Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
But if you don’t have the financial education and you haven’t built a substantial net worth from your investment strategy, how do you feel you would have credibility?
Four reasons:
1) Common sense. Price discipline is required in every other market that exists. The idea that it wouldn’t be required in the stock market is on-its-face absurd.
2) The peer-reviewed research shows that what common sense says must be true has in fact always been true, for 145 years running.
3) The behavior of the Buy-and-Holders since the morning of May 13, 2002, when I pointed out that the Buy-and-Hold retirement studies lack an adjustment for the valuation level that applies on the day the retirement begins. People don’t behave this way when they believe that there is research supporting what they are saying. People behave this way when they believe or at least suspect that they are working on behalf of a con.
4) The writings of the experts in this field. Many of the top-name experts in this field have made statements showing that they believe that valuations affect long-term returns. Most of these people advocate Buy-and-Hold strategies. So it is not in their self-interest to make such admissions. The fact that they feel compelled to do so shows that they are aware that the evidence here is compelling.
Rob
Buy-hold-rebalance automatically accounts for valuations via rebalancing. You tend to ignore that fact since it doesn’t support the HocoAgena. Reality and Bat$hit Crazy Hocomania seldom meet.
So you perform your valuation on a consumable item (like a car or banana) that also has an endless supply, like you do on an asset generates a profit and has limited supply.
Buy-hold-rebalance automatically accounts for valuations via rebalancing. You tend to ignore that fact since it doesn’t support the HocoAgena. Reality and Bat$hit Crazy Hocomania seldom meet.
Rebalancing does not account for valuations. Say that an investor determines that the proper stock allocation for someone with his risk tolerance is 80 percent stocks at a time when prices are at fair-value prices. Then prices double over the course of the year. Rabalancing will cause the investor to sell some stocks at the end of the year, the amount that he needs to sell to get back to an 80 percent stock allocation. But stocks are no longer selling at fair-value prices following a doubling in price. This investor is not going with a higher stock allocation than what is proper for someone with his risk tolerance.
This is the flaw at the core of the Buy-and-Hold project. This mistake always kills investors in the end. Unfortunately, it does not kill them quickly. It is like smoking four pack of cigarettes a day. The smoker can look at results at the end of one year and say to himself: “I’m doing fine, there’s no reason why I shouldn’t keep doing this!” But in the end it is going to get to him. It’s the same with the Buy-and-Holder. It kills you in the long run. You can get away with going with the wrong stock allocation for a long time but you cannot get away with it indefinitely.
No one ever has, according to the historical return data available to us. The trick is to turn to the peer-reviewed research for guidance re what works in the long run rather than the emotions you experience while testing out the strategy in your own life. Your tests are focused on one side of the equation — you see all the temporary benefits that follow from employing a pure Get Rich Quick strategy but you don’t see the downside until it it too late to do anything about it. The only way to see the entire picture is to open yourself to considering the peer-reviewed research because valid research is OBJECTIVE and can reveal long-term effects that your personal experience just does not catch up on.
I hope that helps a tiny bit, Long-Time.
Rob
So you perform your valuation on a consumable item (like a car or banana) that also has an endless supply, like you do on an asset generates a profit and has limited supply.
Markets set prices. That’s what they do.
They perform this magic through a process in which both sellers and buyers act in their own self-interests. Sellers focus on all the aspects of the question that suggest that prices should be higher, thereby pulling prices upward, while buyers focus on all aspects of the question that suggest that prices should be lower, thereby pulling prices downward. The price that applies is the price at which the demands of the buyer and the seller meet at a point along the continuum of all possible prices that is acceptable to both. Any market without price resistance becomes dysfunctional.
