Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:
Rob,
I can show you plenty of successful buy, hold and rebalance outcomes, yet you can’t show one successful VII example. Your own example shows a failure with VII! Yet you can’t show one failure from buy, hold and rebalance.
I k ow it is painful for you and you are embarrassed of the situation. That is why you keep posting your lies trying to convince yourself and others that you are not a failure. In the end, we can all see the factual results.
I can show you peer-reviewed research showing that Valuation-Informed Indexing has beat Buy-and-Hold soundly for 145 years running.
When you talk about successful Buy-and-Hold outcomes, you are talking about portfolio balances that exist today that you did not divide by two. Stocks are today priced at two times their real value. Why don’t you divide by two?
The answer is obvious. You don’t like the numbers that show up for Buy-and-Holders when you divide by two.
It’s a scam, Sammy. It’s a money-making thing. Bernie Madoff’s investors were “successful” too until the bottom fell out of his Ponzi scheme. Ponzi schemes benefit only the people pushing them, not the people buying into the scam.
If Buy-and-Hold were a legitimate strategy, we would not see the sort of behavior that we have seen from you for 14 years running now. Not ever, not once. People advocating real strategies don’t ever behave like that because people advocating real strategies see no need to behave like that and would be ashamed to engage in such behavior.
All of this would be 100 percent obvious if it were not for the mountain of money that has been made by the Buy-and-Holders. We are all from time to time tempted by the lure of the easy buck. It’s only when we all feel free to cite the peer-reviewed research in this field that we will be able to help each other to avoid those temptations.
My sincere take.
Rob
Anonymous says
It’s ironic that so many of your blog posts are replies to comments that you would have certainly deleted if you could. Without Sammy Soda, the well would dried up by now.
Rob says
I understand the point you are making and I half agree, Anonymous. But I also half disagree.
You are right that, if I were king of the world, I would delete the pure Goon stuff. I would not delete the posts in which you Goons put forward legitimate questions. I learn from those and those provide others the opportunity to learn; so those are a plus. But, yes, you are right that I would delete a good percentage of the Sammy posts at the Value Walk site if I were the site administrator there. They waste people’s time and they scare away people who would otherwise engage in interesting discussions. So I see those as a pure negative that should be deleted.
The reality is that I am not king of the world. Perhaps you’ve noticed! So Sammy gets to put his posts up at the Value Walk site whether I like the idea or not.
I could ignore them, right? I could just not respond.
I ignore some of them. When they get to be ridiculously repetitive or pointless, I ignore them. That happens.
I don’t like to ignore intimidation posts. The entire problem that we are facing developed because Normals got into the habit of ignoring intimidation posts put forward by you Goons. The idea is “this is ugly stuff and I would rather not get involved, I’ll let someone else deal with it.” There’s no one else here but us chickens, you know? When we don’t call people out on their intimidation tactics, those using intimidation tactics enjoy tactical victories. That encourages them to rely more heavily on intimidation tactics. So things get worse and worse over time instead of better and better. I see this as a “a stitch in time saves nine” sort of thing. Putting forth a little extra effort on the front end spares us needing to put forward a whole big bunch on the back end. I want to set a good example by responding in an appropriate way to intimidation posts. So I usually do that.
Sammy also puts forward a lot of posts that refer to incredible things like the threats directed to Wade Pfau. We need to get the word out about things like that. So I don’t favor the idea of ignoring those. If there are too many in a row, they get monotonous and I do ignore them. But my general feeling is that the people who opposed those tactics have nothing to be ashamed of and so we shouldn’t act like we are ashamed when the subject comes up. The fact that those seeking to defend Buy-and-Hold feel that they need to resort to such tactics says something about the level of confidence they feel re their strategy. I think we all should be trying to bring that out. So again I am reluctant to ignore too many of those when they pop up.
Sammy is just out to cause trouble. I suppose that he could be called a “troll.” So I wouldn’t object if most of his comments were deleted and, if I were in charge, I would indeed delete a good number of them myself. But, given that they appear, I think that it usually makes sense to respond to them. The fact that they appear and that lots of others don’t jump in and demand that they be removed tells us something about where we stand as a society re the Buy-and-Hold question. Buy-and-Hold was discredited by the peer-reviewed research 36 years ago. Why are we so tolerant of nasty posts aimed at “defending” it?
