Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
When a tree falls in the woods and no one is there to hear it, does it make a noise?
When Rob Bennett posts on the internet and no one reads it, does it really matter?
I think it matters, Anonymous.
If Shiller is right (I obviously believe that he is), we are going to see another price crash within the next year or two or three. Millions of middle-class Americans will see 50 percent of their lifetime saving disappear into thin air overnight. It will have been the relentless promotion of Buy-and-Hold strategies that will have caused that. If we permitted honest posting re the last 37 years of peer-reviewed research, we could never have another bull market. Stock prices are self-regulating so long as investors have access to the information they need to act in their self-interest (that is, so long as they are able to learn when stock prices are so high that they no longer offer a strong long-term value proposition). Once we rule out future bull markets, we also rule out future bear markets because it is the insane irrational exuberance of bull markets that produces the insane irrational depression of bear markets. And once we rule out future bear markets, we rule out future economic crises because it is the huge loss of consumer buying power that we experience in bear markets that causes economic crises.
So we are close. Very close. The bad news here is genuinely bad. It breaks my heart to think of the ocean of human misery that we have collectively brought on with out participation in and tolerance of the Ban on Honest Posting. But it remains the case that the good news here is 50 times more good than the bad news here is bad. We live in a great country. We have processes in place by which we as a people overcome these sorts of problems. I am 100 percent certain that we are going to prevail in the end. Could I be wrong? It certainly has been known to happen. I could be wrong. But I don’t think so. I think I am right. I think we are going to get to the other side of this mess stronger than ever. We’ll see, you know?
When we get to the other side, we will all be united. We all are on the same side. We all want to learn about a better way to invest. It is silliness to think that there could even be a single exception to that general rule. Some of us have gotten caught up in our personal dramas over the course of the past 37 years and we don’t see it that way at the moment. But after the crash? After the crash, the realities that Shiller pointed to in his Nobel-prize-winning research are no longer theoretical. After the crash, we will all be seeing the results of ignoring those realities discussed in our daily internet news feeds. That changes things. In a big way.
Which side do you think Jack Bogle is going to be on in the days following the next price crash? I have a funny feeling that Bogle is going to be on the side of the American people at that time, not on the side of the Lindauerheads. Where does Mel Lindauer go when Jack Bogle calls for his removal from the Bogleheads forum (a forum named for Jack Bogle, not Mel Lindauer)? Your guess is as good as mine, you know? I think he goes somewhere whehe can no longer disrupt the conversations that we are trying to have. Again, we will see. But that is certainly what I expect to see happen.
All of the material housed at this web site will be available at that time to every single person interested in learning what happened to us. Yes? That’s a pretty darn freakin’ big deal. I think it would be fair to describe the 16-year cover-up as the biggest case of financial fraud in the history of the United States. Thanks to the power of this exciting new communications medium, we will all be able to quickly make complete sense of what went down. Which means that we will all be able to quickly come to terms with what down and move forward into a brighter future for all of us. I am obviously humbled and honored to have been able to have played the role that I have played in making it all happen.
And you will see in that day how I will be helping you. The stuff that you Goons did will be reported. That’s part of the story. That cannot be covered up if we all are going to move forward. But the other side of the story is that lots of Normals TOLERATED your behavior. That puts your behavior in a different light than it would be placed in had the reality been otherwise. That helps you. And, yes, I will be reporting how I was one of those cowardly Normals for a time, how it took me three years to work up the courage to point out to my fellow community members (my friends!) that the retirement study posted at John Greaney’s web site lacks an adjustment for the valuation level that applies on the day the retirement begins. It will all come out And each and every one of us will be better off as a result so long as I continue to follow my policy of being as honest as I can possibly be without ever crossing the line and becoming uncharitable while also being as charitable as I can possibly be without every crossing the line and becoming dishonest. That’s the American way and that’s the way that I intend to continue playing it, my dear Goon friend.
The noise will come in the days following the next price crash. I predict lots of noise. I predict hundreds of visitors at this site every day. Perhaps thousands. Perhaps tens of thousands. Perhaps — Hundreds of thousands?
I don’t know. We’ll see. I’ll do my best to keep up with whatever flow of traffic appears before my eyes.