The reason why we have price crashes in the stock market is that the stock market becomes dysfunctional when Buy-and-Hold strategies become popular. Buyers need access to the information that in a healthy market they would use to act in their own self-interest. But the Wall Street Con Men and the members of their various Internet Goon Squads very, very much do not want the millions of people who buy stocks to finance their retirements to gain access to this information, which is contained in an exploration and understanding of the last 36 years of peer-reviewed research. After your prison sentence has been announced, this critically important information will be available at every web site on the internet. At that time, both parties to stock transactions will be able to act in their self interest and the market will become functional again and prices will return to fair level values again, hopefully on a permanent basis.
Markets work through the magic of information exchange. Your abusive and even criminal posting behavior has blocked access to the information that those of us who want to buy stocks to support our old-age retirements need to perform the job that we need to perform for the market to do its job of setting prices properly. The entire nation — both the millions of middle-class investors who need access to the information and the Goons who deny it to them — suffers as a result. No one benefits in the long run from the presence of a dysfunctional (improperly priced) market. You Goons only believe that you are reaping benefits because you refuse to perform the calculation (dividing your portfolio value by two at a time when prices are at two times fair value) that you need to perform to identify the true and lasting value of your stock portfolios.
Price matters in all markets. Prices are what makes markets work. It is the entire purpose of a functioning market to set prices properly. A market in which prices cannot be set properly (because the information needed is being blocked) becomes a dysfunctional market. Everyone suffers when a market becomes dysfunctional. A functioning market is one of those free lunches we sometimes hear about. Restoring a market to a functioning status is a win/win/win/win/win, with no possible downside. We all should be grateful that the last 36 years of peer-reviewed research supplies us for the first time in history with the “revolutionary” (Shiller’s word) breakthrough in knowledge that we need to make the stock market a functioning market on a permanent basis.
Rob
“Your abusive and even criminal posting behavior has blocked access to the information that those of us who want to buy stocks to support our old-age retirements need to perform the job that we need to perform for the market to do its job of setting prices properly. ”
You are referring to your banning at the various financial boards, correct? Therefore, your assumption is that if you could post whatever you wanted at any board, the stock market would behave much differently.
your assumption is that if you could post whatever you wanted at any board, the stock market would behave much differently.
Obviously.
When my right to post honestly is recognized, EVERYONE’s right to post honestly will be recognized. We will as a nation tap into the benefit of 36 years of powerful research-based investing insights in the space of about 24 hours. And these last 36 years of peer-reviewed research is no ordinary 36 years of peer-reviewed research. The last 36 years of research is BY FAR the most important 36 years of research in our nation’s history.
There will be no stopping us at that point. The way that I often stated it is that: “The good stuff that applies here is 50 times bigger than the bad stuff that we have seen here.” It would not surprise me to see that, after we turned our economic system around, we declared the day that prison sentences were announced for you Goons a national holiday. People use retirement studies to plan retirements. They need accurate and honest studies to be able to plan in such a way that there long-time hopes for financial freedom are realized. I am very much looking forward to working with both my Valuation-Informed Indexing friends and my Buy-and-Hold friends to take us all to a far better place than where we reside as a nation today. I mean, what’s the freakin’ downside, you know?
The entire point of doing research is to make positive changes to the world. It’s a darned shame that we have denied ourselves these benefits for over three decades now.
Good question, Anonymous.
Rob
“When my right to post honestly is recognized, EVERYONE’s right to post honestly will be recognized.”
You are the only one widely banned. I don’t know of anyone else in a similar circumstance.
“The last 36 years of research is BY FAR the most important 36 years of research in our nation’s history.”
The happiest people in America were in mostly stocks during those 36 years. They are now having great retirements. The most miserable people invested like Rob Bennett. So if your message was suppressed (and it wasn’t) that would have been a good thing.
I am the only one who played it the way that I played it, Anonymous. I took a position of “I am going to post with complete honesty regardless of any intimidation tactics, this stuff is too important to do anything less.” No one else does that. Everyone else looks for some sort of compromise that you Goons can live with.
