little secret, Yogi. I had not yet read Irrational Exuberance when I put forward my famous post of the morning of May 13, 2002. The insights that I mined from Shiller’s book had a big impact on our discussions in later years. But it cannot be anything that I read in Irrational Exuberance that explains that post because I hadn’t yet read the book when I put forward the post.
The biggest factor is the next one I will discuss.
Scott Burns is the person who discovered the errors in the Peter Lynch approach to safe-withdrawal–rate analysis. Lynch had once said that the SWR is always 7 percent because stocks earn an average return of 7 percent real annually. Do you think that the reason why Burns was able to see that is that Burns is smarter than Lynch or that Burns has done more reading than Lynch?
That’s more than a little hard to believe, isn’t it? Lynch is a plenty smart guy and I have a funny feeling that he is a plenty well-read guy too.
So how did Burns pull that one off?
The elephant in the living room in all of these discussions is that as a society we are at a primitive level of understanding of how stock investing works today. That affects Bogle. That affects Shiller. That affects Pfau. That affects Lynch. That affects Burns. That affects you. That affects me. That affects all of us.
None of us know even the basics for certain.
That sounds scary when I say it so bluntly. And it is indeed scary in its way.
But there is a positive side to this scary reality. The positive side is that, when we are all at a primitive level of understanding, we all have the potential to make huge strides by clicking in a piece of the puzzle that no one has clicked in before.
Burns clicked in a piece that Lynch has not yet clicked in. Lynch believed that the average return is the amount that a retiree can safely take out each year because that is a perfectly natural intuitive belief. Burns picked up on a reality that is a bit counter-intutive but very important for retirees seeking to put together successful retirement plans — the sequence of returns makes a big difference
I picked up on a second factor that neither Lynch nor Burns had picked up on — the valuations level that applies on the day the retirement begins is a huge factor in determining what sort of returns sequence you are going to see.
Lynch wasn’t dumb or poorly read not to see what Burns saw and neither Lynch nor Burns were dumb or poorly read not to see what I saw. We are all just suffering from the reality that as a society we are at a primitive level in our understanding of how stock investing works today. We are going to make “dumb” mistakes. That’s just the lay of the land in this field of human endeavor today. The other side of the story is that we are all capable of making huge advances by tuning out what the “experts” say and looking at matters from a fresh perspective. That’s what I did. I think it would be fair to say that the payoff for 12 years now had been AMAZING.
You can read every text that I have read and not get to the same place, Yogi. Your problem is not an intellectual problem. It is an EMOTIONAL problem. You are ADDICTED to Buy-and-Hold. You have invested not just your retirement money into it. You have invested your entire life into it. You have recommended it to your friends. So your pride is on the line. You have even committed acts of financial fraud under the thinking that you will not get prosecuted if stocks perform in the future in the manner in which they would perform if Buy-and-Hold were a real thing. So your very physical freedom is on the line here.
Given what you have at risk here, you are not capable of thinking straight re stock investing questions. For me, it’s about learning. For you, it’s about defending your most basic beliefs from the “attack” being waged on them by the peer-reviewed research of the past 33 years. And of course the same is so re our good friend Jack Bogle. He is insanely defensive about these matters too. So he too is not capable of thinking through the things he learns in the books he reads when he reads the same books that I read.
Do you see?
I hope that helps a bit, my old friend.
Hang in there. It gets better. A LOT better.