Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Was Jaime really sitting next to millionaires? If they are not following VII, then their money is all cotton candy, right Rob?
This is a 100 percent on-point observation, in my assessment, Anonymous.
In most cases, a large portion of the money they are counting on to finance their retirements is cotton candy. Absolutely. And that explains the behavior.
You often ask me “Is this all a massive conspiracy?” It is. But not in the way you suggest when you ask that. I call it a “Conspiracy of Ignorance.”
None of us understood how stock investing worked prior to 1981. Many possessed clues, to be sure. But no one had ever put the entire puzzle together. Then the Buy-and-Holders pushed the idea of using peer-reviewed research to develop a systematic way of developing knowledge of how investing works and generated a mass of hugely important insights, swinging and missing on the biggest issue of all, the importance of always including adjustments for valuations in one’s calculations. And then Shiller fixed the big mistake that caused Buy-and-Hold to go so wildly off the mark by showing in 1981 that valuations affect long-term returns and that therefore stock investing risk is variable rather than fixed. That of course changes everything.
So now we have it all. Now we’re set.
Except for this darn conspiracy that “defends” and even promotes Buy-and-Hold to this day. Huh? What the h? What’s that about?
It’s partly that there is so much darn money to be made with the promotion of Get Rich Quick schemes and the uncorrected version of Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind (unintentionally, to be sure — but still). Part of this is a money thing, a financial fraud thing. That’s real. And that’s a big problem.
But that is not the entire story. Not by a long shot.
There are millions of people whose lives are in the process of being destroyed by the continued promotion of Buy-and-Hold. The Buy-and-Hold Crisis is a huge economic issue and even a huge political issue. It is simply not possible that a bunch of Wall Street Con Men could pull something like this off by themselves. We live in a free country. There are lots and lots of smart people who love this country and who will step up to the plate and speak up against the Wall Street Con Men and their Internet Goon Squads when they see their country under attack. And yet they have not done so in this case. To understand this story, we have to come to terms with this important reality. This is not solely a money thing. How do we explain this additional aspect of the story?
I was on that stage when that speech was being delivered. I heard the reaction not only to my own speech but to all the other speeches. The reaction to my first slide, the one that contained the title of the speech [“How to Become the Most Hated Blogger on the Internet”] was the strongest positive reaction of the night. It wasn’t a close call. People LOVED the title. The crowd was eating out of my hand at that point.
The reaction to the second slide was also positive, but a bit less so. I would say that the intensity of the positive reaction was cut in about half with the second slide. Then it dropped off a cliff. The mood became cold for the remainder of the speech. There was no booing. But there was no further positive reaction. Perhaps a small smattering of applause here and there. I don’t recall there being much more laughter, again perhaps a small amount here and there.
Things got cold enough that I was worried that people would not cheer at the end of the talk. That would be very embarrassing because they cheered at the end of every other talk. I was very aware of how cold things had gotten and I just soldiered on, a bit concerned. They did applaud, no more and no less than for the other speakers. So I would say that most were not outright angry at me. But the crowd was certainly not eating out of my hand at the end like they were at the beginning. By the end of the talk, people were either neutral or probably in some cases borderline hostile.
There were four or five people who came running up at the end of the talk offering the most effusive praise imaginable. That small group loved me. We sat around and had beers for about two hours. But I don’t at all think that that group was representative of the group as a whole.
So I found Jaime’s comment very helpful. I need to understand why people react as they do. It is AMAZING that people told her that I seemed bitter. I 100 percent believe that she is telling the truth. Her comment is 100 percent consistent with other things I have been told or that I have seen with my own eyes. People think I am bitter. It’s not just you Goons who see it this way. You Goons are more vocal about it and more blunt about it. Most people are too polite to say out loud that they think I am bitter. But most people don’t think you Goons are nuts when you say it. They think you are a bit rude. But they get where you are coming from.
They generally do NOT get where I am coming from. They are fine with me saying to pay attention to valuations. They have heard that thousands of times and consider it a reasonable point. So they have no distaste for the expression of that general point. They don’t relate when I say that returns are highly predictable or that Buy-and-Hold caused the economic crisis or that retirement studies get the numbers wildly wrong or that financial fraud is being practiced or that people will be going to prison. That sort of language is a big turn-off to most people. I am sure. I have lots of experience with this. I know whereof I speak re these matters.
