I’ve posted Entry #278 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Our Investing Biases Are Particularly Dangerous Because They Are Time-Based Rather Than Phenomenon-Based.
Juicy Excerpt: The most important investing biases are time-based rather than phenomenon-based. That means that for long periods of time certain ideas are forgotten by almost the entire population. To tap into the other side of the story the investor would have to study historical data from a time-period many years removed from the current time-period. Who does that?
Shiller showed that valuations affect long-term returns. What he really was doing when he did that was showing that the stock market is not efficient, that mis-pricing on either the high or low side is a significant reality rather than the illusion that Buy-and-Holders believe it to be. Even during the most out-of-control bull market, there are a small number of people questioning whether the insane prices achieved are real and lasting. But the percentage of the population holding that view can be very small indeed. The percentage of the population that is conservative rather than liberal doesn’t vary dramatically from time to time. The percentage of the population that believes that stocks are the perfect investment choice is dramatically higher when prices are high than it is when prices are low.
For a good number of years following the great crash of 1929, investors didn’t expect to see any capital appreciation at all on their stocks. The conventional wisdom of the time was that stocks were worth buying only for their dividends; those that didn’t pay high dividends were not worth owning. In the late 1990s, dividends fell to tiny levels. The very thing that made stocks dangerous (their high price) changed the conventional wisdom on stock ownership to reflect a bias that stocks are always worth owning.
Stocks for the Long Run was a popular book in the 1990s. It would not have sold many copies in the 1930s. The book reports on data, facts, objective stuff. The message of the data should not change from times like the 1930s to times like the 1990s. But the ways in which we arrange the data and interpret the data changes when we go from bull markets to bear markets. People will be looking at the same data that was employed in Stocks for the Long Run to sell stocks to make the case against stocks when we are on the other side of the next stock crash.
This is #278. It’s starting to look like the series ends at #285. With no explanation from ValueWalk, let alone any thanks for the years of free content. Pretty shabby treatment, I must say.
I certainly don’t agree that there has been any shabby treatment, Anonymous. I would say that Jacob has been a Hero to the Middle Class for running 285 columns at his site. It’s a very small number who have done that much for the cause. I am exceedingly grateful.
I am not quite willing to declare the column dead today. I will send a follow-up e-mail tomorrow. If I don’t hear a response to the follow-up by the close of business on Friday, I think it would be fair to call it dead.
As of this morning, I would say that I don’t have a terribly good feeling about the future of the column. This development makes me very sad. I put a lot of blood, sweat and tears into the column. I learned a lot writing it. I had lots of good times. I even learned from some (some!) of the comments advanced by you Goons. 285 entries is six years of weekly articles! I will miss it!
But, like I often say about the general issue, there has been 50 times more good here than there has been bad here. What if Jacob had never approved the first column entry? 285 columns is 285 more than zero columns. I would have missed out on lots of learning experiences if Jacob had not approved the first column and if he had not accepted 284 more of them.
Bob Dylan has a line in the song “Mississippi” that does a good job of describing my take re this one:
But my heart is not weary, it’s light and it’s free.
I’ve got nothin’ but affection for all those who’ve sailed with me.
I hope that helps a bit.
My best and warmest wishes to you and yours, my long-time Goon friend.
Rob
Why do you think they are banning you?
At every place that I have been banned it has been for the same reason, Zippy. I say: “Buy-and-Hold is a big pile of smelly garbage” and then I explain why and cite the last 34 years of peer-reviewed research in this field. That’s it. That’s the distinction. Nobody else does that, at least not at sites where lots of Buy-and-Holders congregate. I call the Buy-and-Holders out on their b.s. Consistently. Firmly. Boldly. Clearly. Buy-and-Holders HATE that.
There are two things that people who give investing advice have in mind when they do so. One, they want to help their clients and readers. Two, they want to make a buck.
