Set forth below is the text of an e-mail that I recently posted to the discussion thread for another blog entry at this site:
It is far more likely that he [Bogle] does not respond to aggressive and unhinged letters.
An e-mail that points out that the Buy-and-Hold retirement studies do not contain a valuations adjustment and that there is 35 years of peer-reviewed research showing that a valuations adjustment is required is not aggressive and unhinged, Laugh. An e-mail like that demands a response from an individual who is widely known as the lead promoter of the Buy-and-Hold strategy. If the tables were turned, I would not let 24 hours pass without responding to that e-mail.
My sincere take.
Rob
TMF Uh Oh says
Uh oh. Looks like TMF is full of Goons also. They just endorsed and explained the use of the 4% Rule.
https://www.fool.com/retirement/2017/03/13/retirement-planning-is-the-4-rule-the-right-rule-o.aspx
Guess they will all be going to prison, right Rob?
Rob says
When you say that “Motley Fool is full of Goons,” what you are saying is “Motley Fool is full of beings who possess a Get Rich Quick urge” or “Motley Fool is full of humans.”
This isn’t the first time in history that an article appeared pushing a Get Rich Quick approach to stock investing. But it is quite remarkable that this article apprears 15 years after my May 13, 2002, post pointing out that those who employ the 4 percent rule fail to adjust for the valuation level that applies on the day the retirement begins.” Why have a 4 percent rule or a 2 percent rule or a 12 percent rule or any other kind of rule? It’s the Get Rich Quick urge that resides within each of us that makes us long for a rule that permits us to fool ourselves about the effects of overvaluation, to deceive ourselves into thinking that there might be some magical, mystical world where the universal rule that price discipline always is the most important thing when buying something doesn’t apply when buying stocks.
I don’t believe in that fantasy, TMF. I believe in the 36 years of peer-reviewed research that shows that that fantasy always ends up hurting the people who fall for it in a very big way. And of course I know from my experience on the internet over the past 15 years that there are thousands of my fellow humans who feel the same way or who at least are far enough along in their thinking in that direction to want to explore the question with me in an environment in which people can talk things over in a peaceful and friendly and civil and intelligent manner. And of course the fact that I have run into thousands on the internet means that there are millions in the real world who believe these things or who are on their way to believing these things.
Motley Fool could make lots of money permitting those people to participate in the sorts of discussions that they want to participate in. And of course Motley Fool loves the idea of making that money. The only thing holding them back today is that, if they permit those discussions, they are going to upset lots of people who for many years now have been reading articles like the one you cited and who have planned their financial futrures around the idea that there might be some magical, mystical world where it might not be necessary to exercise price discipline when buying stocks and those people are going to experience a lot of pain seeing those common-sense, research-based ideas discussed openly.
I wish it weren’t so. I wish that my Buy-and-Hold friends experienced no pain whatsoever in learning what the last 36 years of peer-reviewed research tells us about how stock investing works. I wish that I could write (correctly) that every investor needs to divide the number on his portfolio statement by two to know the true value of his portfolio and not cause you to feel all the feelings that cause you to become so abusive. But I cannot change these realities. I can point out that any rule-of-thumb approach to identifying the safe withdrawal rate ignores the 36 years of peer-reviewed research showing that valuations affect long-term returns. Then I just have to accept that people who experience pain hearing those words are going to respond in the ways that people who are experiencing pain respond when they hear things that increase that pain.
I don’t wish you any pain, TMF. It is my intent to relieve your pain. Articles like the one you cited increase people’s pain because they prolong it. If I were the king of the world, we would have stopped seeing articles like that one back in 1981, when the peer-reviewed research first revealed their falsity. It makes me sad that it has taken us 36 years to get to where we are today, when we still see such articles appear on a regular basis. But it makes me happy that Robert Shiller has been awarded a Nobel prize for working up the courage to tell us the truth re these matters. That tells me that we are as a people very much on the right track and that we are close to working up the courage to get to a place where we will be making great leaps forward and where we will not be seeing those sorts of articles too often in our future days.