Even my wife feels this way. I read my Value Walk column at the lunch table each Tuesday so that my boys get to know what their dad does with his life. Every now and again, my wife will offer a sort of bitter (!) side comment. She will say something like: “You make good points in that column. I can’t help but notice that you didn’t call anyone a Goon in that one. Hmmm…” So this is an almost universal phenomenon.
My FinCon talk was NOT bitter!
I was very aware when I was preparing it that there was a risk that it would be perceived that way. So I went to a good bit of trouble to remove any hint of bitterness from the presentation. Every slide was humorous. There was one of a boy standing in a corner with a dunce cap on. That’s a humorous way of making a point, not a bitter way of making a point. Another was of a baby crying. Again, that’s a humorous way of making a point, not a bitter way of making a point. They were all like that.
People find the CONTENT of my message bitter. That’s what is killing me.
If Shiller is right (I obviously believe that he is), then the real value of every stock portfolio is about half of its nominal value. People hate hearing that. They hate it, hate it, hate it, hate it, hate it. Everybody hates it. Not just Goons, not just Buy-and-Holders, not even just investors. EVERYBODY hates it.
Journalists hate it because they did not speak up when the bull market was getting out of control. Policymakers hate it because they permitted forces to be unleashed that have costs millions of people their jobs. Economists hate it because it shows that their Rational Man assumption is bogus. Even Behavioral Finance advocates hate it because it puts them on the spot — they want to push new ideas but they don’t want to have to embarrass their friends in the process of doing it. Even Valuation-Informed Indexers hate it. John Walter Russell used to say that you Goons would hold up a red flag and that I would charge every time. He tried to doctor the numbers in the Retirement Risk Evaluator because he didn’t want to offend people by reporting the numbers accurately and honestly.
Nothing that I say is even the tiniest bit advanced in an intellectual sense, Anonymous. Everything I say is pretty much two plus two equals four if you believe that Shiller’s research is legitimate. But people don’t like hearing it. So people who are able to add two and two and get four avoid saying it. Except for me. I am different in that I am the first person stupid enough to just say this stuff out loud and thereby get people who once loved me to hate me with a burning hate. You don’t talk honestly about the damage that a society does to itself by permitting a bull market to get out of hand. It violates a Social Taboo to do what I have done. It is just not something that civilized people do.
I think that we all need to start discussing in an honest way what the last 35 years of peer-reviewed research shows. That’s what I truly believe. I don’t want to violate any Social Taboos. I don’t want to start any controversies. I don’t want to upset people. I don’t want to make people hate me. But I very, very much want to post honestly re safe withdrawal rates and scores of other critically important investment-related topics. I can’t even imagine playing it any other way. So I soldier on. I do the best that I can do given the cards that have been dealt me.
A good portion of the money that the people sitting next to Jaime have accumulated over the course of their lives is today invested in cotton-candy nothingness. That’s what Shiller showed with his research. It’s a big deal. People need to know the true size of their portfolios if they are to plan effectively for the future. These are smart people we are talking about; you don’t get to be a millionaire without possessing some smarts. And yet they ignore common sense when they invest their retirement money. That’s not smart at all. When I point that out to them, it makes them hate me. That’s the story here.
I think this will change following the next price crash. I think their anger will be redirected following the next price crash. I saw that happen with Bernie Madoff. The people invested in his fund LOVED him so long as his con worked its magic on them. Once they saw through the con, they hated the man. That’s what I think is going to happen with Bogle and with those who have posted in “defense” of him following the next price crash.
I am not God. I could be wrong. I have obviously been wrong about things in the past. It could be that it is happening again. I don’t have a time machine. I cannot take you into the future and prove this to you. I am just stating my sincere opinion.
That’s it, you know?
If you saw things from my perspective, you wouldn’t give two seconds of consideration to the idea of agreeing to post dishonestly to appease you Goons.
I suppose that, if I saw things from your perspective, perhaps I wouldn’t give two seconds of consideration to the idea of coming clean by the close of business today. That’s speculation. I am not able to see things from your perspective. So I cannot be entirely sure. I say that because it seems like something that perhaps I should say given what I said about how you would behave if you could see things from my perspective.
I cannot do other than what I am doing. So my intent and expectation is that I will just continue doing it.