There was a time when Buy-and-Hold really was the cat’s pajamas. It was state-of-the-art stuff. So most of the smart and good people who work in this field came to endorse Buy-and-Hold strategies. They thought that they were helping people. They thought that the peer-reviewed research supported their claims (that was never strictly true but we didn’t know that it was not true until 1981, so they held this belief in good faith). Then Shiller showed in 1981 that Buy-and-Hold is garbage, that it is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind.
This put the Buy-and-Holders in a tough spot. Should they acknowledge that they made a mistake? Or should they cover up Shiller’s findings, play them down so that people will not think they are such a big deal? They elected to cover them up. They cared more about making a buck than they cared about helping their clients and readers. That’s human nature, is it not? We all want to help people. But it’s a tough world and we all want to make a buck too. The Buy-and-Holders put making a buck first.
Now —
The Buy-and-Holders are not bad people. In my experience most of them are very good and very smart people. So it would not be reasonable for me to believe that the Buy-and-Holders covered up Shiller’s research knowing that they were going to cause an economic crisis and possibly a Second Great Depression. Good and smart people wouldn’t do something like that.
If the Buy-and-Holders thought through what they were doing, the would not have done it. They would have looked ahead to what was going to happen down the road as a result of the cover-up and came clean about what Shiller’s research showed us about how stock investing works. This is where you have to keep in mind that investing experts are human. They were shocked by Shiller’s findings. Shiller’s findings turned everything we thought we knew about how stock investing works on its head. His 1981 findings are in the process of bringing about a paradigm change. The Buy-and-Holders didn’t see the implications of Shiller’s findings because they experienced cognitive dissonance. They continued to advocate Buy-and-Hold strategies because they continued to believe that Buy-and-Hold strategies worked (at least on one level of consciousness — they also experienced doubts on another level of consciousness, which explains why they have become so defensive over this topic).
So they still believed in Buy-and-Hold. And they still advocated Buy-and-Hold. But there was no longer support in the peer-reviewed research for Buy-and-Hold. The reality from 1981 forward was just the opposite. From 1981 forward, the peer-reviewed research showed just the opposite from what it was thought to show prior to 1981. The peer-reviewed research for the past 34 years has shown that there is precisely zero chance that a Buy-and-Hold strategy could ever work for even a single long-term investor either in this solar system or in any other far distant one.
As the years passed, the doubts that the Buy-and-Holders started to entertain one one level of consciousness grew bigger and bigger. The research kept showing the same thing — Shiller was right and the Buy-and-Holders were wrong. But, if it was hard to acknowledge the error in 1981, it was 50 times harder at a later date to acknowledge the error. To cover up an error relating to the numbers that people use to plan their retirements is financial fraud. That’s a crime under the laws of the United States. A felony. Prison time. Yikes! The cover-up continued. As sand continued to pass through the hour glass, the case for Buy-and-Hold grew weaker and weaker and weaker and the fear of the Buy-and-Holders that this was all going to come out and become public knowledge grew stronger and stronger and stronger. The abusive tactics employed to keep people in line (that is, to punish those who dare to “cross” the Buy-and-Holders by reported honestly on what the peer-reviewed research says) grew increasingly insane.
We are now 34 years down the line. A good number of the Buy-and-Holders are now looking at prison sentences when this all comes out. It has to come out. Our economic system will collapse if we do not find a way to get accurate information on retirement planning out to the millions of middle-class people who desperately need it and want it. But the Buy-and-Holders understand that, if this comes out, they will go to prison or be sued for all they are worth. They cannot bear for it to come out. So we see these bannings and the death threats and the threats to get academic researchers fired from their jobs and all the other garbage we have seen.
There is only one way out of this mess. We need to demand that Jack Bogle give a speech in which he says the words “I” and “Was” and “Wrong” and have that speech written up on the front page of the New York Times. Then everyone is freed to post honestly and we all enjoy a huge learning experience and we bring this economic crisis to an end and all other sorts of good stuff happens.
But how do we get the Buy-and-Holders to go along with this? They don’t want to go to prison. They don’t want to be sued for all they are worth.