There is no rule of thumb that we can give people who want to know how many packs of cigarettes they can smoke each day without dying of cancer. Some people who smoke one pack die of cancer. Some who smoke four packs get off the hook. So what we tell people is that the science shows that smoking greatly increases the risk of getting cancer and that it is not such a hot idea to smoke one pack of cigarettes or four packs of cigarettes. It is better to smoke one pack than to smoke four packs, But cancer is nothing to play with and so the essential message is to avoid behaviors that cause it.
So it is with Get Rich Quick investing. There was a time when smart people like Peter Lynch were saying that the safe withdrawal rate is 7 percent. The article that you cite is a big step forward from what we saw in those dark days. So good for Motley Fool for taking a step out of the dark ages. The next step in humankind’s journey of progress is to recognize that Get Rich Quick thinking is never a good idea, not when it produces a 7 percent safe withdrawal rate and not when it produces a 4 percent safe withdrawal rate. Any calculation that fails to include a valuations adjustment is a calculation rooted in Get Rich Quick thinking and one that thus hurts people in very serious ways. We need to let people know that. We need to point out the errors in these sorts of articles when they appear before us.
Get Rich Quick thinking is not the asnwer, TMF. Get Rich Quick thinking is the problem. This is my sincere belief re these terribly important matters in any event. I wish Motley Fool all the best and I wish you all the best. But I don’t find this type of article even a tiny bit helpful. And I am 100 percent certain that, if the author of that article could see the pain that he is causing the people who read that article by encouraging them in their Getv Rich Quick inclinations, he would beg me or someone else to correct him. It is ignorance of the consequences that permits an article like this to appear. It is the journalist’s job to dispel ignorance. That’s the value that someone doing the work that I do adds to this world.
Valuations affect long-term returns. There is no magical world where you can invest in stocks effectively without taking valuations into consideration. There is a lot of money to be made telling you otherwise. But anyone who lies to you about this subject (even those who do so only after first lying to themselves, which is the vast majority of them) hurts you by doing so. We all would be better off if we all felt free to challenge such lies when we hear them. There are good reasons why the laws of our nation assure us of that freedom. I believe that those laws will be enforced in the days following the next price crash, when we can see with our eyes and not just with our logical minds the mountains of human misery caused by the relentless promotion of the pure Get Rich Quick “strategy.”
I like the people who write this sort of article, TMF. I don’t like the pain they cause with their dishonesty (if they are aware of what they are doing) or with their ignorance (if they are not). I see a day when honest posting on the last 36 years of peer-reviewed research will be permitted at every discussion board and blog on the internet and when we will not be seeing this sort of article anymore. I look forward to that day. I have done everything in my power to bring on that day and I will continue to do so. I will celebrate with my Buy-and-Hold friends on the day when they have been sufficiently freed from the demons that today control them to work with me to bring on that day as quickly as possible.
We should be calculating the safe withdrawal rate accurately and honestly. I am 100 percent sure. Get Rich Quick thinking is doing great harm to all of us. I am 100 percent sure. We cannot hold back the train of progress much longer, not with 36 years of peer-reviewed research revealing to us all the realities. I am 100 percent sure.
I wish you all good things. I am 100 percent sure.
Rob
Anonymous says
Get rich quick? It took me 30 years to build a $4.1 million portfolio.
Rob says
If you divide by 2, it’s 2.05 million. Big difference.
That’s why you like Buy-and-Hold. The Buy-and-Holders tell you that you can count the extra 2.05 million as real.
I tell you the truth. I tell you that the extra 2.05 million is cotton-candy nothingness. That’s why you hate me.
But the long-term story is that you are better off knowing the real numbers. It’s not possible to plan effectively without knowing the real numbers.
2.05 million of Get Rich Quick garbage is a lot of Get Rich Quick garbage, Anonymous.
There were lots of phony millionairies who invested in the Bernie Madoff fund too, Anonymous. How many of them refer to him as “Sainy Bernie” today?
Get Rich Quick strategies remain popular until the day the phony gains disappear. It’s the oldest story in the book. You will be saying a lot worse thiings about Jack Bogle than I have ever said about him after that extra 2.05 million disappears from your portfolio.
My sincere take.
Rob
Anonymous says
Why divide by 2? My portfolio is a diverse holding of domestic stocks, international stocks, domestic corporate and government bonds, international bonds, REITs, TIPs, and cash.
Rob says
Divide the amount in domestic stocks by two.