So Jack Bogle says “Reversion to the Mean is an Iron Law of stock investing,” which means that there is zero chance that the safe withdrawal rate can be the same number at all times. If Reversion to the Mean is an Iron Law, then the safe withdrawal rate must be a lower number at times when valuations are high and when the effect of Reversion to the Mean is going to be strong. So Bogle gets us halfway there. But he doesn’t say “therefore, the Buy-and-Hold retirement studies should be corrected before they do more harm.” That’s the part that I leave in and that he cuts out. That’s the part that gets me banned.
And Bill Bernstein says (I am paraphrasing): “When valuations are where they are today, you need to subtract 2 point from the ordinary safe withdrawal rate of 4 percent.” Again, that gets us halfway there. I supply the other half of the story. I say: “So we need to warn people of the dangers of using the uncorrected 4 percent withdrawal rate reported as safe in the Buy-and-Hold studies so that we don’t cause even more unfortunate people to suffer failed retirements.” It’s that fuller and clearer and firmer and more simple form of honesty that gets me banned.
And Wade Pfau says: “The information contained in the Buy-and-Hold retirement studies is not the information that people planning retirements are looking for and it could be dangerous.” He leaves out the part about how it is financial fraud to fail to correct the errors so that more people can be taken in and so that more money can be made taking people in. And he leaves out the part about how the death threats are a sign of desperation and inappropriate and are going to get people sent to prison in the days following the next price crash.
Einstein’s definition of insanity was “doing the same thing over and over again and expecting different results.” We have been playing it this half-honest/half-dishonest way for 36 years now. Where has it gotten us? It brought us an economic crisis. It brought us political instability. It brought us the destruction of many fine discussion boards and blogs. It brought us upcoming prison sentences for you Goons. Something tells me that the half-dishonest/half-honest approach to investing advice has not been working out so hot.
So I play it a different way. I aim for COMPLETE honesty re safe withdrawal rates and re scores of other critically important investment-related topics. That’s the future, Anonymous. We have learned a lot of important stuff over these past 15 years because I elected to play it that way. I think it would be fair to say that we will be learning a lot more over the next 15 years. My guess is that we will do better over the next 15 years than we have over the past 15 years. The good stuff here is 50 times more good than the bad stuff here is bad.
The three people mentioned above and THOUSANDS of others very, very much want to join me in doing fully honest work in this field. First of all, they want to help people; that’s why they got into this field in the first place. And second of all, they want to make money. And there is a mountain of money to be made putting forward fully honest, research-backed investing advice. So, no, I am the first person to offer fully honest takes re the last 36 years of peer-reviewed research in this field but I am certainly not going to be the last. Once my right to post honestly is recognized, there will be an opening of the floodgates. I know that. You know that. Everyone watching knows that.
The problem is the transition. The many good and smart people who have been less than fully honest for 36 years now don’t want to go to prison. They don’t want to be sued civilly. They don’t want to see their reputations damaged. What to do, what to do?
I am open to anything that anybody comes up with that doesn’t require me to go to the wrong side of the felony line. We can put out articles pointing out how many of us suffered from cognitive dissonance because this new stuff is so “revolutionary” (Shiller’s words). We can point out the social pressures that many of us experienced because our readers and our clients want so much to believe that the numbers on their portfolio statements are accurate. We can work out some sort of amnesty program to be passed by Congress. We can do all sorts of things.
Our problem is that none of these things can be done by me alone. They are all things that can only be done by us working as a community. Others are afraid to join in because as of today they feel that posting with full honesty is career death. Again — What to do, what to do?
I am going to continue doing what I am doing. I am incapable of saying that I believe that Greaney’s retirement study contains an adjustment for the valuation level that applies on the day the retirement begins. I just cannot go there. So I am going to continue doing what I am doing today.I love my country. I believe that we are a good and smart people. I believe that we will all pull together following the next price crash. Then things that seem so difficult today will seem easy to all of us.