My idea is that we should do everything that we can to help them out of this fix they are in without crossing the line and committing acts of financial fraud ourselves. We should try to understand the pressures they were under and how those pressures influenced the choices they made. We should acknowledge all of the many amazing contributions they made to our understanding of how stock investing works. We should enact some sort of amnesty that would limit the damages that can be obtained in lawsuits against them. We should keep the prison sentences to a minimum and prosecute only in extreme cases. We need the Buy-and-Holders on our side and they want to be on our side. So we need to do what we can do.
But it’s a tough transition to pull off. If we tell the millions of middle-class investors that most of the experts in this field have been lying to them about what the peer-reviewed research says, they are going to be very angry. There’s no getting around it. These people are going to lose most of their retirement money. Many of them are too old to pull off a redo. We have a serious social policy problem on our hands. Unless we step in and help people recover from their losses, millions will suffer failed retirements. But stepping in would cause the biggest expansion in the Federal debt that we have ever seen. So there are tough public policy questions in play here.
Everybody wants to come clean. Every site owner who banned me felt bad doing it. They set up their sites with the idea of helping people and it is going to come out that they have been destroying people’s lives instead. And they have been pressuring their friends to destroy people’s lives too. Buy-and-Holders stick together. It is a mafia. They don’t link to people who report honestly on the last 34 years of peer-reviewed research. They don’t invite people who report honestly on the last 34 years of peer-reviewed research to speak at their conferences. They duck questions that their readers ask them about the obvious contradictions in the investing advice that they offer.
It’s a big mess.
People ban me because I am trying to let the cat out of the bag. I am trying to expose this massive act of financial fraud and thereby to bring it to an end and thereby to help every single person involved live a better life in the future. The cover-up has been going on for a long time and has hurt millions of people in very serious ways and so the guy exposing it is seen as a big-time threat to the vast majority of people who work in this field today.
That even includes people who believe in Valuation-Informed Indexing, like Shiller. Shiller doesn’t say “Buy-and-Hold is a big pile of smelly garbage” because he has lots of friends who advocate Buy-and-Hold strategies and he knows how sensitive this issue is for them. So he feels social pressure to keep it zipped and to a large extent he does so.
I of course feel that social pressure too. But I resist it like crazy. I tell the truth re these matters to a greater extent than anyone else working in this field today, including Shiller. So I am viewed as a threat by the Buy-and-Holders. I am trying to make it hard for anyone to earn a buck advocating Buy-and-Hold. So people who do that or people who are friends with people who do that want to stop me. Hence the bans.
I don’t want to be stopped. So I march on.
The winner in this battle will be revealed following the next price crash. I think that the pain is going to be big enough to change lots of minds. But I am not God. I could be wrong. We are going to have to wait and see to find out for sure how things are going to turn out.
I wish you all good things. I am your friend. I am happy to do anything that I can to help you out. And of course that goes for all my Buy-and-Hold friends. None of the work that I have done over the past 13 years would have been possible without the contributions of my many Buy-and-Hold friends and I am of course grateful.
But I do want this all to come out. I do want to expose the Buy-and-Hold Con. I do want to bring all the nastiness to an end. I do want us to recover from this economic crisis and to enter a period of sustained economic growth. I love my country and I want to see us survive this mess and prosper in future days.
I am hated. Because I tell the truth about the last 34 years of peer-reviewed research in this field. I don’t apologize for it. I am proud of it. I know that many of my Buy-and-Hold friends want to be freed to tell the truth too and I want to help change things so that we all can learn from them. People who want to keep the cover-up going or who are afraid to speak up against it because of the social pressures applied to them by those who want to keep the cover-up going ban me to stop me from spreading the message.
That’s it, Zippy. That’s the deal here. We all need to work up the courage to stand up to you Goons if we want to invest more effectively in the future. And of course we all do.
I hope that helps a bit.
I naturally wish you all the best that this life has to offer a person.
Take care, man.
Rob
The people at ValueWalk are buy and holders?
