Set forth below is the text of a recent comment that I posted to the discussion thread for another blog entry at this site:
VII is “half-baked” because you can’t define how to implement it. That’s what that term means. People have asked you countless times to define the VII strategy. You duck, dodge, evade until people get tired of asking, and finally you get banned. Playful fun for you, annoying noise for everyone else.
“Valuations affect returns” is not a strategy. Why is it so impossible for you to grasp that simple fact?
You implement the strategy by aiming to keep your risk profile constant over time rather than your stock allocation. That’s it. That’s the only difference from Buy-and-Hold.
If the market were efficient, your risk profile would remain constant even if you never changed your stock allocation. If valuations affect long-term returns, you MUST adjust your stock allocation in response to big shifts in valuations to have any hope whatsoever of keeping your risk profile even roughly constant. So Valuation-Informed Indexers do that.
Just do everything that you would do as a Buy-and-Holder but then add in the last 37 years of peer-reviewed, “revolutionary,” Nobel-prize-winning research, and you’ve got it. It’s not at all hard to understand what to do or why you need to do it. The hard part is saying the words “I” and “Was” and “Wrong.” Lots of people have their lives invested in Buy-and-Hold. It is hard for them to accept that they have been doing it wrong all these years.
It is by talking things over that we work through that pain. That’s why it is so important that we open every discussion board and blog on the internet to honest posting. We can’t begin the healing process until we bring the financial fraud stuff to a full and complete stop.
A simple example of how you implement a research-based model is to calculate the safe withdrawal rate accurately. At the top of the bubble, it was 1.6 percent going by the research and 4.0 percent going by the discredited Buy-and-Hold Model. Do you see how those are different numbers?
Now, you can take out whatever you want. Not all Buy-and-Holders take out 4 percent in retirement. The safe withdrawal rate is defined as the withdrawal rate that will work if the worst-case scenario ever seen in history happens to pop up in your retirement. That’s a very safe number. So a Buy-and-Holder might say “I’m going to take 4.5 percent, not 4 percent, that’s safe enough for me. Fine, you know? It’s his choice. It’s the same with a Valuation-Informed Indexer. He might take 2.0 instead of 1.6 even though his retirement begins at a time when valuations are what they were at the top of the bubble. What of it? It’s his money so it’s his choice.
The different between the two models is that the Valuation-Informed Indexer uses valuation-adjusted numbers to INFORM his decision. He starts with 1.6 and makes whatever personal adjustments he wants to that number, he doesn’t start with 4.0 and make whatever personal adjustments he wants to that number. The difference in implementation is that the Valuation-Informed Indexer uses accurate calculations. The last 37 years of peer-reviewed research shows that you have to take valuations into consideration to get the numbers right, so he does that.
Make sense?
Rob
Rob says:”The hard part is saying the words “I” and “Was” and “Wrong.”
Yes, Rob, that is your problem. You haven’t said those words and you refuse to face reality.
No, I haven’t said those words. I don’t believe that I was wrong. So it would be dishonest of me to say them.
I HAVE said the words “I COULD be wrong.” That’s a big deal. When people say “I COULD be wrong,” it becomes possible for them to engage in civil and reasoned discussions with others holding different views.
Jack Bogle has not said “I could be wrong.” Mel Lindauer has not said “I could be wrong.” John Greaney has not said “I could be wrong.”
I believe that, in the days following the next price crash, all three of them will say those words (I presume that Bogle will say them first). Then we will be off to the races. From that point forward, it will be good stuff piled on top of good stuff piled on top of good stuff for all of us. I wish that those three had said those words years ago. I wish that Bogle had said those words on the day in 1981 when Nobel-prize-winning economist Robert Shiller published his “revolutionary” (Shiller’s word) peer-reviewed research showing that valuations affect long-term returns.
Even if Bogle fails to say the words “I COULD be wrong” until after the next crash, we all end up being better off than we once imagined possible soon after he says them. The good stuff that we have seen over the past 16 years is 50 times more good than the bad stuff that we have seen over the past 16 years is bad. So we are just going to have to sit tight and wait to see how things play out in the days following the crash.
I naturally wish you the best in all your future life endeavors, dear friend. And I am 100 percent sure than I AIN’T WRONG re that one!
Take good care, man.
Possibly (But Not at All LIkely!) Wrong Rob
The difference is that you the only one of all the names mentioned that has a failed retirement plan. That tells us who is wrong.
It is my belief that we are all in this together and that we all should be doing what we can to teach each other and to learn from each other. I am grateful for the things that I have learned from you, Anonymous. The last occasion on which that happened was in the recent thread about how Shiller predicted a negative 10-year return in 1996 and was proven wrong in that prediction. I would not be holding up my end of the bargain if I did not post honestly about my belief that the retirement study posted at John Greaney’s web site does not contain a valuations adjustment. So it is my intent to continue to say that that is my belief.
I naturally wish you all the best that this life has to offer a person.