That’s not a Goon matter. It’s you Goons bringing the question to the surface. But it is the tolerance of the Normals for Goon behavior that really is the root cause of why we are in an economic crisis today. You Goons couldn’t get away with the tactics that you employ in any field of human endeavor other than investing analysis. Why are our collective standards so low in this one field that this sort of thing can continue to go on for so long?
That’s the real question at play. I respond to a lot of the comments because I am trying to become clearer in my head about all of the various aspects of that question and because I am trying to help others listening in both now and in future days to become clearer in their heads re these matters.
As distasteful as I find the pure Goon comments, I do sometimes learn from them. For so long as that is true, my guess is that I will continue to feel drawn to respond to them. We need to know with great clarity how we got into this situation so that we can be sure that we never in the future get into a similar situation. We all have a Get Rich Quick urge residing within us. It is just more dominant in you Goons. So I think that we all can learn by looking at the tactics you employ and by noting our own reluctance to respond to those tactics how our Get Rich Quick urge does us harm and what we need to do to overcome its pull.
I do NOT blame the 15-year cover-up solely on you Goons. You are the instigators of the bad stuff. You serve on the front lines. But you couldn’t get away with what you get away with without a lot of help from a lot of Normals and a lot of people in positions of responsibility (like site owners). A big part of this story is how so many good and smart people permitted the Goon phenomenon to continue for so long. I cannot tell this story completely and fairly and honestly without exploring that aspect of the question. So when it comes up, I make an effort to engage.
I hope that helps you to understand a little bit better what’s going on from my end of the table, Anonymous. You are right that I would delete a good percentage of Sammy’s posts. But the fact that they are not deleted by others tells us something important about why we are in an economic crisis today. We need to know everything we can know about what caused the economic crisis and about why as a society we permit it to continue to do so much damage. So I see it as my job not to duck those questions when they appear before me but to struggle to make some sense out of what is happening when your nasty work is permitted to disrupt conversations that good and smart people would like to be having amongst themselves.
Also, after 15 years of this, I have my doubts as to whether the well will ever dry up. If it wasn’t Sammy, it would be something else. Probably something better. But perhaps not, you know? Perhaps the Sammy question is the one that I should be focused on because it is so distasteful that no one else wants to deal with it. Perhaps figuring out what makes a Sammy or an Anonymous tick is the most important question on the table.
I don’t see it as my place to make a decision re that one way or the other. I let the world decide it for me. I aim to put up solid column entries and, if the world presents me with comments by Sammy, I do my best to respond to them in a way that helps us all understand a tiny bit better the stuff we need to understand to become better long-term investors. That’s my thing. So that’s what I do. I cannot help but speculate about the big picture at times. But I try to keep my eyes focused on what is in front on me and to trust the process (which is ultimately rooted in our economic and legal systems and culture) to bring things to a successful conclusion over time.
My best and warmest wishes to you and yours, my old friend.
Rob
Anonymous says
Sammy’s level of respect for you is maybe one notch above child molester. The notion that replying to his comments serves any purpose at all is ludicrous. Even Goon Central had more meaningful discussion.
Rob says
I am not suffering under any illusions that anything that I say is going to be given fair consideration by Sammy, Anonymous. If Sammy were capable of engaging in reasonable discussion, he wouldn’t be a Goon in the first place and there wouldn’t be any problem.
Why do people who are not Goons tolerate his behavior? That’s the question. That one affects all of us. If all of the Normals had written e-mails to the site administrator at Motley Fool back in May 2002, Greaney would have been given the boot 15 years ago and we wouldn’t be living through an economic crisis today. We know how people feel about this sort of behavior. We adopted laws making financial fraud a felony a long, long time ago. We have published site rules at every site at which I have posted prohibiting the tactics employed by Sammy. So why the heck is he still an issue?
Sammy remains an issue today because we all carry a Get Rich Quick urge within us and it is a powerful force. It doesn’t affect us all to the same degree. I think it would be fair to say that Sammy’s Great Rich Quick urge is more powerful than the Get Rich Quick urge residing in most of our fellow community members. But most of our fellow community members follow some sort of Buy-and-Hold strategy. And most of our fellow community members are using the numbers written on their portfolio statements as a reasonable indicator of the stock-market wealth they possess. And most of our fellow community members see someone like Sammy come along and say “oh, what a shame that some people don’t know how to behave” and then do nothing more about the problem. Fair enough?