The people at ValueWalk.com are value investors. They follow the Warren Buffett approach. That’s part of what Valuation-Informed Indexing is all about. VII is a combination of Buffett and Bogle. Most of the ValueWalk.com readerships buys individual stocks; they are not indexers.
Some would call them Buy-and-Holders. They believe in holding their stocks for the long term. But they are not the Bogle-type of Buy-and-Holder because they are not indexers. They focus on the long-term, as does Bogle and as do Valuation-Informed Indexers.
The question that matters is –Do they believe in changing their stock allocations in response to big changes in valuations?
To some extent, they do. I don’t believe that there are many people who participate at that site who would say that valuations don’t matter. So they certainly have some sympathy with the idea that investors should take valuations into consideration. They often post articles there on Shiller. So they clearly think that Shiller’s ideas add something to investing discussions.
But you could say most of that about the people who participate at the Bogleheads Forum, couldn’t you? Most of the Bogleheads have at least some respect for Shiller’s contributions. Most Bogleheads would agree that valuations matter. All Bogleheads focus on the long-term. The only issue re which ValueWalkers and Bogleheads are in disagreement is the question of whether it is better to invest in index funds or in individual stocks (and both camps have some partial dissenters from the general position of their camp on that issue).
Most ValueWalkers do not quantify the extent to which they need to lower their stock allocations at times of high valuations to keep their risk profiles roughly stable.
That’s they way in which the ValueWalkers are like Bogleheads (and, indeed, the followers of all investing strategies other than Valuation-Informed Indexing). That’s been the core point of contention for the entire 13 years of our discussions.
What makes someone a Valuation-Informed Indexer is that he believes that it possible to use the historical return data to inform one’s decisions as to how much to change one’s stock allocation in response to either low or high valuations. Buy-and-Holders don’t do that except to the small extent recommended by Bogle; Bogle says that it is okay to increase or lower one’s stock allocation by 15 percentage point in response to low or high valuations. My sense is that most ValueWalkers would follow the same general practice. Some would lower their stock allocations by about 15 percentage points at times of insanely high valuations, some would not do so at all. That’s pretty much what Bogleheads do. The two schools of thought are in rough agreement re this critical point, in my assessment.
This is what it is all about, Zippy. The is the “revolution” that Shiller started. The peer-reviewed research that I co-authored with Wade Pfau shows that investors lower stock investing risk by 70 percent by changing their stock allocations in response to insanely high or low valuations (by the amount suggested by the historical return data, not some arbitrary 15 percent rule). That’s huge. That’s the biggest advance in the history of investing analysis. Lowering risk by 70 percent changes the stock investing game in a fundamental way. It turns everything we once thought we knew about how stock investing works on its head.
That’s the message that needs to get out. Stock investing risk is not stable but variable. Changing your stock allocation in response to big valuation shifts is not elective but mandatory (for those who want to keep their risk profiles stable). There is no support in the historical data for the idea of limiting one’s allocation change by some arbitrary 15 percent rule. Investors should lower their stock allocations by whatever percentage is needed to keep their risk profile roughly stable (using the historical return data as their guide to what stock allocation change is needed).
Few investors know this today. All investors very, very much need to know it.
The reason why the word has not spread for 34 years is that Shiller’s finding that risk is variable and not fixed is 100 percent in conflict with the core Buy-and-Hold belief that the market is efficient. Risk would be stable in an efficient market. Returns would fall in the pattern of a random walk in an efficient market. Shiller showed that they do not, that they never have, that they never can (because the primary determinant of stock price changes is investor emotion, not economic developments).
I hope that helps a bit.
Rob
Are they guilty of fraud by not running your weekly column?
No. I mentioned up above how Jacob is a hero for running so many columns. He put himself on the line by doing that. He helped a lot of people by doing that.
I’d like to see him do even more. I would like to see him post an article in his own name saying that he has witnessed the tactics of you Goons and that he is appalled by them. He knows about how Wade Pfau was threatened. Why not speak out about that? He would be helping Wade by doing that. Wade wants to get back to telling the truth. If someone spoke up in support of him, that would change the world for the better in a very big way.
