Set forth below is the text of a comment that I recently posted to another blog entry at this site:
You’ve already agreed that nobody actually uses these strategies as you define them. Instead, everyone makes individual allocation decisions based on their unique situations. So why keep talking about two imaginary strategies?
You overstate things as is the usual Goon practice, Anonymous.
You are right (and it is an important point) that few investors follow Buy-and-Hold dogmatically or Valuation-Informed Indexing dogmatically. Some do. But they are in the minority.
But there are many investors who follow a somewhat softer version of Buy-and-Hold (what I call Strategy C). And there are a good number (but a much smaller number) who follow a somewhat softer version of Valuation-Informed Indexing (what I call Strategy D).
Neither of the two strategies are “imaginary.” Both have had great influence. Buy-and-Hold has had far more influence than Valuation-Informed Indexing thus far. But it is my belief that Valuation-Informed Indexing will have more influence in the future. It was the intent of the people who developed both strategies to develop a research-based strategy. That is a huge advance. So both strategies are of huge historical importance. Both increased our knowledge of how stock investing works. I don’t see how it is fair to refer to either strategy as “imaginary.”
I DO think it would be fair to say that the vast majority of investors find limited appeal in theory. Most investors live in the practical realm. They want to know what works, not what the research says. I think it is a mistake to ignore the theoretical. I think that the research can be a great guide to learning what works in the long term and that placing too much focus on what works can cause one to place too much focus on short-term results. But I do think that it is fair to say that most investors do not focus too much on the theoretical appeal of either of the two models.
Even investors who focus on the practical are unknowingly influenced by the theoretical. You believe with all your heart, mind and soul that the numbers on your portfolio statement are real. That is probably largely because you are drawn to the practical and accepting a number on a portfolio statement as real is a practical thing to do. But the bigger reality is that, if all the experts in this field told you that you need to make an adjustment to those numbers to obtain accurate numbers suitable for serving as the basis of your financial planning efforts, you would come to view the idea of making the adjustments as a practical thing to do and would begin doing it.
The line between the practical and the theoretical is not a thick, bold line. The one realm bleeds into the other. Even people who think of themselves as not interested in theory are influenced by it because they are influenced by the teachings of others who are influenced by theory in a more direct way.
I mentioned the other day that there was a time when physicians used bleeding as a cure for all sorts of illnesses for which it is not an appropriate remedy. Say that you were a doctor in those days and that you had developed an effective cure not involving bleeding for an illness conventionally addressed with bleeding. If you tried to apply that cure, you would have been attacked by those using the bleeding cure. You would be viewed as a threat by them. It would be said that your treatment was “dangerous.” Patients who didn’t care at all for theory and just wanted to be cured would run from you because they would view your methods as “dangerous” from a practical standpoint even though your methods were the proper ones. The continued reliance on the discredited theory would be holding back progress by holding back acceptance of a perfectly practical course of treatment by causing it to be perceived as less than practical.
That’s where we stand in the investing realm today. The theory behind the Buy-and-Hold strategy has long been discredited. But in the practical realm Buy-and-Hold remains dominant. There are few pure Buy-and-Holders. But the vast majority of investors follow stock allocation strategies more in line with the theory behind Buy-and-Hold than in line with the theory behind Valuation-Informed Indexing.
That’s what I want to see change. I want people to follow the strategies that appeal to them. But I want them to be able to hear about the strengths and weaknesses of both theories before making a choice. So it is important to me that I and all other community members who believe in Valuation-Informed Indexing be permitted to post honestly. If we all post honestly, I believe that knowledge of how the VII theory works will spread over time and stock allocation choices that are at least somewhat influenced by that theory will become more popular. For so long as we defer to the intimidation tactics of the Buy-and-Holders and hold back from giving complete and clear explanations of why we favor the theory behind VII, Buy-and-Hold will remain dominant and VII will not experience the growth that I want to see it experience.
I hope that helps a bit.
Rob
Anonymous says
All of this is your opinion and the world has no obligation to follow your opinion. I follow a buy, hold and rebalance strategy that has been proven to work in practice and is also supported by peer reviewed research. It is still just my strategy and there is no obligation for anyone to follow it.
Do what you want, Rob, but don’t continue to expect that the world needs to bend to you.
Anonymous says
I guess the post that was left ended up making you speechless.
Rob says
Patience, Grasshopper.
I need to consult with my legal team.