Rob
We are not “in it all together”. Each of us bears our own responsibility for managing our money and making our own investment choices. If you had the credentials, expertise and track record, then things would be different. You lack all of those, yet somehow you fashion yourself as being in the same league as people like Jack Bogle, Wade Pfau, Bill Bernstein, etc. to top that off, your pattern of bad behavior has led to your isolation from the mainstream investment community, yet you think that everyone else is to blame for your situation.
There is really no way of having a rational discussion with you any more.
I am going to continue posting honestly re the numbers that my friends are using to plan their retirements, Anonymous. I don’t claim to possess any credentials in this field other than what is possessed by any reasonably informed investor. But it doesn’t take years of schooling to be able to determine whether a retirement study contains a valuations adjustment or not. The study posted at John Greaney’s web site does not contain one. Thousands of people have looked at the study over the past 16 years and not one of them has been able to identify a valuations adjustment. That tells me that I was right in what I said in my famous post from the morning of May 13, 2002.
And of course there have been many people who DO possess strong credentials in this field who have endorsed my work. Wade Pfau holds a Ph.D. in Economics and he declared flatly that “Yes, Virginia. Valuation-Informed Indexing works!” Rob Arnott was for several years the editor of one of the most prestigious journals in the field and he told me that the work that I have done in this field is spot on. Bill Bernstein is a popular writer in this field and certainly possesses no bias against Buy-and-Hold and yet he says in his book that investors needed to subtract two percentage points for valuations at the top of the bubble to identify the accurate safe withdrawal rate for those retiring at that time (which is just what I was saying at the time that the first death threats were directed at me and my family).
And of course the Buy-and-Holders have responded with death threats, demands for unjustified board bannings, thousands of acts of defamation, and threats to get academic researchers fired from their jobs. Some engaged in those tactics themselves, others tolerated them when they saw them employed by others. Huh? What the f?
If Buy-and-Hold were a legitimate strategy, we never would have seen any of that. I believe that the Buy-and-Holders follow the strategy they advocate. But they do not feel comfortable trying to defend it in civil and reasoned debate. That tells me something important. That should tell anyone with an interest in the subject matter something important.
I believe that, in the days following the next price crash, it will. I believe that a lot of us are suffering from cognitive dissonance re the far-reaching implications of Shiller’s “revolutionary” (his word) research findings. I intend to do all that I can to help out everyone affected by these matters (including my many Buy-and-Hold friends, to be sure) in the days when our collective cognitive dissonance is shaken by events playing out in the real world.
It will be interesting to see how things play out.
And there has never been an effort on the Goon side of the table to have a rational discussion. Hostility toward the new ideas about how stock investing works dominated on your side of the table starting on the morning of May 13, 2002 and it has continued to dominate for the 16 years since. I will always be here for you to help in any way that I can. But a failed retirement is a serious life setback. I don’t want my name on any posts saying that Greaney’s study contains a valuations adjustment or denying that there is today 37 years of peer-reviewed research showing that one is required. So we will just have to wait a bit and see how things go.
Am I in the same league as Jack Bogle, Wade Pfau and Bill Bernstein?
I sure think that Jack Bogle is in the same league as Jack Bogle and it is Jack Bogle who taught me that the safe withdrawal rate cannot possibly be the same number at all valuation levels. Bogle says in his book that Reversion to the Mean is an “Iron Law” of stock investing.
I sure think that Wade Pfau is in the same league as Wade Pfau. Wade told me (during the time we were working together on the peer-reviewed research that we published showing investors that they can reduce the risk of stock investing by 70 percent just by giving up on the Buy-and-Hold strategy and practicing price discipline when they buy stocks just as they do when buying anything else) that he considers the Buy-and-Hold retirement studies “dangerous” because they get the numbers so wildly wrong.
I sure think that Bill Bernstein is in the same league as Bill Bernstein. Bernstein said in a book published in 2002 that investors need to at times of high valuations subtract 2 percentage points from the number that the Buy-and-Holders cite as the safe withdrawal rate to know the accurate safe withdrawal rate at those times.
Jack and Wade and Bill and thousands of others would all like to be doing honest work in this field. I am 100 percent sure that these fine people got into this field hoping to be able to help people invest more effectively, not with the idea of causing millions of failed retirements and indeed an economic crisis. So I am 100 percent sure that these three and lots of others will be working with me to clean up this mess and get our economic system back on the right track in the days following the next crash.
I only wish that we didn’t have to wait until then. It would be better for every soul on the planet if we got started on this important work by the close of business today. But I’ve done all that I can do. Expert or no expert, I have done 50 times more than anyone alive to get every investing site on the internet opened to honest posting on safe withdrawal rates and scores of other critically important investment-related topics. We live in communities. I cannot make the magic happen by myself.
I am 100 percent certain that Bogle will be working with me (and with all of us) in the days following the crash. We will at that time make the magic happen together, you know? The good news here is 50 times more good than the bad news here is bad. So I look forward to seeing what we can get done working as a team.
Until then, I naturally wish you all the best that this life has to offer a person, my dear Goon friend.
Take good care, man.
Rob