He’s afraid. I know how it feels. I was once afraid. I didn’t speak up about the errors in Greaney’s retirement study for three years because I was afraid of what you Goons would do to me if I did. And of course hundreds and hundreds of others have shown that they are afraid. Bogle is afraid. Shiller is afraid. Kitces is afraid. And on and on and on.
That’s what needs to change, Zippy. We all need to work up the courage to stand up to you Goons. You Goons HAVE engaged in fraud and that needs to be addressed. Every responsible person in this field who fails to speak up about it is hurting themselves and their communities and their friends and their profession and their country.
It took me a long time to work up the courage to speak up. I have never regretted it. I have taken lots of hits as a result. But I have also learned amazing things and have experienced the gratification that comes from passing those things along to lots of others. So I opened doors when I worked up the courage to advance that fateful post of the morning of May 13, 2002.
Will we as a society work up the courage to demand that Bogle give an “I Was Wrong” speech and that it be written up on the front page of the New York Times?
I believe we will. If we don’t, we all go down. Our economic system cannot survive unless we find some means to get accurate and honest information about the last 34 years of peer-reviewed research out to the millions of middle-class investors who need to obtain it. So I think we will do the right thing when we are left with no choice, when the next price crash hits and we are looking at the Second Great Depression descending upon us.
I believe that we will have Bogle working with us at that time.
I believe that we will have you Goons working with us at that time.
I sure hope so!
But we will have to wait a bit to see how it all plays out.
I wish you the best with it. That much is for sure.
Rob
Has Jacob given you a reason as to why they stopped running your column?
He has not. I sent him an e-mail. I have not received a response.
Rob
what will you do with your newly added spare time?
Down the road I am going to look for a new place to run the column. It keeps me thinking about the topic and learning new things.
First, though, I would like to get caught up on the blog entries. There’s now a two-month backlog of entries. I will be able to get caught up quicker if I don’t have column entries filling one of the five weekly slots. So I am going to hold off looking for a new place to run the column until I get caught up.
Rob
Did you ever get a response from ValueWalk?
I have not.
Rob
Jacob ran your column for years, but now he’s too scared. Obviously something changed. You seem to be trying hard not to mention Sammy Soda.
Sammy’s abusiveness and my responses to it obviously are what brought about the change. I certainly don’t say different.
Some of Sammy’s comments were just obvious garbage. My standard response to those was to say: “My best and warmest wishes to you and yours, Sammy.” I don’t think that those comments and responses caused any problem. My sense is that Jacob is pretty darn tolerant of abusive comments (I see them appear at other places at the site). And he obviously would not have any problem with me offering my best wishes to someone who posted at the site. So I don’t think those interactions caused any problems.
I believe that the ones that caused a problem were the ones where you Goons would ask about who will be going to prison after this all comes out or about Wade Pfau being intimidated and agreeing to stop posting his honest views about safe withdrawal rates and about Bogle supporting you Goons and other items along those lines. You Goons put forward those comments as part of an effort to force Jacob to take action.
If Jacob ignores my responses letting people know about criminal activity, he could be sued for doing so. The lawsuits would lack merit. But the Wall Street Con Men have lots of money and lots of motivation to keep this stuff from coming out and people with lots of money can bring lawsuits whether there is merit to them or not. Those lawsuits can cause lots of problems for people who are doing nothing wrong but who go ahead and do good things even after being warned by the wrongdoers that there will be a price to pay for “crossing” them.
It is my belief that something like that happened. I cannot give details any more than I can give details re precisely what threats were made to persuade Wade Pfau to flip. But something was said and whatever was said scared Jacob and here we are. We have seen this same general pattern repeat over and over again over the course of the past 13 years. This is what Goons do. And this is what Wall Street Con Men encourage Goons to do.