Rob
Rob says
My “opinion” is backed by common sense, by 34 years of peer-reviewed research, by 145 years of historical return data, and by a number of biggest names in the field. Yours is backed by a bunch of Wall Street Con Men who have just happened to get filthy rich pushing the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind and by the deception and intimidation tactics of their Internet Goon Squads.
Gee, I wonder which way the world will be tilting following a price crash that will have wiped out 65 percent of their life savings. Some of these things are so darn hard to figure out!
If I were on your jury, I would vote to send you to prison for a long, long time, Anonymous. You have ruined the lives of millions of people for no good reason whatsoever. But guess what? There’s zero chance that I am going to serve on your jury! So no worries there.
I will tell the story of your behavior over the past 13 years to your jury. They will decide on the length of your prison sentence. That’s how our system works.
If you think that your jury is going to fall for some stupid story about the most massive act of financial fraud in the history of the United States was all just a matter of a difference of opinion, please know that you have my blessing to go with that one. I would put the odds of that one being successful following the next crash at one in ten billion. But I don’t know everything. I am not God. I could be wrong. Go with it! See whether it flies or not.
If you believed in this garbage, you wouldn’t be posting here every day. I obviously see that and anyone who reads these words following the crash is obviously going to see that. So I’m not worried. I have done everything that a person could possibly do to get you Goons put in prison cells, where you belong. The Post Archives are very clear on that. I am the last person in the world who will be going to prison following the crash. I’m a patient fellow. I’ll wait it out.
I will be contacting just about everyone alive on Planet Earth following the crash to tell them the story of what happened to their retirement money. I will send fresh e-mails to those 30,000 academic researchers. I will contact every personal finance blogger and every political blogger. I will contact all the economists and policymakers. I will contact all the personal finance journalists and all the political journalists and all the economics journalists. And on and on and on for as long as I walk the planet.
In the event that I get too old, my boys will take over. In the event that my boys tire of it, I have a friend who has agreed to take over.
There are billions of dollars in this for whoever gets involved early in spreading the word about the first true research-based investing strategy. Gee, I wonder whether anyone will be interested in collecting those billions once the emotional appeal of the pure Get Rich Quick approach has passed and people are looking to hang the people who have done this to them from trees. Again — some of this stuff is just so darn hard to figure out.
Bernie Madoff was only expressing his opinion when he concocted false transaction statements. He was never sent to prison. That’s all just a myth.
I believe you, Anonymous.
That’s good stuff. That’s the answer.
Truly outstanding!!!!!
I wish you well, my long-time opinion-holding and abusive-posting friend.
I’ll bake you a cake with Shiller’s book inside and you can catch up on your reading of what the peer-reviewed research says when you find yourself with some time on your hands.
Science!
Rob
Anonymous says
Rob once again inexplicably shouted: “Your [opinion] is backed by a bunch of Wall Street Con Men who have just happened to get filthy rich pushing the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind [by this phrase, Rob has consistently said he means: Passive Buy and Hold investing of mutual funds and bond mixes, representing the world’s economic engine of commerce and industry].”
Rob, I have asked before, and since you have provided no answer to date, I suppose you will have me ask yet again: “How does Wall Street somehow get rich by endorsing passive low-cost long-term mutual fund investing?”
Rob says
In the long run, they don’t. In the long term, Wall Street LOSES money by promoting Buy-and-Hold strategies. The problem is that people who work on Wall Street are like people everywhere else. They are drawn to what seems to be working in the short term. In the short term, Buy-and-Hold makes HUGE amounts of money for Wall Street.
The first thing that you need to understand is that investors can set the value of their portfolios wherever they want them to be. The confusion stems from the fact that it doesn’t work that way in other markets.
In the car market, every dollar of price increase comes out of the pocket of the person buying the car. So the person buying the car naturally opposes price increases. He fights them. It is that battle between buyer and seller over price that makes markets work.
Stock buyers do not fight price increases. They cheer them. That is the entire problem with the stock market. That is why people perceive of stocks as a risky investment class. If we all understood that buyers should be opposing price increases, prices would never get out of hand and stocks would be no more risky than certificates of deposit. The reason why we don’t understand this is that the research didn’t show it until 1981. And we have been covering up what we learned in 1981 for 34 years now because it hurts the feelings of the Buy-and-Holders for people to see that they made a mistake. Once we move past this crazy idea of denying ourselves access to the biggest advance ever achieved in the history of personal finance, it will just be good stuff piled on top of good stuff piled on top of good stuff for all of us.