I love you guys (and witches). I wish you all good things. I don’t see any benefit that follows from being nasty about any of this. So I make an effort to avoid taking that dark path.
I wish you all good things. But I intend to soldier on all the same. I believe that the reaction that we will see following the next price crash will tell the tale.
I believe that I will be friends with most of Jaime’s millionaire friends following the next price crash. And I believe that I will be friends with Bogle then. And I believe that I will be friends with you Goons then.
But this is all just one fellow’s opinion, you know? Nothing more and nothing less.
I hope that helps a tiny bit.
Rob
Anonymous says
“They don’t relate when I say that returns are highly predictable”
Like this prediction? http://goo.gl/LOyPCc
“Within the next few years. Are you willing to go on record as of September 3, 2013 that there will be a 65% price drop within the next 3 years, Rob?”
Rob says
September 3, 2013 at 7:22 pm
“Yes.
That’s what the last 32 years of peer-reviewed academic research (based on 140 years of historical data) tells us.
It might not be precisely a 65 percent price drop. It could be 50 percent. But the odds of it being 80 percent are as good as the odds of it being 50 percent. The most likely number is 65 percent. We should be looking for a price drop of something in that neighborhood.
Rob”
Actually it went UP 25 percent. But on the bright side, you still have two weeks left!
Anonymous says
Or, if you are wrong, then many people are sitting on way much more than you think and you are and that you are also that much more further behind everyone else.
Rob says
Actually it went UP 25 percent. But on the bright side, you still have two weeks left!
That facts aren’t in dispute, Anonymous.
What do you want me to do about it?
If you want me to say that the fact that this particular prediction did not come through diminishes my confidence in Valuation-Informed Indexing a small bit, I am fine with saying that. If you want to tell the entire world that this particular prediction failed and that you think that people should have less confidence in the VII Model as a result, please feel free to do so with my blessing.
You asked me to make the prediction as a way of testing the concept and I agreed to make a prediction because I think that it is appropriate to test concepts in that way. Three years have passed and the prediction has failed. What next?
I still believe in the Valuation-Informed Indexing concept. With slightly diminished confidence. But with strong confidence all the same. There are thousands of reasons why I believe in VI. It has passed thousands of tests. It failed this one. But the overall record is still amazingly strong. What am I going to do, switch to the model that has failed thousands of tests and passed a small number of them? That doesn’t work for me. I am going to continue to believe in the model that has passed most of the tests and that has failed only a few while hopefully keeping an open mind so that if it fails too many tests I will feel comfortable switching over to the model that has passed more tests.
I advised you to follow this approach 14 years ago. It is because you failed to follow that advice that you are on your way to a prison cell today. We can’t change that. You have destroyed too many lives at this point in the proceedings for us to set things up so that you will have no prision sentence at all to serve. However, I think it would be fair to say that your prison sentence will be a bit SHORTER if you come clean today rather than waiting for the next price crash to hit. That’s my recommended course of action.
I naturally wish you all the best that this life has to offer a person, my good friend.
Rob
Rob says
Or, if you are wrong, then many people are sitting on way much more than you think and you are and that you are also that much more further behind everyone else.
It sounds like you are sitting pretty, Anonymous.
That explains why you come here each day posting fresh Goon comments.
I find that even some of the stuff that is hard to figure out for a bit becomes clear if you give it some time.
My best and warmest wishes to you and yours.
Rob
Reality says
Rob,
People don’t post here because they are concerned about their investment strategy. They post to see if they can get you to respond with crazy comments so that they can have a good laugh. It is called “Poke the troll”.
Rob says
And I don’t respond to any of the comments of you Goons because I think there is a chance that you will be persuaded by reason, Reality.
We need to pull together as a society and demand prison sentences. When we we do that, all of this ugliness comes to an immediate stop. There will be no Buy-and-Hold after your prison sentence is announced. Every web site will be exploring Valuation-Informed Indexing. We will achieve 35 years of advances in our understanding of how stock investing works in the space of a single day.
What I do here is called “building a record.” People need to know why we are in an economic crisis today. People will need to know following the next crash why their retirement accounts have been wiped out. People will need to come to terms with the fact that we learned why Buy-and-Hold can never work 35 years ago and yet there are numerous sites to this day that recommend it. I participate in conversations with you Goons to supply the people who will be visiting this site following the next price crash with answers to their questions as to how all these unfortunate events came about.