I could be wrong. I said that before. It doesn’t hurt to say it again. I could be wrong. But I don’t think so. I think that I am right. So long as playing it the other way translates into a prison cell for Old Farmer Hocus too (I obviously do not believe that Greaney included a valuations adjustment in his study), I am going to continue to keep to the right side of the felony line and let things play out however they play out. I wish you the best of luck in all of your future life endeavors. But I also need to watch out for myself. And that is my sincere take re what is in my personal best interests (as well as in the best interests of the world at large, to be sure).
Does all of that work for you? I sure hope so. It sure would give me some mental relief to know that my plans were all A-OK in your book.
I think there is going to be plenty of noise. I heard lots of noise on the morning of May 13, 2002, and that noise told me that something terribly important was going down. That something important has not been resolved in a successful way in the past 16 years. Too bad! That unfortunate reality makes me want to cry. It really does. But the bottom line here is that I am not Superman. I have done all that one human being can do. We live in communities. When I have a community of people helping me out, amazing and magical things will happen. I am sure. We will have to wait a bit to hear that amazing and magical noise. I think it would be fair to say that not one of us will at that time question whether it all was worth the wait 10,000 times over.
I think it matters.
But I could be wrong.
And I naturally wish you all the best that this life has to offer a person.
— My dear, Goon FRIEND.
Insignificant (for Now!) Rob
“So we are close. Very close…When I have a community of people helping me out, amazing and magical things will happen. ”
You’ve been saying that for many years. Even back in the days before you were banned from everywhere.
But after all this time, there’s still no community. Nothing amazing. No magic. So I guess you weren’t that close after all.
We’re close.
If one large site started reporting on what has happened over the past 16 years, we would see huge change in a short amount of time. We have seen thousands of our fellow community members express a desire that honest posting be permitted. Shiller published his research in 1981. We didn’t even have that in the days when the Buy-and-Hold strategy was developed. We have published posting rules at virtually every investing site prohibiting the posting tactics that the Buy-and-Holders have employed to block debate. That’s huge. That shows what is in our hearts. That shows how as a people we believe things should be done. That’s what the Buy-and-Holders are ultimately up against — our fundamental beliefs about how new ideas should be permitted to grow over time in this country. Shiller was awarded a Nobel prize. Could we send a bigger sign as to how we want things to go? I have had numerous professors tell me that they are now including my ideas about how stock investing works in the courses they teach in universities. We have had numerous researchers indicate that they would like to be free to do honest work in this field. We have even had a good number of the Wall Street Con Men slip in some honest advice along with the Buy-and-Hold garbage. That sort of thing doesn’t just happen by accident. Those people have consciences. Those consciences are going to be exerting an even stronger pull in the days following the next price crash. I mean, give me a freakin’ break.
It has take longer than I thought it would take. A LOT longer. You’ve got me re that one.
But it remains a reality that we are very close. The issue is no less important today than it was on the morning of May 13, 2002. So this is certainly no time to be giving up hope on the future of this country.
We have a secret weapon, Anonymous. The Buy-and-Holders. The Buy-and-Holders love their country too. What do you think they are going to do in the days following the next price crash? They are going to flip to the side of the American people. If they felt that they could do it today, they would do it today. As soon as people start sensing that it is safe to tell the truth about what the last 37 years of peer-reviewed research teaches us about how stock investing works in the real world, there is going to be a run for the exits in Buy-and-Hold World. The thing will go viral at that time.
There has to a transition from one paradigm to another. The natural thing would have been for us to launch a national debate in 1981, when Shiller published his “revolutionary” research findings, and then for people to gradually make the transition to Valuation-Informed Indexing as they learned more. That would have been 100 percent groovy for every single person involved. It didn’t happen that way. But that doesn’t mean that the transition is not going to take place. It just means that, after 37 years, there is a huge amount of pent-up energy that thousands of people in this field want to put to use telling millions of investors the long-covered-up realities of how stock investing works.
When Bogle flips, it’s over. What the heck is Lindauer going to be able to do to hold back the tide once Bogle flips? There will be nothing that he will be able to do at that time. It will be over. I think Bogle will flip. If Bogle doesn’t, someone else will. It could be Bernstein. It could be Swedroe. It could be Schultheis. It could be Pfau. It could be Richards. It could be lots of people.
