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:
Just for a little comic relief to anyone that might be reading these comments, here is a little tid-bit Rob posted over at his website:
“I would rate Bogle and me as roughly equal in importance. . . Just as I am nothing without Bogle, Bogle is nothing without me.”
In case you are wondering, it appears Rob was serious when he posted that.
I love Bogle. I learned about the errors in the retirement studies by reading Bogle’s book (he says that “Reversion to the Mean is an Iron Law of stock investing” — the safe withdrawal rate cannot be the same number at all valuations levels if Reversion to the Mean is an Iron Law). I rank Bogle second only to Shiller.
But I believe that Bogle is wrong about valuations. The market is not efficient, valuations affect long-term returns. And the valuations effect is huge. It is about 80 percent of the story for most investors. Most factors that affect stock investing we have no control over. But each investor decides for himself or herself whether or not he or she is going to adjust his stock allocation in response to big valuation shifts. So there is no factor that it is more important to get right than valuations.
And Bogle gets it wrong. That one mistake ruins his other work in a practical sense. Buy-and-Hold is a numbers-based strategy. When you get the numbers wrong, none of it works. And you cannot get the numbers right without taking valuations into effect.
Valuation-Informed Indexing is Buy-and-Hold with a valuations adjustment added. That’s it. That shows how much I love Bogle, that I would spend 15 years developing a strategy that incorporates all of his ideas except for the one big thing that he got terribly wrong. So, yes, Bogle needs to incorporate my work on how incorporating valuations into the mix changes Buy-and-Hold in a hugely positive way just as I incorporated all of Bogle’s ideas into Valuation-Informed Indexing (because they are genius!).
I never had any intent of saying anything negative about Bogle. When I started out talking about this stuff, I called the strategy not Valuation-Informed Indexing but Buy-and-Hold 2.0 or The New Buy-and-Hold. VII is really just Buy-and-Hold updated to reflect the last 36 years of peer-reviewed research. It was because of the negative reaction of my Goon friends that I changed the name. They don’t like VII being called “Buy-and-Hold 2.0” and Bogle made clear that he is with them, so I changed the name so as not to offend.
I still believe that I will be working closely with Bogle following the next price crash. I think he is a great man who has done great things and that the human misery that he sees following the next crash is going to cause him to come clean re his one big mistake and then we are all off to the races. Regardless of what happens, I will always sing the man’s praises. No one has done more to help the average investor by promoting simple and yet effective ideas with a long-term focus. But I have never felt even a tiny bit comfortable saying that valuations can be ignored. I learned from the peer-reviewed research (which Bogle taught me to use as my guide!) that valuations ALWAYS matter big time.
I love the man, Sammy. But, yes, I do believe that he is capable of making a mistake. As am I. As are you. As are we all. I only wish that all of his friends had helped him out by insisting that he deal with the mistake when he first learned about it. I think it would be fair to say that Bogle would feel about 100 times better about himself today had he played it that way back in 1981.
Rob
laugh says
Ben Graham basically said the same thing in his famous book that has been read the world over.
And the market still behaved the same. You are a grain of sand in the ocean. And you are a lot less influential, articulate, congruent, and sensible than Ben.
So your crusade is doomed in a very sad way. I hope you saved money for your kids college at least.
Rob says
You are right about Ben Graham. I certainly have never said that I am the only person who has ever believed in sensible, research-based investing strategies. About 10 percent of the population believes in what Ben Graham and Rob Bennett believe. That’s millions of people.
You are also right that the market continued to behave the same way following the publication of Graham’s famous book. But conditions are not the same. In the day when Graham published his book, it was mostly rich people who invested heavily in stocks. Today we have millions of middle-class people trying to provide for their retirements by investing in stocks. And of course we now have 36 years of peer-reviewed research showing what works — we did not have that in Graham’s day. I believe that we are going to need to find a way to get accurate and honest and research-based investing advice out to those millions of people.
As just one illustration of how things have changed, we did not have middle-class people seeking to retire early in Graham’s. We obviously have that today or else there would have been no Retire Early board at which demonstrably false safe-withdrawal rare claims needed to be corrected in May 2002. The smelly Buy-and-Hold garbage pushed so relentlessly by the Wall Street Con Men and the members of their various internet Goon squads does a lot more harm to a lot more people today than it did when Graham pointed out the errors in the pure Get Rich Quick approach. So I am 100 percent certain that we will be able to get a good number of people interested in cleaning up the massive corruption in this field in the days following the next price crash. The comments we have seen from thousands of our fellow community members during the first 15 years of your Campaign of Terror against our board and blog communities certainly points in that direction in any event.