There is no reality to the prices you see quoted for stocks each day in the newspaper. You could determine the correct numbers for the indexes if you wanted to. Just add or subtract for the effect of the overvaluation or undervaluation present on that day and you have the correct number. But, if you fail to do that, the number you are looking at is a fiction. It doesn’t tell you what you are seeking to learn when you ask “what is the value of this stock portfolio that I am holding?”
We can collectively make the value of our stock portfolios whatever we want them to be. We can set prices at fair value and face the reality that being able to retire at age 65 is going to be tough for a good number of us. Or we can engage in a fantasy that will appear to make retirement a much easier goal to achieve by setting prices at two times fair value. We destroy millions or lives by choosing the second option. But it sure feels good up until the time when the bill for our irresponsibility needs to be paid
The Wall Street Con Men are just like anyone else. They want to be popular. They want to be perceived as being smart. They want to make lots of money. Buy-and-Hold presents an easy way to achieve those goals in the short term. It is pure Get Rich Quick. There is not an iota of evidence anywhere in the pee-reviewed research or in the historical data suggesting that there might be some alternate universe where it might be okay not to exercise price discipline when buying stocks. But, boy, there sure is a lot of money to be made pretending that there might be such an alternate universe. Everyone has a Get Rich Quick urge within. So everyone LOVES, LOVES, LOVES hearing those Buy-and-Hold Lies. They are such happy lies!
Now —
I am not saying that Bogle wakes up in the morning rubbing his hands together in glee re all the human misery he has caused by pushing his smelly Buy-and-Hold garbage. I don’t think that’s the way it is. I think he rationalizes. He knows what Shiller’s research says. He sees how emotional the Buy-and-Holder are when they post at a discussion board with his name on it. He knows that there is zero chance that Fama showed that long-term timing is not required because Fama didn’t even know that long-term timing was a possibility at the time he did his research and so he never tested it. He knows that Buy-and-Hold defies common sense. But he tells himself that it will all work out somehow. He wants to believe in Buy-and-Hold very badly. And so he does.
None of that is criminal. It’s human, that’s all.
But there are lines.
No matter how much pain Bogle feels about the 34 years of peer-reviewed research showing that he made a mistake, there are behaviors that he cannot engage in or endorse or tolerate. There can be no threats of physical violence. There can be no demands for unjustified board bannings. There can be no acts of defamation. There can be no threats to get academic researchers fired from their jobs.
Cross those lines and you go to prison. That’s what the laws of the United States say.
Telling people lies won’t always get you thrown into prison immediately. Lots of people want to believe the Buy-and-Hold Lies. So they tolerate them today. But those people are not going to feel so charitable toward the people telling these lies when their retirement accounts have been wiped out. They are going to want to hang the people who told these lies from a tree when that day comes.
This site documents 13 years of those lies. This site provides the information that millions of people are going to need to bring hundreds of thousands of civil suits for damages and to put hundreds in prison cells. Good for this site. Civil suits and prison cells are part of our system. It is a wonderful system. The announcement of your prison sentence is part of a process that is going to take us all to some very wonderful places, Anonymous.
The Wall Street Con Men are greedy. Because they are human and all humans are greedy.
In the end, the greed of the Wall Street Con Men hurts even the Wall Street Con Men.
The Wall Street Con Men should be able to count on the rest of us to rein in their greed by calling them out on their b.s. When Jack Bogle talks out of his backside and says that it is never necessary to lower your stock allocation by more than 15 percent, every journalist in this field should publish an article pointing out that this is the most dangerous lie ever told in this field, that this is a lie that was discredited by the peer-reviewed research in this field 34 years ago.
It is not just the Wall Street Con Men who have failed this country. We ALL have failed ourselves. We all let this Buy-and-Hold garbage get insanely out of hand.
Maybe that means that we will adopt an amnesty under which not so many people will go to prison and not so many people will be sued for civil damages. That’s fine with me. I think the idea makes a good bit of sense. But that is a choice that needs to be made by the nation as a whole. It is not my place to adopt an amnesty. If that is done, it is something that will be done by our elected representatives because we as a people decided that it was a smart and good thing to do.
My job is to tell the story so that we as a people can make good decisions. That means that I don’t agree to lie no matter how much pressure is applied to me to do so. I don’t say that Greaney’s retirement study contains an adjustment for the valuation level that applies on the day the retirement begins. That means that I don’t say that there is not 34 years of peer-reviewed research showing that such an adjustment is required in any valid retirement study. That means that I don’t say that Greaney corrected the error in his study within 24 hours of the moment when he learned of the error he made in it.
