Set forth below is the text of an e-mail that I sent to Jaime Tardy, owner of the EventualMillionaire.com site, on October 25, 2013:
It’s nice to hear from you. Yes, that makes sense.
The average person believes that valuations matter. Almost everyone agrees with me on the principle. But the average person does not think it is even remotely possible that valuations matter as much
as I say they do. My belief is that the reason why is that they have never run the numbers. I didn’t believe that valuations could matter that much either before I did the math.
When I wrote my May 13, 2002, post questioning the safe withdrawal rate number, the Buy-and-Holders were saying that the SWR is 4 percent. I said I thought that valuations would have pushed it lower but I did not know how low. Someone asked me to guess and I said that I thought it was perhaps 3 percent. Then I joined up with John Walter Russell (an engineer with statistics training). He showed that the SWR in January 2000 was 1.6 percent. This is a shocking number. An asset class that provided zero growth would provide an SWR of 3.3 percent. I think that the problem is that Buy-and-Hold taught us not to pay attention to valuations, so the problem just kept getting worse and worse. It is similar to what happens to people who don’t have a budget. They end up deep in debt and cannot understand why. You need to keep track or things get out of hand over time.
Yes, I have been able to convince others and that goes back to the very first day. Hundreds of people at Motley Fool said in 2002 that the discussion I started was the best we ever had there. And that
remains true today when I do guest blog entries at large sites — I usually get a number of people who say highly positive things. I have never lacked for positive feedback. The problem is that the
intensity of the Haters is 50 times greater than that of the Normals. The Normals would like to participate in or hear the discussion. But they have close to zero tolerance for the angry, nasty stuff. And
I have never found a site administrator willing to take effective action against the Haters. So the Haters always win. The most extreme case was when I had a guest blog for a site where the owner said
I was exactly what he was looking for — he liked controversial stuff. The Haters threatened to sue him and he folded.
The site is going through a redesign. The logo that I have at the top of the page on the left-hand side is intended to reflect my view of the positioning/branding of the site. The colors are a bit on the
feminine side. I believe that I appeal more to women than to men. The color and design are certainly not stuffy (in contrast to many personal finance sites). I am trying to convey an impression that “this place is informal and non-intimidating,” that I don’t use jargon and that I keep things simple. The slogan used (and the tons of material provided) is intended to convey intensity. I am informal but I am hard-working. I see myself as an advocate of the average middle-class person. My writing certainly conveys idealism. I very much want to convey friendliness, which is naturally a part of my persona. I worry that the conflict that surrounds discussions of Valuation-Informed Indexing subtracts from the feeling of friendliness. But I see myself as a friendly REPORTER and I feel that reporters cannot be ONLY friendly — they must also be fighters and have the courage to stand up to power. So I have regretfully accepted that the site does not have as much of a friendly feeling as I very much want it to have. The writing is heavy on consideration of emotional factors.
I am a believer in Behavioral Finance. That is the innovation here. Even the stuff that discusses negative (non-friendly) factors discuss EMOTIONS. One of the problems in personal finance is that people try
to reduce it to numbers and leave out emotions. I take it in the other direction in a big way. Emotional stuff is common in many other fields (discussion of movies or politics or health). The intensely emotional
stuff that I discuss is Taboo in the personal finance field today.
Please just reply when there is time. Good luck with the cast removal!