There are lots of people who work in this field who love their country, Anonymous. You can put forward your threats of physical violence and your threats of career destruction from now until doomsday, but there comes a point when you will not be able to hold back the love that many people who work in this field feel for their country. I think that all the magic is going to begin happening in the days following the next price crash. But we’ll see, you know? It is my sincere belief that we are very close indeed.
Eyes-on-the-Prize Rob
“But it remains a reality that we are very close.”
It remains a reality that you said you were very close, years ago. You were wrong. And you’re even more isolated now than you were then. So what (besides your gut feelings, which granted is all you ever go by) makes you think you’re right this time? Point to something, that we can see, that has changed in your favor.
It’s true that I said we were close years ago. I believed it then too.
It’s true that I am more isolated now.
I pointed to lots of things in my post just below. If you want to look at just one thing, look at the fact that Shiller was awarded a Nobel prize. You don’t think that lots of people noticed that? You don’t think that the people who awarded him the prize were sending a message.
The problem is that the cover-up has continued for so long. Things that would have been easy to do in 1981 are very, very, very hard to do 37 years later. So I don’t really think that the magic is going to happen until after we see the price crash. At that point people are going to work up the courage to speak up.
It’s not over until we say it’s over! Was it over when the Germans bombed Pearl Harbor?
Pop Culture Influenced Rob
“If you want to look at just one thing, look at the fact that Shiller was awarded a Nobel prize.”
That might help Shiller build a community, if he wanted to. It has nothing to do with you. So we’re back to your gut feelings.
It has everything to do with me.
Once honest posting on the last 37 years of peer-reviewed research is permitted at one place, people are going to flock to that place. The Bennett/Pfau research shows that investors can dramatically reduce risk while also dramatically increasing returns just by abandoning Buy-and-Hold and going with a research-based approach. A site that permitted honest posting on the last 37 years of peer-reviewed research would have no competitors. It would grow to become the biggest investing site on the internet in no time. And then advisers would have the opportunity to make names for themselves by doing honest work. The best, most ethical advisers would flock to that site. It would grow and grow and grow. Then every other site — all the ones pushing Buy-and-Hold today — would copy it in hopes of being able to stay in business.
Once one big site goes honest, I can’t possibly lose, Anonymous. Are you joking?
Goin’ Viral (Soon?) Rob
To paraphrase from the same movie you quoted: Fat, delusional and stupid is no way to go through life, son.
Hey! No fair!
Not THAT Fat Rob
“look at the fact that Shiller was awarded a Nobel prize”
Shiller was awarded the Nobel prize for showing, in historical data, that valuations affect future returns. That’s as obvious as the nose on your face. That’s a long way from your “buy and hold is the enemy” stuff. I do realize I’m getting lower expected returns now than when bonds yielded 8%, and stock P/Es were at 12. So what? Buy and hold still made me rich. I rebalance regularly, and reduce risk as I age – I’ve got more in bonds now than my total portfolio value 10 years ago.
When Shiller showed that valuations affect long-term returns, he changed the world. He showed how price changes come about. They don’t come about just because of economic developments. That’s what the Buy-and-Holders thought. If price changes came about because of economic developments, prices would fall in the pattern of a random walk. Hence, the title of the book “A Random Walk Down Wall Street.” Shiller showed that that’s just not so.
Shiller showed that the primary cause of price changes is investor emotion. Economic developments have an effect because they influence investor emotion. But the revolutionary change in understanding is that we now know that we cannot treat all gains as equal. Gains that are the product of economic developments are lasting. You can count on those gains in planning your financial future. Gains that are the product of investor emotion are fleeting. You cannot plan a retirement based on those gains because they could disappear at any moment. Investors need to distinguish the real gains from the emotional gains.
Is Buy-and-Hold the enemy? It wasn’t intended to be. It is a model for understanding the world that was intended to help us all. There was no bad intent in the development of Buy-and-Hold. But the Buy-and-Holders obviously did not have access to research that had not yet been published when they designed Buy-and-Hold. Had they had access to Shiller’s research, they would have designed Valuation-Informed Indexing. Given how the research that they had available to them at the time limited their ability to think through this stuff properly, they designed Buy-and-Hold. Then they learned something new in 1981 and it became necessary to make a change. That’s where things got on the wrong track.