I don’t think the crusade is doomed, Laugh. I don’t think that as a society we would have made financial fraud a felony if we didn’t feel strongly about this sort of thing. A people that put Bernie Madoff in prison for a relatively tiny act of financial fraud is not going to take kindly to seeing most of its retirement savings wiped out by a small number of multi-millionaire con men supported by an insanely abusive gang of internet Goons. But we will see, you know?
I naturally wish you the best of luck with it, Goon friend.
Rob
Anonymous says
“I don’t think the crusade is doomed”
No crusader ever does. But they’re almost always wrong. And the tiny handful who aren’t wrong at least gain a few followers in less than 15 years. You can’t even find someone to post a mildly positive comment.
Rob says
I have a slider at the top of every page of this site that runs about 200 comments that smart people have made about Valuation-Informed Indexing. If you had asked me on the morning of May 13, 2002, what the odds were that someday in the future even one of those comments would have been advanced re a project that I led, I would have said that you were out of your mind. Yet here we are.
It’s true that no one but you Goons posts here at the site. That pains me. You’ve got me re that one.
But I see other realities too. I think that the crusade is going to succeed. You are right that the crusader always thinks that or he wouldn’t have taken on the crusade in the first place. And you are probably right that the odds don’t favor the crusader according to an objective assessment of how often crusades succeed. But the primary reason why I insist on my right to post honestly re safe withdrawal rates and lots of other matters is not rooted in objective assessments. The root thing is that I love my country and I cannot bear the thought of betraying her. That’s subjective and personal. That runs deep. That’s not something that you can cancel out with dollar bills. I love my country today and I am confident that I will continue to love my country for so long as I walk this big old goofy planet.
We are just going to have to wait to see how things play out. My best wishes to you.
Rob
Anonymous says
“I have a slider at the top of every page of this site that runs about 200 comments that smart people have made about Valuation-Informed Indexing.”
And I have handwritten notes in my high school yearbook that say I will be rich and famous. I’m not rich and famous yet, but I have my yearbook notes! I see those realities! Crusade so not doomed!
Rob says
Okay, Anonymous.
Please take good care.
Rob
Laugh says
The market is still made of rich people with a tiny slice of the middle class.
Retiring early is not a realistic option for the middle class and it has nothing to do with the stock market. Their incomes have been stagnant for decades.
Maybe you can fix that and then take on changing the stock market!
Rob says
Every middle-class person I know has a 401(k) plan, Laugh. I can believe that rich people control the vast majority of dollars invested in stocks. But the vast majority of middle-class people have skin in the game today. Those people vote. Those people serve on juries in both civil and criminal cases. An investing industry that is 100 percent corrupt is just not a long-time viable proposition in today’s world.
We’ll see what happens. You are entitled to have a different opinion if you please. But that’s my sincere opinion of where things stand. I don’t think that this massive corruption can survive another price crash, especially one in which prices remain well below fair-value levels for many years. When the shit hits the fan, people are going to notice that Shiller was awarded a Nobel prize for his work and that Bogle has not made a single change in Buy-and-Hold in response to Shiller’s “revolutionary” (his word) research and begin asking some hard questions and demanding some straight-talk answers.
And the fact that their incomes are stagnant is not going to make people any happier to see most of their life savings disappear in this massive act of financial fraud. That will just cause them to be even more pissed off than they would otherwise be.
I wish you the best of luck with it. But that’s truly how I see things playing out. We’ve got a tiger by the tale re this one — I am sure!
Rob
Anonymous says
But Shiller keeps saying to hold stock, so even if people are listening to Shiller, it still supports the status quo.
I guess you have to hope The New York Times finds your website so that you can save the world.
Rob says
I say to hold stock too.
The issue is — Do valuations affect long-term returns?
Shiller says that valuations affect long-term returns and I say that I think his research showing that is legitimate research. So the safe withdrawal rate cannot possibly be the same number at all valuation levels. The committee that gives out the Nobel prize says that Shiller’s work re this matter is very important. The people of the United States say that financial fraud is a crime, a felony. Punishable by imprisonment.
I naturally wish you the best of luck with it. But I also naturally want no involvement whatsoever in this massive act of financial fraud.
And I have a funny feeling that the New York Times will have no problem whatsoever finding my web site in the days following the next price crash.
Maybe it will be the people of the United States who will save the world, you know? It is the people of the United States who made financial fraud a felony. That was thinking ahead.
My best wishes to you.
Rob