I obviously wish that it wouldn’t take a deepening of the economic crisis to get us there. Obviously. But it takes what it takes, you know? I am not Superman. The transition from Buy-and-Hold to Valuation-Informed Indexing is a big move. It is not something that can be achieved by one person. We are going to need at least 10 people to work up the resolve to stand up to you Goons. Once we do that and show people that it is safe to speak out honestly, we are going to see good stuff piled on top of good stuff piled on top of good stuff piled on top of good stuff and I am 100 percent confident that not a one of us will ever look backwards.
We all know where we need to take things. Now we just need to work up the courage to let things go there. Valuations affect long-term returns. We have all known that for 36 years now. Now we need to get down to the business of telling every investor alive on Planet Earth WHAT THAT MEANS in strategic terms.
I hope that helps a bit, Anonymous.
Rob
“The three people mentioned above and THOUSANDS of others very, very much want to join me in doing fully honest work in this field. First of all, they want to help people; that’s why they got into this field in the first place. And second of all, they want to make money. And there is a mountain of money to be made putting forward fully honest, research-backed investing advice. So, no, I am the first person to offer fully honest takes re the last 36 years of peer-reviewed research in this field but I am certainly not going to be the last. Once my right to post honestly is recognized, there will be an opening of the floodgates. I know that. You know that. Everyone watching knows that.”
Who says that you are honest and no one else is?
“Einstein’s definition of insanity was doing the same thing over and over again and expecting different results.”
Says the guy who’s been blogging on the same topic for 15 years.
The happiest people in America were in mostly stocks during those 36 years. They are now having great retirements. The most miserable people invested like Rob Bennett. So if your message was suppressed (and it wasn’t) that would have been a good thing.
We don’t agree, Anonymous.
Stocks offered either an amazing long-term value proposition or a very strong value proposition from 1981 through 1996. That’s 15 of the 36 years. We agree to that extent. But the long-term value proposition for stocks has been generally poor during the last 21 years. Investing in poor value propositions does not yield happiness.
There’s a surface happiness. 90 percent of investors have not studied these matters in sufficient depth to understand how much harm they have done themselves by ignoring valuations. So in a surface sense they are indeed happy about their choices. That was me once upon a time. I know the feeling. I used to do a financial inventory on New Year’s Day. One of those years just before I read Bogle’s book and got out of stocks, there had been a big gain for the year, more than I had anticipated when I had done written my financial plan for the year, and I was dancing around the room celebrating my good fortune. I suppose that one could say that I was “happy.”
But there was also something inside me that caused me to try to put my finger on the part of the story that my common sense told me just didn’t add up. That was the part that caused me to take Bogle’s book out of the library and read that passage about how “Reversion to the Mean is an Iron Law of stock investing” and to turn that into that fateful post of the morning of May 13 2002, in which I asked whether those of us using safe withdrawal rates to determine when to hand in our resignations from our corporate jobs should be taking the effect of valuations into consideration. I was happy on the surface. But there was some sort of inner discomfort that was causing me to ask questions that in time led me away from the path which for a time seemed to be bringing me happiness.
Are you happy, Anonymous? I know what you’ll say. You’ll say, yes, you are so very, very happy. You have earned x return and you have y millions in your account and you have expensive cars and all this other stuff that makes you happy. I don’t buy it. If you were truly happy, you never would have advanced a single death threat or a single demand for a single unjustified board banning or a single act of defamation or a single threat to get a single academic researcher fired from a single job. Truly happy people don’t behave that way.
You have the same doubts bubbling up inside you that I had bubbling inside me on the day when I took Bogle’s book out of the library and thereby started walking this amazing path that I have been on the past 15 years. I don’t want to take away from you any true happiness that you feel about your financial circumstances and my strong sense is that a good measure of your happiness is rooted in something real. But it is not all real. If it were all real, we wouldn’t see the behavior that we have been seeing from you for a long, long time now. You are not truly, deeply happy re your financial circumstances. Having a blind faith in the perfection of the Buy-and-Hold strategy has not calmed those inner fears for you. I am 100 percent sure.