I love the Wall Street Con Men. That’s why I call them out on their b.s. We all should be doing that. Because the Wall Street Con Men are human and humans are drawn to the short-term greedy thing. They need to be able to count on their friends when they feel a desire to tel the sorts of lies about how investing works that the Buy-and-Holders have been telling relentlessly for 34 years now. It turns out that not only is pure Get Rich Quick not the answer, pure Get Rich Quick is actually the problem.
My sincere take.
I hope that all helps a bit, Anonymous.
My best and warmest wishes to you and yours.
Rob
Anonymous says
“In the short term, Buy-and-Hold makes HUGE amounts of money for Wall Street.”
Really? Ahem. BUT HOW? You went on for thousands of words, but still never answered the question!
Look, I am a dirty scummy, willing-to-do-anything Wall Street broker cum tycoon.
So please tell me what my predecessors have done to harness PASSIVE BUY AND HOLD INVESTING USING LOW COST MUTUAL FUNDS in order for *me* to ‘get rich’? My entire get rich quick scam awaits your valuabl(e but apparently still secret) information — don’t let me down, Rob!
Rob says
1) The Wall Street Con Men make money by selling stocks. When stocks are insanely overpriced, you make more money by telling lies about what the research says. The Buy-and-Hold Lies help the Wall Street Con Men sell stocks at times when other asset classes offer a far better long-term value proposition;
2) Telling the Buy-and-Hold Lies makes the Wall Street Con Men more popular than they would be if they told the truth. Again, that puts money in their pockets; and
3) Telling the Buy-and-Hold Lies makes the Wall Street Con Men appear to be “experts.” The truth is that they made a horrible mistake in 1965 that was uncovered by peer-reviewed research published in 1981. If they acknowledged the mistake, everyone would know that they are humans capable of making mistakes. By not correcting the mistake, they trick people into thinking that they are super-human beings not capable of error.
It’s a con. I am not interested in promoting this massive con in any way, shape or form.
Please try to find someone else.
Rob
Anonymous says
Wall Street “con men” would make the same money under VII. People would be selling the stock (creating commissions) and moving into other assets (creating commissions).
Try again, Rob.
Anonymous says
You can almost hear Rob’s potato chip grease stained fingers franticly searching teh Googles to find *some* way to support his ridiculous lie.
Rob, Wall street simply does NOT get rich when people buy and hold.
Take a look at the website of any financial advisor, broker, or analyst. They all try to sell advice, newsletters, systems, trades, bundles, etc that rely on you getting their ‘insider’ info in order to TRADE in order to try to BEAT the market. Active. Trading.
No matter how they rationalize it, hide it, dress it up, try to rename it, or try to conceal it, the plain facts are they they make the LEAST money when people merely buy a market basket once, then hold it for considerable periods of time (“Forever” is how Buffet answered when asked his personal favorite stock position holding period).
Your entire “bit”, and what has largely become the most central feature of your existence, is based on a wholly insupportable (and in fact, plainly illogical) premise.
So, how’s that feel?
Rob says
Wall Street “con men” would make the same money under VII. People would be selling the stock (creating commissions) and moving into other assets (creating commissions).
In the long run, the Wall Street Con Men would make MORE money with VII. Stocks would be a far less risky asset class. So more people would feel comfortable buying them. Which would be a very good thing. Stocks are the best long-term asset class for middle-class investors. We should all want people t feel more comfortable buying stocks. Telling the truth about what the peer-reviewed research says would take much of the mystery out of the stock market.
In the short-term, there is more money to be made telling the Buy-and-Hold Lies. Lots of people buy stocks regularly as they earn each paycheck. Those people would not buy stocks at times when other asset classes offered a far better value proposition. That would mean a LOWERING of commissions.
But of course that’s just what we should all want. We shouldn’t want people buying into asset classes that are not right for them.
And, once we opened up the internet to honest posting re the last 34 years of peer-reviewed research, the Wall Street Con Men would do JUST FINE. Stocks would not ever again become insanely overpriced once honest and accurate information re the peer-reviewed research was widely available.
I certainly have never said that the Wall Street Con Men are working this con solely for the money. They thought that Buy-and-Hold really worked from 1965 through 1981. They built businesses around it during those 16 years. Then they were embarrassed when Shiller’s 1981 research showed they had made a mistake. They went into cover-up mode.