That’s why stock investing remains risky today. The last 36 years of peer-reviewed research shows that there is no intellectual reason why investing in stocks should be any more risky than investing in Certificates of Deposit. The peer-reviewed research that I co-authored with Wade Pfau shows us that by opening the internet to honest posting on safe withdrawal rates and scores of other critically important investment-related topics, we would diminish the risk of stock investing by close to 70 percent. That’s pretty darn cool stuff, no?
Why is everyone who works in this field not working with me to get the word out re what the last 36 years of peer-reviewed research tells us about how stock investing works in the real world? There’s obviously a mountain of money to be made doing so. What’s the hold-up?
The hold-up is that the first rule of marketing is to flatter your potential customer. Valuation-Informed Indexing permits people to retire many years sooner and to reduce investing risk dramatically. But it does not flatter them. It does not tell them “oh, you are a 100 percent rational creature, all investors are” like Buy-and-Hold does. Valuation-Informed Indexing insults investors by telling them that they are highly irrational beings who will fall for any Get Rich Quick scheme that happens to come along if they do not work hard to resist their natural Buy-and-Hold inclinations. Valuation-Informed Indexing is what works. Buy Buy-and-Hold is what sells.
That’s the bottom line on all this. I am not able to go with what works from a marketing perspective when I consider how much human misery it causes. I am okay with a certain amount of marketing hoo-hah. But Buy-and-Hold crosses an important line when it deceives investors re how much money they need to accumulate to enter a safe retirement.
There were people who posted at the Motley Fool board who became friends of mine over time and who believed that the numbers in Greaney’s study were rooted in real research. I do not have it in me to play along with such lies. I view a failed retirement as a serious life setback. I feel strongly that, when I identify the safe withdrawal rate, I need to make a realistic effort to get the numbers right. If I discover at some point that I have made a mistake, I feel required to correct it and apologize for the harm that I have done.
I believe that a good percentage of the population is going to have sympathy for that position in the days following the next price crash, when they are able to see with their own eyes what the relentless promotion of the Buy-and-Hold “strategy” for 36 years after the peer-reviewed research was published showing that there is precisely zero chance that such a strategy could ever work out well for even a single long-term investor has done to our country. I’m not God. I could be wrong. But I know I love my country. And I know that someone who loves his country has an obligation to stick to it in circumstances like this. So we will see how that one turns out as time works its way through the hourglass.
I think that responding to Sammy’s comments serves a purpose. The good news of the 15-year saga is 50 times more good than the bad news of the 15-year saga is bad. To move forward to a world in which Buy-and-Hold and bull markets and economic crises are all a thing of the past, we are going to need as a society to make sense of what has been done to us and what we have done to ourselves. That story is contained in the materials set forth at this web site, including a good number of the comments that I have posted in response to Sammy.
We all need to be talking about this strange behavior. It is killing us. We cannot overcome it by ignoring it. Sunshine is a disinfectant. We need to get all the stuff that troubles us out into the open where we can make it clean. We need to overcome our Get Rich Quick impulse, not ignore it in the hopes that it will go away by magic.
Take a look at your own comment. You say that Sammy views me as nearly equivalent to a child molester. That’s a strong statement. Why would Sammy consider someone the near equivalent to a child molester solely because he happened to be the person who discovered the errors in a type of retirement study that was used by millions to plan their retirements? In intellectual terms, that makes zero sense.
In emotional terms, it makes sense. People care about their financial futures. If the last 36 years of peer-reviewed research is legitimate, millions of people have made terrible mistakes in planning their retirements. It hurts to hear that you have been taken. Lots of people have been taken. So we have seen a lot of emotional pain evidence itself during these 15 years of The Great Debate About Whether or Not to Permit a Great Debate. There is no one who is going to sprinkle pixie dust on us and make that pain go away, Anonymous. We are going to have to work up the courage to approach this matter like grown-ups and FACE THE FREAKIN’ PAIN.