That’s what we are talking about. Greaney’s retirement study does not consider the amount that the investor has in international bonds or any of those other things. He is working a con. That’s why he responded with death threats when I pointed out the error in his “study.” He does not want the con revealed. He gained his popularity on the internet by pushing a Get Rich Quick approach to investing and he had to lie about the numbers to make his “strategy” look good. He destroyed the lives of a good number of friends of mine with his relentless promotion of his dishonest study and with the insanely abusive behavior he engaged in to block the hundreds of community members who expressed a desire to know the real numbers from hearing them.
I don’t do financial fraud, Anonymous. Not in 1n 15 years, not in 15 million years.
I am okay with putting forward some words aimed at getting your prison sentence reduced a wee bit. But I don’t cross the felony line. Not ever. Not once.
I do wish you all good things.
My personal take is that your diverse holdings would have served you better outside of prison than in prison. Just another one of those crazy hunches that I have been known to experience from time to time.
Hang in there, man.
Rob
Anonymous says
Uh, oh………prison???? I bet all those nasty goons are shaking in their boots knowing that the all powerful Rob Bennett is going to put them in prison for daring to question his expertise.
Rob says
I have zero power to put anyone in prison and zero desire to obtain any such power, Anonymous. You have nothing to worry about from me.
The members of your jury will determine the length of your prison sentence. That’s how our system works.
I wish you the best of luck with it.
Rob
Anonymous says
You must have the power since you are the one bringing up the topic.
Rob says
No. That’s silly.
I am a journalist. Journalists tell stories. They don’t put people in prison.
Some stories involve prison sentences. In those cases, the journalists have to mention the prison sentences. But all they are doing is telling the story accurately and completely. That’s why I mention the prison sentences — they are part of the story being told here.
Please think where you would be if everyone were talking about your prison sentence, Anonymous. If that were the case, you would have pulled back from the criminal behavior soon after it started. So your prison sentence would have been very short. That would have been a much better outcome for you and for all of us, no?
There is no charity in seeing criminal behavior and failing to speak up about it. People don’t speak up out of cowardice, not charity. Wade Pfau stood up to Mel Lindauer when Lindauer claimed that he had done unethical research. Then he noticed that Jack Bogle was not going to say anything about it. That scared him. That’s what caused him to capitulate to you Goons.
What effect do you think Wade’s capituation had on others who have given thought to doing honest research in this field? It scared them away. When someone like Jack Bogle fails to speak out about prison sentences when that is the obviously appropriate thing to do, that sends a signal to people that a field has become very corrupt. People want to see leaders lead. Bogle has failed to lead re the Lindauer matter. That scares all of us. That causes the problem to get worse, not better. There is zero charity in that.
I am trying to keep your prison sentence as short as possible. That means getting the word out as quickly as possible. Failing to mention your prison sentence would be insane. What possible good could ever come of that? I want to see every discussion board and blog opened to honest posting on safe withdrawal rates and scores of other critically important investment-related topics. What the heck good would it do to fail to talk about the prison sentences? An argument can be made that to fail to speak up about financial fraud that one sees taking place before one’s eyes is to aid that act of financial fraud, which is to commit a crime of one’s own. It is the criminal behavior of you Goons that is keeping Buy-and-Hold alive today. To fail to talk about the criminal behavior (and the prison sentences that inevitably follow from it) would be pure foolishness and irresponsibility.
No?
Rob
Laugh says
If I divide the stock part by two, which makes no sense, I still have a huge pile of money.
You do understand that older folks shouldn’t have a huge percentage of stocks?
Rob says
I’m happy for you that you have a huge pile of money, Laugh. I wish that you could take some joy in it and calm down about things a bit. There are lots of other people in the world who would like to have more money and permitting honest posting on the last 36 years of peer-reviewed research at every discussion board and blog would help them to make that dream a reality. That’s what this is all about.
Most Buy-and-Holders recommend that investors lower their stock allocation as they get closer to retirement. This is certainly a good idea for those following a Buy-and-Hold strategy. Following a Buy-and-Hold strategy sends the risk of stock investing off the charts. It would be dangerous for a Buy-and-Holder to go with the same stock allocation that he used when he was young at a time when, if he suffered huge losses, he would not be able to make up for them. So this bit of conventional advice makes sense in the context in which it is usually delivered.