Now the 34-year cover-up has ruined millions of lives. They are desperate to keep people from learning about the cover-up. They are looking at massive civil lawsuits and at long prison sentences.
But they have no choice but to come clean someday. If they do not, our entire economic system will collapse. That means that their businesses collapse. So the Wall Street Con Men need to see the internet opened up to honest posting as much as the rest of us. They just feel trapped.
If they are going to come clean sooner or later anyways, isn’t it best to come clean as soon as possible? It sure seems so to me. Coming clean sooner means shorter prison sentences and smaller lawsuit judgments.
I am helping my Wall Street Con Men friends by trying to get the internet opened to honest posting on the last 34 years of peer-reviewed research as soon as possible. They don’t see it that way. But that’s the deep reality here.
I hope that helps a bit, Anonymous.
Rob
Rob says
No matter how they rationalize it, hide it, dress it up, try to rename it, or try to conceal it, the plain facts are they they make the LEAST money when people merely buy a market basket once, then hold it for considerable periods of time (“Forever” is how Buffet answered when asked his personal favorite stock position holding period).
Buffett holds stocks forever. But he buys at a reasonable price. If you buy at a reasonable price, holding forever works.
The Buy-and-Holders do indeed discourage short-term timing. That’s a plus. The peer-reviwed research supports them re that one.
But there sure ain’t no peer-reviewed research suggesting that it might be okay once every ten-thousand years or so to fail to exercise price discipline. It is ten times more important to exercise price discipline (that is, to practice long-term timing) than it is to avoid short-term timing. There is 145 years of historical return data showing that failing to exercise price discipline is the worst mistake that an investor can make. Buy-and-Hold is the one strategy that NEVER works.
It defies common sense. Common sense tells you that price discipline is required when buying ANYTHING. We now have 34 years of peer-reviewed research showing that the stock market is just like every other market ever created. There is ZERO chance that it can ever be a good idea to ignore the need for exercising price discipline.
Why do you think that Buy-and-Holders are the only ones who “defend” their ideas with 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? People defending legitimate ideas do not behave that way. Not once. Not ever. No exceptions.
Buy-and-Hold is a con. The purest and most dangerous con ever worked on the American people.
Those who “defended” Mel Linduaer and John Greaney and Jack Bogle will be going to prison following the next crash.
Good. That’s where those sorts of “individuals” belong.
I believe that the day your prison sentence is announced will be made a National Holiday in the United States, a second Independence. Can you imagine living in a country in which the millions of people trying to provide for their retirements have easy access to HONEST information about what the last 34 years of peer-reviewed research says?
That’s where this is headed.
I am sure.
My best and warmest wishes to you.
Rob
Anonymous says
“In the short-term, there is more money to be made telling the Buy-and-Hold Lies. Lots of people buy stocks regularly as they earn each paycheck. Those people would not buy stocks at times when other asset classes offered a far better value proposition. That would mean a LOWERING of commissions.”
That’s it? That’s your whole reasoning ‘engine,’ driving your utterly psychotic behavior?
Because if the market goes up, and it goes down, then TRADES are generated.
Unlike low-cost, non-broker-involved one-time purchasing of a Vanguard mutual fund, at expense ratios of say 0.2% of funds being invested; versus an industry average of 1.3% PLUS trading costs, PLUS management fees?
Rob, even someone as innumerate as you claim to be (and it’s pretty bad!) still can’t be that out of touch.
Every time a Lucky Seven investor has his valuation parameters exceeded, he MUST either buy or sell, or you are going to send them right to jail for ‘supporting
Greany.’ Remember? MORE COSTS!
So, for once in the last 14 years, please — SNAP OUT OF IT! USE YOUR BRAIN, and not your butthurt ego to drive both your reply and also your future actions.
Rob says
Once honest posting is permitted, each investor will choose for himself which way to go, Anonymous.
The peer-reviewed research that I co-authored with Wade Pfau shows that investors can retire five to ten years sooner by going with a research-based approach over a pure Get Rich Quick approach. They also can reduce risk by nearly 70 percent.
I think it would be fair to say that there will be very few investors going with Buy-and-Hold once we open the internet to honest posting re the peer-reviewed research. You obviously agree or else we never would have seen a single death threat.
I am happy to put forward some words aimed at getting your prison sentence reduced a bit. That’s as far as it goes. I don’t do felonies. Non-negotiable. Find someone else.
Hang in there, man.
Rob