We have to find some means to get accurate and honest investing advice out to millions of middle-class people. This is not optional. It is 100 percent imperative. It would be nice to think that we could do it without mentioning the 15-year cover-up. But that’s just not realistic. The first question people ask when anyone tells them about what the last 36 years of peer-reviewed research says is, “But what about what the Buy-and-Holders have been saying all these years — they say just the opposite!” You can’t spend hundreds of millions of dollars promoting a discredited investing strategy and then one day just turn on a dime and start promoting a true research-based strategy. There has to be a transition. There has to be an explanation of all that has gone down.
The proof that I am not a child molester is the fact that I am willing to work with my Buy-and-Hold friends and even with my Goon friends to do anything that is even a tiny bit reasonable to make the transition go as easy for my Buy-and-Hold friends and my Goon friends as possible. But there are obviously lines that cannot be crossed. I don’t commit financial fraud. Not in 15 years, not in 15 billion years. I don’t say that the Greaney study contains an adjustment for the valuation level that applies on the day the retirement begins. And I don’t deny that there is 36 years of peer-reviewed research showing that a valuation adjustment is required. Short of committing financial fraud and going to prison, I am up for just about anything that keeps feathers from being too ruffled.
When things get to a point where doing something a tiny bit reasonable comes to possess some appeal to you, please let me know. I am 100 percent in. Until that day, the best that I can think to do is to wish you all the best that this life has to offer a person. It’s the sort of thing that any self-respecting child molester would do for his friends.
Take care, man.
Rob
Anonymous says
Hmm if that were true, why don’t the Wall Street institutions, the ones who have far more intelligence, experience, and resources than you ever will, set stock prices at half their current value?
Rob says
There is no one person or one institution that sets stock prices, Anonymous. Stock prices are set by ALL investors.
The people who work in Wall Street institutions are in many respects like all the rest of us. Some of them are Buy-and-Holders. That group doesn’t see a need to divide by two. Some have doubts about Buy-and-Hold. They might be open to dividing by two but not push it because they don’t hear other people talking about it and don’t want to get on the bad side of the Buy-and-Holders. Lots of people have probably never thought about it.
We didn’t always know that we need to divide by two when prices are at two times fair value. We learned that in 1981, when Shiller published his “revolutionary” (his word) research. That’s the revolutionary part. Shiller’s research was revolutionary because it changed our understanding of how stock investing works in a fundamental way. Prior to 1981, we thought that the market was efficient, which means that there is no such thing as over-valuation. Now we know that over-valuation is a real phenomenon and that it needs to be taken into consideration in every calculation that is performed.
Now we just need to get the word out. When everyone understands the realities, we all move forward in a big way. That’s why I want to be able to post honestly. It’s why I want every other community member to be free to post honestly as well. When we are all posting honestly, we all learn from each other. Which is how it should be.
Are you able to say why the idea of permitting people to post honestly re the last 36 years of peer-reviewed research upsets you so? What do you see as the downside? If there are some who are not convinced that Valuation-Informed Indexing has merit, they can always stick with Buy-and-Hold, right? So what is the problem?
We have had thousands of community members express a desire to be able to post honestly and to learn from others doing so. Why do you think you have a right to deny them this? Are you willing to cover any losses they suffer as a result of your abusive behavior?
Rob
Anonymous says
Most stocks are held by institutions. And it’s fair to say these institutional investors – the ones with infinitely more resources and knowledge than you have – don’t think stocks are overpriced – otherwise they wouldn’t hold them.
Three years ago, while you were predicting a 70% stock crash, they were betting stocks would rise. So who’s right, you or the folks with all the information?
Rob says
The mistake that you are making is the mistake at the core of the entire Buy-and-Hold project — assuming that stock investing is an intellectual activity when in fact it is primarily an emotional activity and only secondarily an intellectual activity.
My mother used to lament that my older brother smokes and she would say to me “Why does he do it? — he’s so smart!” Being smart has nothing to do with it. My older brother understands perfectly well that smoking is not a good thing to do. He is controlled by an emotional and physical addiction. So it is with all who believe that it is not necessary to practice price discipline when buying stocks, both ordinary individuals who do that and people who work in Wall Street institutions who have studied this stuff for years who do that.