It’s hard for humans to acknowledge mistakes. It’s especially hard when those mistakes are over questions so important that they are likely to cause millions of people to suffer failed retirements. For 37 years now, we have been trying to get this mistake corrected so that the thing that the Buy-and-Holders designed — our model for understanding how stocks work — can do the work they intended for it at the time it was designed. The Buy-and-Holders wanted the model to help people and they need to make the correction that the last 37 years of research showed us is required for it to do that. We need to teach people not that the market is efficient and that investors may remain at the same stock allocation at all times but that valuations affect long-term returns and that investors MUST adjust their stock allocations in response to big shifts in valuations to have any hope whatsoever of keeping their risk profiles roughly stable over time.
You can’t reconcile what Shiller is saying with what Bogle is saying. They are saying opposite things. Obviously there are many points in common. Shiller only showed that Bogle was wrong about one thing (that price changes are caused solely by economic developments). But that one mistake causes a lot of problems. Buy-and-Hold is a numbers-based strategy. If you count gains that are not real as real, you get the numbers wrong. A numbers-based strategy that gets the numbers wrong is not a good thing.
Emotion has a huge effect on stock prices. We should all be doing all that we can to rein in that effect. We should want prices to be as real/unemotional/economic-based as possible. The way to do that is to make investors aware of the dangers of treating emotional gains as real. When we see something like what we saw in the late 1990s, we should be warning people how much suffering they will cause themselves if they treat the phony emotional gains that they are creating as something real and lasting. If we warn them, they will make an effort to rein in their destructive emotions and we will all be better off. The Buy-and-Holders CELEBRATE phony, emotional gains. They treat them as real. To a Buy-and-Holder, a real economic gain is equivalent to a phony, emotional one. There is no room in the Buy-and-Hold Model for emotion-based gains.
Buy-and-Hold hurts us because it fails to put a brake on the destructive human emotions that cause us great harm in bull markets. It doesn’t do this because the Buy-and-Holders are bad people. It does this because they made a mistake for the perfectly understandable reason that the research they needed to avoid the mistake was not available to them at the time. The mistake just needs to be corrected. That’s where we stand today. Had the Buy-and-Holders known when they were starting out that they were going to make a mistake, they obviously would have vowed to correct it as soon as they learned about it. Deep in their hearts, the Buy-and-Holders want the mistake corrected as much as the Valuation-Informed Indexers do.
What makes it hard is that stock investing is not a purely academic exercise. When we make mistakes in our model of how stock investing works, we hurt real live human beings, millions of them. And we build careers around those mistakes. We become reluctant to correct mistakes we make because we want to avoid the embarrassment associated with doing so. We trap ourselves.
Everyone needs to take a step back and calm down. We need to get it on the record that the Buy-and-Holders are good and smart people that advanced our understanding of how stock investing works in hundreds of important ways. The Buy-and-Holders are our friends. But they made a mistake. Or at least there is one school of thought as to how stock investing works that is rooted in a belief that the Buy-and-Holders made a mistake. We need to let people who hold to that school of thought speak about what they believe in clear and frank and unapologetic terms. If we do that, we will all learn from each other and over time we will make use of the magic of constructive communication to gradually move to a better place for all of us.
The Buy-and-Holders started a learning experience. That’s the most wonderful thing that they did. But you don’t always know at the starting point where a learning experience is going to take you. Robert Shiller taught us all things about how stock investing works that we never expected to learn back when we took on the learning experience. He didn’t do a bad thing by confounding our expectations. He did a good thing by pointing us to exciting new possibilities. We need to treat those who believe that Shiller is on to something important with the respect they merit as people seeking to join us in an effort to better our world. When we begin doing that, we will all feel better about ourselves and about our mutual learning project in about 500 different ways.
Shiller changed the world in a very positive way. You can invest however you please. That one is up to you. But you cannot tell other people what discussions they may have on internet discussion boards re the last 37 years of peer-reviewed research in this field. There’s 37 years of peer-reviewed research showing that valuations affect long-term returns. People have every right in the world to point out to their friends that the Buy-and-Hold retirement studies lack adjustments for the valuation levels that apply on the day the retirements begin and to fill people in on what the numbers are that come up if valuation adjustments are included. Each investor must decide for himself or herself which school of academic thought is for him or her. You cannot make that decision for others. You take on responsibility for any financial losses they suffer as a result when you do so. That’s not smart.
I hope that helps a small bit, Anonymous.
Rob