However, it is not entirely necessary for Valuation-Informed Indexers to lower their stock allocations as they get close to retirement. The peer-reviewed research that I co-authored with Wade Pfau shows that an investors who switches from Buy-and-Hold to Valuation-Informed Indexing thereby reduces his risk by nearly 70 percent. The near-retirement Valuation-Informed Indexer who does not lower his stock allocation when he nears retitrement is most cases is facing less risk than his Buy-and-Hold counterpart who does so. The research shows that failing to take valuations into consideration when setting one’s stock allocation is BY FAR the primary contributor to risk. The other factors (like age) are small factors in relative terms.
Say that an investor has turned 60 and the P/E10 level has dropped to 8, half of fair value. The most likely return is 15 percent real. The investor should be trying to tap into as much of those juicy returns as he possibly can while they remain available. By going with a high stock allocation while the returns offered are so great, he can in a short amount of time amass enough capital to not need to invest in stocks at all when prices go higher (Personally, I would remain in stocks at all times, but not everyone feels this way). So an argument could be made that an investor of age 60 might consider a stock allocation of as high as 90 percent when the P/E10 level is 8.
Does that sound too risky? Yes and no. If he loses lots of money, he is in trouble. But how much lower can stock prices go when stocks are already priced at one-half of fair-value? It is certainly possible that the P/E10 level could remain at 8 or thereabouts for a long time. So the investor should not form expectations that prices are going to jump forward anytime soon. But the return is 6.5 percent real when prices remain steady. The investor does not need to see any price jumps at all to enjoy a very good return on his money.
The price level once fell to 5. That would be a big drop. But the P/E10 level did not remain at that insanely low level for long. If the investor cannot psychologically handle a drop to 5, he needs to go with a lower stock allocation for sure. And of course he needs to be careful that he is not fooling himself. But if he truly believes that he can handle a drop to 5 that only remains in place for a few years, he is probably in good shape. If we were to see a drop to 5 that remained in place for over 10 years, we would be seeing something that we have never experienced before. No one can say with certainty that it will not happen. But the likelihood of such an event is very low. It doesn’t make sense to give up the option to tap into years of huge returns because of a possible outcome that is a very low-probability event.
My take is that investors should lower their stock allocations a small bit when they get close to retirement. Even if it does not make logical sense to do so, the reality is that we are humans, not machines, and there is an added psychological fear that is going to arise when losses are suffered close to retirement age. But I don’t think that Valuation-Informed Indexers need to lower their stock allocations as much as Buy-and-Holders in these circumstances given that they have addressed the far bigger risk factor through their willingness to take the last 36 years of peer-reviewed research into consideration.
Please note the tone in your post. The attitude that comes through suggests that an investor who does not accept that he needs to lower his stock allocation when he nears retirement is a fool. But I have never heard you call those investors who do not accept the need to take valuations into consideration when setting their stock allocations fools. It is the Buy-and-Holders who are the bigger fools, Laugh. The peer-reviewed research shows that failing to take valuations into consideration sends investing risk into the stratosphere. Why do something like that? Why not just invest in the sensible, low-risk, high-return way that works best in the long run?
The answer to that one is that the Get Rich Quick urge that resides within all of us causes our brains to go haywire. Buy-and-Holders like counting the cotton-candy returns generated by bull markets as real. Any suggestion that they consider a research-based strategy makes them go mad because acknowledging what the research says means acknowledging that the cotton-candy returns always get blown away in the wind in the long term.
Valuation-Informed Indexing is a new paradigm. It is the first TRUE research-nased investing strategy. We didn’t have the last 36 years of peer-reviewed research available to us when Buy-and-Hold was developed and Bogle’s unwillingness to say the word “I” and “Was” And :Wrong” has held back the Buy-and-Holders from incorporating the most important research into their model for over three decades now. Drop the resistance to looking at what the research says and everything changes. Even in the Valuation-Informed Indexing era it will make sense for investors to lower their stock allocations a bit when they approach retirement. But this is not nearly as big a consideration in an environment in which investors have opened themselves to taking advantage of the power of the “revolutionary” (Shiller’s word) insights developed (but kept hidden from most investors) over the past 36 years.
I hope that helps a bit, my good friend.
Rob