Some of the people who work in the Wall Street institutions have doubts re Buy-and-Hold. Wade Pfau had studied this stuff for many years before he connected with me. He had doubts. Because he had doubts, I was able to persuade him of a lot of things that I would not have been able to persuade him of had he not already entertained those doubts. But his doubts were not as strong as my own, largely because at the time we connected I had been exploring my doubts on an in-depth basis for a number of years and he was only beginning to explore his. So he ultimately pulled back from his explorations. But he used to marvel at how I could teach him so many important things even though I had never studied this stuff in a formal way. The explanation of why that is possible is that it is not an intellectual lacking that causes people to believe in Buy-and-Hold, it is an emotional lacking, and I had been working on the emotional lacking that had once made me a Buy-and-Holder myself for a number of years before Wade and I met up.
We need to have every Buy-and-Holder alive exploring his or her doubts on a daily basis. That’s what this is all about. We have seen during the first 15 years of The Great Debate that there are thousands and thousands of our fellow community members who today entertain doubts about Buy-and-Hold. To help them see the merit of those doubts, we need to open every investing discussion board and blog on the internet to honest posting re safe withdrawal rates and scores of other critically important investment-related topics. That’s how we provide people with what they need to make an informed decision of their own as to which sort of strategy to follow.
The people who work in the Wall Street institutions are humans like all the rest of us. They have emotions like all the rest of us. So they have an inclination to fall for the Buy-and-Hold hype just like all the rest of us. To some extent, its worse for them. They have a personal investment in the hype, they make their living promoting it. They know that if they explore their doubts and discover that Buy-and-Hold is a big pile of smelly garbage, they will in all likelihood lose their jobs if they speak up in clear and firm and bold ways about what they know. So it is a benefit in this field today NOT to be a big-shot in some Wall Street firm. The big shots are more compromised than the rest of us.
But we are ALL compromised. We all carry a Get Rich Quick urge within us. We all need to be fighting that Get Rich Quick urge on a daily basis to have any realistic hope of seeing our retirement plans work out in the real world. We all need to have discussion boards and blogs that permit honest posting available to us to help us do that. The laws against financial fraud are much-needed laws and we all need to work together to insure that they are enforced in a reasonable manner in the investing realm.
My sincere take.
Rob
Anonymous says
Have accounting startards changed over the last 30 years that have ultimately changed the P/E ratio for stocks? For example, howwere R&D expenses treated 25-30 years ago versus the last 5 years? Are you really comparing apples to apples when looking at today’s P\E. resuscitate all other time periods?
Rob says
You are pointing to a small factor and ignoring the far larger factor, Anonymous.
The S&P 500 increased by 37 percent in 1995. How much of that price increase do you think was real?
I say that 6.5 percent of it was real because 6.5 percent is the long-term average price increase for stocks in the U.S.
You are saying here that there might be some tiny adjustments needed in how P/E is calculated that would change that number to 6.4 percent of 6.6 percent.
Perhaps.
But what of it?
If the real number is 6.4 percent, I am a lot closer to getting it right saying “6.5 percent” than you are saying “37 percent.”
You have to adjust for valuations to get the numbers right. It’s possible that your adjustment will be off a little bit because human knowledge re these matters is not perfect today. But it is hard to imagine how any halfway reasonable valuation-adjusted number could be farther off the mark than the numbers used by the Buy-and-Holders. 37 percent? Are you freakin’ joking? Are you going to defend that number while questioning the 6.5 percent number?
The safe withdrawal rate in 2000 was 1.6 percent, according to the last 36 years of peer-reviewed research. Is it possible that advances will be achieved in coming years showing that 1.5 percent is a better number or that 1.7 percent is a better number? It is. But all three of those numbers are miles and miles better than the 4.0 percent Buy-and-Hold number.
The Valuation-Informed Indexers don’t claim to be perfect. But we are trying to get the numbers right. We don’t advance death threats when our numbers are challenged, do we? That puts us miles ahead of the Buy-and-Holders, no?
I don’t have any problem if someone comes forward and says that he believes that the average long-term return is really 6.4 percent because of changes in how R&D expenses are treated. When someone makes a case for something like that, we should investigate it. Perhaps the fellow is right and perhaps he is not. We should find out.
But 37 percent? That’s a joke, Anonymous. It’s not even a serious number. A person possessing common sense knows right off the bat that it cannot be right.
A safe withdrawal rate number that never changes? Huh? Jack Freakin’s Bogle himself says that Reversion to the Mean is an “Iron Law” of stock investing. I think it would be fair to say that there is going to be a whole big bunch of Reversion to the Mean in the years following a 37 percent price increase. And yet we are expected to believe that the safe withdrawal rate in those years is the same as it was in the years following a 37 percent price drop? What the h?