You poke the troll and I build the record. We are working at cross purposes.
I naturally wish you the best of luck in all your future life endeavors, my long-time Goon friend.
Rob
Reality says
It is not “building a record”, it is you repeating your opinion over and over again, while we sit and laugh about your silly comments about prison, etc.
Rob says
One of us is right and one of us is wrong, Reality.
We will find out which of us is right and which of us is wrong following the next price crash.
I wish you all good things.
Rob
Anonymous says
“It has passed thousands of tests.”
No, it has passed thousands of BACK tests. Your forward predictions have not only been consistently wrong, they’ve been wildly wrong. But you keep the faith nevertheless. One can only admire your plucky persistence.
Rob says
The forward predictions haven’t been wildly wrong. You are caught up in the irrational exuberance of the moment, Anonymous.
Valuation-Informed Indexing has been working for 145 years. If you had been making predictions in any of those earlier times, you would have found that the predictions were “wrong” for a time. This is 100 percent an ordinary thing that all investors who employ this approach should expect to see happen.
The way to see how it works is to do runs with the Scenario Surfer. I cannot tell you how many times I despaired of ever catching up to the Buy-and-Holders because I had made a “wrong” allocation decision. Then, by the end of 30 years, I was far, far ahead. That’s just the way it works.
Short-term predictions never work, long-term predictions always do. Every year of time considered by itself is in reference to some other years “short term” and in reference to some other years “long term.” So, all predictions are both sure to work out and sure not to work out.
The trick is to ONLY look at what happens in the long term and to tune out the short-term noise. That way it always works.
You are hung up because you want to believe that the numbers on your portfolio statement are real and so you cannot stand to look at the long term. Focus on the long term and you will come to very, very different conclusions.
Guess who taught me to focus on the long-term? A fellow named Jack Bogle. Smart guy. Good guy too. You should check him out.
Also, Shiller published his research in 1981. VII has been working ever since. That’s FORWARD testing, not back testing. VII worked for 110 years of backtesting and has now worked for an additional 35 years of forward testing. In contrast, Buy-and-Hold has worked for zero out of 145 years. Gee, which strategy should the investor who believes in following research-based strategies go with? Some of these puzzles are so darn hard to figure out.
And on top of all that, the case for Buy-and-Hold is so weak that the only way the Buy-and-Holders can “defend” it is with insanely abusive posting practices including death threats and threats of career destruction. That sounds like the sort of behavior that we would see from “defenders’ of a true research-based strategy!
And then you’ve got the prison sentences to consider. I don’t even know how to quantify the loss one suffers by going to prison. Holy moly!
Buy-and-Hold!
The New Science!
I will take a pass.
But I naturally wish you all the best of luck with it all the same, my long-time Goon friend.
Rob
Rob says
One can only admire your plucky persistence.
Thank you for that much, Anonymous.
That was a kind thing for you to say.
Rob
Laugh says
The ‘moment’ you are referring to is 20 years running.
Rob says
It is.
Why is that such a big deal to you, Laugh?
Most investing lifetimes last about 60 years (from age 25 to age 85). Would you rather do well for 10 or 20 years or for 30 or 60 years?
I would rather do well for 30 or 60 years. That’s the difference between VII and BH. BH often does better for 10 years and on rare occasions even does better for 20 years. But VII ALWAYS does best over 30, 40, 50 and 60 years. That’s why VII is better, in my assessment.
If you prefer the model that often works well for 10 years and on rare occasions works well for 20 years, go for it. But I personally don’t see the appeal. You aren’t going to take the money out and spend it. So I don’t see why it even matters if you are ahead at the end of 10 or 20 years. What matters is whether you are ahead at the end of 30 and 40 and 50 and 60 years. VII far outpaces BH in those sorts of time-periods.
You are right, though, that stocks have been overpriced for a very long time (with the exception of a few months in early 2009). This is the longest we have ever gone with stocks this overpriced. That makes this the worst time in the history of the U.S. market to own stocks. I hate that. I want to buy stocks when they are well-priced. I blame the relentless promotion of Buy-and-Hold for the problem. That’s just one more reason why I am not a fan.
My sense is that you are happy that stocks have been overpriced for 20 years. We see things from very different perspectives. We start from different assumptions about how the market works and so we end up with very different strategic preferences.
Rob