Set forth below is the text of a comment that I recently posted to another blog entry at this site:
Can you point me to someone who says that they are expecting 30% returns? Quite a tall strawman.
I haven’t seen any posts on bogleheads advocating blind advocacy of the 4% rule of thumb. The majority seem to be targeting a much lower or variable swr and all are aware of lower future returns.
Buy-and-Holders don’t expect 30 percent returns. But they act as if the 30 percent returns that are reflected in their portfolio statements are real. When they are adding up their assets, they count that money. When they are seeking to determine whether they have enough to retire or not, they don’t apply a discount factor for the extent of overvaluation in the market at that point in time.
This is not a small point, Laugh. This is everything. Buy-and-Hold is rooted in the idea that the market is efficient, that stocks are always priced properly. Shiller showed that that is not so. Stock returns are real up to 6.5 percent per year. But returns above that returns are the product of investor emotion — we pump up prices because we want to fool ourselves into thinking that our financial circumstances are better than they really are.
Valuation-Informed Indexers believe in reporting things accurately.. We want to know where we really stand. We want to be able to plan effectively. Buy-and-Hold is a numbers-based approach. That’s what I love about it. When you root things in the numbers, you avoid subjectivity. You are giving people something hard to work with. But once you go to a numbers-based approach, you MUST make an effort to get the numbers right. If you don’t account for valuations, it’s impossible to get the numbers right. So Buy-and-Hold is the worst of all worlds — a numbers-based approach (which lends the thing credibility in the eyes of most smart people) that gets all the numbers wildly wrong (which makes the thing dangerous as all get-out).
You say that you have never seen blind advocacy of the 4 percent rule. Were you at the Motley Fool board in the time-period when The Great SWR Debate began? People there were using the 4 percent rule ON A DAILY BASIS to identify the day when they would hand in their resignations from high-paying jobs, jobs that they would not be able to get back if they made a mistake. And the numbers they were using were wildly off the mark! When you used a valuations adjustment, the calculation shows that a retirement that began at the top of the bubble and called for a 4 percent withdrawal had a 30 percent chance of surviving 30 years. Greaney was saying those retirements were “100 percent safe.”
When you say that the Buy-and-Holders don’t advocate “blind advocacy” of the 4 percent rule, what you mean is that they permit people to hold off on retiring until they have more assets than what the 4 percent rule would require. But they do not permit discussion of what the numbers say when a valuations adjustment is employed! I know whereof I speak re this one! I have the scars are over my body to prove the point! Why do you think that is? Why does it upset Buy-and-Holders so much for someone to show people the numbers you get using The Retirement Risk Evaluator?
It upsets them because to show people the real numbers sticks a pin in the fantasy balloon. Valuation-Informed Indexing is real. It is another numbers-based approach, so it has the same potential credibility as is possessed by Buy-and-Hold. But it goes one extra step. It reports the numbers honestly and accurately. It is the first true research-based approach (Buy-and-Hold is based on the research that existed from 1965 through 1980 but ignores the research published from 1981 forward). There’s a reason why Buy-and-Holders lose it when someone reports honestly and accurately on the peer-reviewed research in this field. Doing that makes it impossible for the Buy-and-Holders to work their scam both on themselves and on others.
Do you deny that discussion of The Retirement Risk Evaluator is prohibited at the Bogleheads Forum? If you do, you are a liar. It is prohibited. And thousands of community members there expressed a desire to be able to discuss it. The Buy-and-Holders see it as a threat. And they are right — Valuation-Informed Indexing IS a threat to Buy-and-Hold. If Shiller is right, Fama is wrong. If Valuation-Informed Indexing is the ideal strategy, Buy-and-Hold is the worst possible strategy.
The Buy-and-Holders know that, if these matters are discussed, Buy-and-Hold may end up deposited in the dustbin of history. THAT”S WHAT I WANT TO SEE HAPPEN. I believe that Buy-and-Hold was a mistake. I believe that it was a noble effort. I certainly don’t have anything bad to say about the purpose of the Buy-and-Hold project in its early days. Valuation-Informed Indexing wouldn’t exist if Buy-and-Hold had not come before it. Valuation-Informed Indexing is the fruit of the same project. Back in 2002, I intended to call this “Buy-and-Hold 2.0? or “The New Buy-and-Hold” or something like that. I am building on Bogle’s work.
BOGLE HATES THE IDEA OF SOMEONE BUILDING ON HIS WORK, changing it and bringing it up to date and thereby improving it.
He hates the idea. That’s why we see all this conflict. The published rules of the Bogleheads Forum permit honest posting re the last 34 years of peer-reviewed research. Mel Lindauer and his Goon pals are brutally abusive to those who post honestly at that board. But Lindauer couldn’t get away with his dishonesty if Bogle didn’t back him up. Bogle backs him up all the way. Bogle plays the lead role in the most massive act of financial fraud in U.S. history. I love the guy. But that’s the way it is. I am a journalist and it is my job to tell people the true story. That is the true story here. It is a very big story.