My message has been suppressed and that has been a very, very bad thing. If I am right, the message should not be suppressed. If I am wrong, that would come out in the discussions that followed and it would be a good thing for me to be revealed as wrong if I in fact am wrong. So, if I am wrong, it is a very bad thing for my message to be suppressed. It’s a bad thing any way you look at it. The only good thing about the suppression of my message is that it temporarily calms your fears that you have made a terrible mistake. But you need to be examining those fears while there are still steps that can be taken. Your fears are a warning sign. Again, I am 100 percent sure.
I hope that helps a tiny bit, my surface-happy but innerly tormented friend.
Rob
Who says that you are honest and no one else is?
There are Post Archives, Anonymous.
People who visit this site in the days following the next price crash trying to figure out how they were lied to will be able to compare the scores and scores of things that Wade Pfau said before he was threatened and compare those statements to the few he made on the day following delivery of the threats. Those people will be able to look at the long history of threats of violence by Mel Lindauer and John Greaney and then take note that Jack Bogle’s name appears in a blurb on the back cover of Lindauer’s book. They will be able to read in their newspaper about the millions of failed retirements that are causing ever worsening political frictions in our country and then look at the word games that Bernstein engages in when he discusses the safe withdrawal rate issue in his book and decide for themselves whether they think that such word games are a good idea or a bad idea.
And they will be able to check my claim from the morning of May 13, 2002, that the retirement study posted at John Greaney’s site lacks an adjustment for the valuation level that applies on the day the retirement begins with the clarity of mind that comes from living through the worst economic crisis in our nation’s history. I have a funny feeling that millions of people will be bringing a new perspective to these matters in those days. Nobody is calling Bernie Madoff “Saint Bernie” anymore. The appeal of Ponzi schemes faded rapidly when the time comes to pay for the happy dance.
I am not capable of saying that I believe that Greaney’s retirement study contains a valuation adjustment. It is not in me. I love my country. That’s the bottom line here.
All that said, I do wish you all the best that this life has to offer a person.
Rob
Says the guy who’s been blogging on the same topic for 15 years.
Precisely so. But you overlook the fact that Bogle has been saying the same thing for 45 years. That’s three times as long!
And I have been learning amazing things in just about every one of the days that I have lived through during those 15 years. Things that someone with my background should not be so blessed to learn.
You measure success by how many dollar bills are coming in. By that standard I am a miserable failure. But I don’t measure success that way. I measure success by how much value I am contributing to the world. It is by adding value that we create the wealth that permits us to be paid large sums. But that standard. I have achieved 500 times the success that I ever dreamed of in earlier days. So I just keep on doin’, you know?
Dylan said” “There’s no success like failure and failure is no success at all.” I used to use that one as my signature line way at Motley Fool way back in the Summer of 2002. If I had given up back then, as you Goons advised me, I wouldn’t today have my name on the most important piece of peer-reviewed research published in this field in over 30 years. How did I know that that’s where this was leading? I didn’t know the specifics. I just knew that the way to real wealth is creating value and that it would be a mistake to walk away from the greatest opportunity that anyone has been presented with in a long, long. long time. I saw where the long-term wealth was and I ran in that direction.
And I soldier on to this day.
My best wishes to you.
Rob
“There are Post Archives, Anonymous.”
The archives on your website are your opinions. The archives on other websites say you are lying.
The lack of an adjustment for valuations in the Greaney retirement study is an objective fact, Anonymous.
Millions of people will develop a greater appreciation for the significance of that fact following the next price crash. There’s a big difference between wondering whether a salesman is flattering you just to turn a quick buck and seeing your car break down on the road when it is too late to get your money back.
But we’ll find out together how things play out in days to come. I hope that works for you.
Rob