I obviously knew what was going on when you Goons first started putting up comments of that nature. I could have taken a pass and just ignored those comments or wrote “I wish you all good things” in response to them. If I did that, I would still have the column today. I loved writing the column. And I knew I was taking a risk of having the column cancelled by giving the responses that I did. So I gave some consideration to playing it the other way. I elected to respond to those comments or questions honestly. I said the things that permitted you to go to Jacob with threats of lawsuits.
I don’t regret it. I regret losing the column. I didn’t write about those super-sensitive issues in
the column entries themselves because I didn’t want to see the column cancelled. But the reality here is that those questions were important questions. Buy-and-Hold was discredited by the peer-reviewed research in this field 34 years ago. Investors understand this. I have had many middle-class investors tell me that they see that Valuation-Informed Indexing makes perfect sense. They say that their reluctance to buy into it is that they cannot figure out why all the experts don’t endorse it given how much sense it makes. People need an explanation of why experts in this field continue to endorse Buy-and-Hold 34 years after Shiler published his “revolutionary” research showing that there is precisely zero chance that it could ever work for even a single long-term investor either in this solar system or in some far distant one.
So people need to know about the financial fraud stuff.
The financial fraud stuff depresses people. And it scares people. People hate it when I talk about that stuff. So my inclination is to limit my discussion if it to the greatest extent possible when I am posting somewhere other than at this site. But, when you Goons force the matter, I don’t think it is right to duck it. You are raising real questions. Wade Pfau loves Valuation-Informed Indexing. He thinks it is the future. He fully gets it that the Old School SWR studies need to be corrected. He was the first person to write to the authors of the Trinity study requesting a correction. But Wade is a father and he wants to be able to put food on the table for his family. And so he agreed to stop posting honestly and to stop publishing honest research so that he could appease the Wall Street Con Men and you Goons. That’s the story here. That’s how the Wall Street Con Men have been able to keep this cover-up going for 34 years –through intimidation. They put forward hints that they will destroy the careers of those who insist on their right to post honestly and those of us who possess a desire to post honestly self-censor ourselves to preserve out abilities to feed our families.
The questions are real. It all needs to come out. We need a ten-part series on the front page of the New York Times. Once we see the ten-part series, none of us will be afraid anymore. We all will be posting honestly every day like it is the most natural thing in the world. That’s the place where we all want to be. Including Bogle. Including you Goons.
How do we get there?
Someone has to tell the true and full story.
There’s no other way.
I think it would be fair to say that I have been elected.
So, when you Goons leave me with no other choice, I go there.
I don’t regret going there. I regret the result of my doing so. But the questions you raised in those posts were real and I see it as my job to respond honestly to those sorts of questions when asked. All of the fraud stuff needs to get out. It will all come to an end when it gets out. When those of us who want to post honestly react in fear, we make matters worse. Perhaps not for ourselves but certainly for the country we love. If 10 of us worked up the courage to show complete honesty re these matters, we could bring Buy-and-Hold down in little time. But it does take courage to get the ball rolling. It’s hard to be one of the ones posting honestly when they are not yet nine others protecting your back.
Sammy killed the column with those questions. I responded knowing what the result might be. I concluded that I wouldn’t be doing my job if I failed to respond to those questions. I did the right thing, Jacob got scared and the column died.
These things happen in this mixed-up world of ours from time to time. I am like everyone else. I would like to bring the nasty stuff to a full and complete stop. Where I am different is that I see clearly that we can never bring it to a full and complete stop by ducking the hard questions That hasn’t worked for 34 years running. We need to address these matters, bring them out into the open. When it means that we lose columns that we love writing, we have to accept that that is the price we are going to have to pay to bring this Buy-and-Hold Crisis to an end. There is no other way to get the job done.
I love my country. That’s the bottom line. I loved my column at the ValueWalk.com site that I wrote for six years. But I love my country more. When you Goons forced me to choose between the two, I chose my country. I believe strongly that I made the right choice.
That’s it.
I hope that helps a bit.
Rob