It’s a scam, Anonymous. It’s a fraud. It’s a Ponzi scheme. It’s a Get Rich Quick scheme. It’s a marketing gimmick. It’s a money-making thing that is in the process of causing millions of middle-class investors to suffer failed retirements.
I do my best to get the numbers right. That’s the difference between me and the Buy-and-Holders. There will always be room for improvements in all calculations. The problem with the Buy-and-Hold calculations is that they are so far off the mark that it embarrassed the Buy-and-Holders to acknowledge how far off the mark they are and so they respond with death threats rather than acknowledging that they are capable of making mistakes.
The safe withdrawal rate is not the same at all valuation levels. There’s no adjustment in how we treat R&D expenses that can change that or make that right. Financial fraud is a bad thing. It is a felony. That means prison time. We should all be avoiding that kind of thing. We should all be pointing it out when we see it. And we should all be advising our friends to avoid that sort of thing and not to permit the sorts of individuals who engage in that sort of thing to participate at their discussion boards and blogs.
That’s my sincere take re these terribly important matters in any event.
My best and warmest wishes to you and yours.
Rob
Anonymous says
Small factor? You mean if I have to fully expense R&D this year instead of writing it off over the life of a program (say 20 years) is a small item? What about accelerating depreciation of capital expenditures for new equipment and/or facilities? Those are just 2 examples. What about the thousands of other changes in the tax codes. All small? You feel comfortable about that? Have you compared the P/E of companies like Ameren or GE to WalMart or Exxon and what the accounting treatment is in each case as well as how it has changed over the years? Apples to Apples? Has anything changed in ultimately determining their overall profitability (which changes P/E)?
Rob says
Yes, it’s a small factor. There are going to be some accounting changes that cut in one direction and others that cut in the other direction and they are generally going to cancel each other out.
If the calculations of earnings were not generally consistent, you wouldn’t be able to use P/E10 to predict long-term returns. And yet we have 36 years of peer-reviewed research showing that the correlation between P/E10 and long-term returns is robust.
Buy-and-Hold is a scam, Anonymous. You should give it up. If this were a legitimate strategy, we never would have seen a single death threat. People promoting legitimate strategies simply do not behave in the manner in which we have seen the Buy-and-Holders behave for 15 years running now. Not once, not ever.
It’s not for me.
But I of course wish you all good things all the same, my good friend.
Rob
Anonymous says
So, if I was to tell you that a company that had an effective tax rate of 25% that went to zero, you still contend that it is a small issue when it comes to PE.
Rob says
We’re not talking about a single company. The P/E10 number for the S&P 500 is not calculated by looking at a single company.
Yes, accounting changes are not a big deal. At both times, the purpose of the method of calculation was to determine earnings properly. There are from time to time going to be changes. But we know that the P/E10 calculation works well because we can see the results. There has been a robust correlation between P/E10 and long-term earnings for 145 years now. It’s not possible that we would see that if the calculations for earnings were wildly wrong.
In contrast, look at the 37 percent price gain that the Buy-and-Holders count as real. That’s a big deal. That error caused an economic crisis that has caused millions of middle-class people to lose their jobs. That has caused people on both the left and right to begin to lose confidence in our system of government. All so that a few multi-millionaires can take millions more out of the pockets of the middle-class people who earned the money.
Or look at the case of the errors in the safe withdrawal rate studies. We will in all likelihood be seeing millions of people suffer failed retirements in days to come as a result of this massive act of financial fraud. I think it would be fair to describe this as the biggest social catastrophe in our nation’s history.
I don’t think that some accounting change that causes the long-term average return to go from 6.5 percent to 6.4 percent is quite in the same ballpark. But it really doesn’t matter what I think, you know. Following the next price crash, we are going to see what the members of your jury think of this massive act of financial fraud. I have a funny feeling that you will be taking that one a bit more seriously than you have taken the pleas of thousands of our fellow community members that honest posting be permitted on all of our boards and blogs.
There is only one way to find out for sure. Is that not so? We are going to need to exercise a little bit of patience, my long-time abusive-posting friend.
I hope that works for you.
Rob