No one is saying that the Bogleheads advocate blind advocacy of the 4 percent rule. That’s not the dispute. The dispute is over the fact that the Bogleheads do not permit advocacy of accurate and honest SWR numbers. I am fine with undermining support for the 4 percent rule. That rule has obviously destroyed millions of lives. But I want to take it a step forward. I don’t just want to show people how dangerous the 4 percent rule is. I also want to show them the numbers you get WHEN YOU DO THE CALCULATIONS HONESTLY, when you don’t commit financial fraud by “forgetting” to include a valuations adjustment.
Does the leadership of the Bogleheads Forum have a problem with that?
You know darn well that they do. Freakin’ Jack Bogle has a problem with that. That’s the issue here. Bogle needs to get over the fact that he made a mistake when he developed Buy-and-Hold many years back (before Shiller published his “revolutionary” [Shiller’s word] research).
If Shiller had published his revolutionary research in 1961, there never would have been a Buy-and-Hold. Bogle would have included a valuations adjustment going back to the first day and the thing would have worked and there never would have been an out-of-control bull market or an economic crisis putting millions of middle-class people out of work and we all would be living far richer lives today. But that’s not the way things played out.
We humans don’t know everything. We cannot see into the future. Buy-and-Hold was state-of-the-art stuff when Bogle founded Vanguard in the mid-1970, so that is what he went with. That part of the story is just fine. But when you advocate a research-based strategy, you are obligated to keep up with the research. Those who still advocate Buy-and-Hold today are 34 years behind in their reading of the research! Huh? Wha? That’s not acceptable, Laugh. That’s not okay. It’s not a close call. That’s not even freakin’ legal under the laws of the United States. Financial fraud is a felony. Bernie Madoff is in prison today for doing 1/500th of what Jack Bogle has done.
If you possess even the tiniest bit of sense, you secretly acknowledge that we need to somehow get out of this mess.
How do we propose that we do that?
There is only one way. Bogle needs to come clean. He needs to give that “I Was Wrong” speech (or at the very minimum an “I’m Not Sure” speech. If Bogle says either “I Was Wrong” or “I’m Not Sure,” there are going to be thousands of researchers and journalists and investment advisors who are going to feel safe to come forward with their sincere thoughts about how stock investing works in the real world. The entire nation is going to enjoy a massive Learning Experience. We are going to see more advances in the investing advice field in one year than we have seen in the past 30 years in the computer electronics field. It is going to be amazing.
Do the “leaders” of the Bogleheads Forum object to that amazing learning experience?
They sure do. They will fight to the death to stop it from taking place.
And the millions of middle-class investors whose lives are in the process of being destroyed as a result of this massive act of financial fraud will put them in prison following the next price crash.
Too sad, in my assessment.
If you want a kind and hard-working and balanced and sympathetic person to work with you to try to get your prison sentence reduced a bit, you’ve got him.
If you want someone to help you in your 13-year cover-up of the errors in the Old School SWR studies and thereby to get his own name added to the list of those going to prison, please look elsewhere. Not this boy. Not freakin’ interested. No can do.
That’s the story, Laugh. As you know. As I have said THOUSANDS of times now.
If you cannot give honest investing advice, you are better off not giving investing advice at all. Investing advice that can only be “defended” 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 is not honest. Buy-and-Hold needs to be brought down. I am the one who was elected to do the job. I am going to give it my best shot. That’s my pledge to you and to my good friend Jack Bogle and to the millions of middle-class people whose financial futures have been placed in my hands.
I don’t like having to carry this level of responsibility. I didn’t ask for the job. I don’t want the job. But here we are, you know? Whether I like it or not, this is my life. So I am going to give it my best shot. I wish you the best of luck with your efforts to hold me back (while of course also wishing myself and the millions of middle-class investors whose lives are in the process of being ruined the best of luck in our efforts to clean up this field of the corruption that has come to dominate it in the Buy-and-Hold Era). That’s as far as I can go. I don’t cross The Felony Line. Not once. Not ever. Non-negotiable.
We need to move forward. We need to launch a National Debate re the IMPLICATIONS of the past 34 years of peer-reviewed research in this field. That’s my sincere take re this terribly important matter in any event.
Valuation-Informed Indexing is the future. Buy-and-Hold is the past. Millions of lives are at stake. We all need to get about the business of moving from our ignorant past into our bright and exciting and promising and HONEST future. We will all feel a lot better about ourselves on the morning after Bogle gives that speech and it is written up on the front page of the New York Times.
I hope that helps a bit.
I am 100 percent confident that honest discussion of the last 34 years of peer-reviewed research will be very, very “marketable” following announcement of your prison term.
But I could be wrong. I don’t know everything. We are all going to have to wait and see how it plays out. Nothing could be more clear.
My best and warmest wishes to you and yours, my dear Goon friend.