“The Obvious Follow-Up Question Was: If the Buy-and-Holders Got Safe Withdrawal Rates This Wildly Wrong, What Else Did They Get Wrong? And of Course the Answer Was — Everything. Buy-and-Hold Is a Numbers-Based Model. Get the Core Number Wrong (You Are Always Going to Get the Core Number Wrong If You Assume That the Market Is Efficient When in Reality Valuations Affect Long-Term Returns) and You Are Going to Get Every Calculation Wrong.”

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

Your post wasn’t famous. In fact, it ended with you making an apology.

It’s a good thing to make an apology when you think you’ve gotten something wrong, Anonymous. Had Greaney made an apology at the time I did, every last one of us (especially Greaney) would be in far better circumstances today.

And the post was the most important post ever advanced in the history of this new communications medium. You know that list of 45 comments by Wade Pfau re his view on Valuation-Informed Indexing that I often set forth in comments here? We wouldn’t have any of those comment available to us had I not worked up the courage to advance that May 13, 2002, post. That post changed everything.

It changed the history of investment analysis. Either valuations affect long-term return or they do not. If valuations affect long-term returns, then there ain’t no way in God’s green earth that the safe withdrawal rate is the same number at all valuation levels. On the morning of May 13, 2002, people in this field had known for 21 years that valuations affected long-term returns and yet still believed that the safe withdrawal rate is always the same number. Huh? What the f?

My magical post pointed out that contradiction. The obvious follow-up question was: If the Buy-and-Holders got safe withdrawal rates this wildly wrong, what else did they get wrong? And of course the answer was — Everything. Buy-and-Hold is a numbers-based model. Get the core number wrong (you are always going to get the core number wrong if you assume that the market is efficient when in reality valuations affect long-term returns) and you are going to get every calculation wrong. That’s why a number of years later Wade Pfau concluded that, not only were the safe-withdrawal-rate numbers wrong but that long-term timing is always required and that: “Yes, Virginia, Valuation-Informed Indexing works!”

I think that you Goons knew on some level of consciousness on the morning of May 13, 2002, how big this was. Your reaction was over the top. It was violent. Why would a difference of opinion on how the safe withdrawal rate is calculated cause people to go so nutso? What was going on was that you sensed that the debate that we were having concerned a lot more than just safe withdrawal rates — it concerned every strategic investment question that there is. Get safe withdrawal rates wrong and you’re going to get it all wrong. Get safe withdrawal rates right, and you’re going to get it all right.

You couldn’t stand the thought that the Buy-and-Holders had gotten it all wrong. To you, it was like hearing that everything that you had believed in for your entire life was wrong. A belief in Buy-and-Hold was core to your identify and my decision to point out the error in Greaney’s study was perceived as an attack on your entire world view.

Of course the reality is that we are all better off if our world view is rooted in reality and the fact that 38 years of peer-reviewed research shows that Buy-and-Hold is rooted in error means that we can all live better lives when Buy-and-Hold is updated to reflect the new research. So there have all along been people trying to help us make the transition to Valuation-Informed Indexing. And indeed I am sure that there were people trying to help us make the transition prior to my famous post. The post just got things out on the table that had been going on quietly in the background for many years before I came on the scene.

It is a huge benefit that for 17 years now things have been out on the table. We have been able to document how all of the research supports Valuation-Informed Indexing and how the Buy-and-Hold “idea” (that the stock market is the only market that ever existed in which it is not necessary to practice price discipline — the claim is on its face absurd when you give it a moment’s thought) is rooted in nothing more than an emotional Get Rich Quick impulse. So, when the next Wade Pfau comes along, he doesn’t need to work through all the preliminary questioning that Wade had to work through — he can see how the debate has progressed for 17 years and begin his own efforts at a much more advanced place in the logic chain.

I am very proud of that post, Anonymous. I couldn’t be more proud of it. It changed the world in a very, very, very positive way. And it took a lot of courage for me to put it forward. It took me three years to work up the courage to advance that post.

I am proud of the apology too. The apology was of course in error; I had nothing to apologize for — I have been proven right that Greaney failed to include a valuation adjustment in his study 1,000 times over. Still, I like it that I was willing to make an apology at a moment in time when I thought that I might have made a mistake. All of our troubles follow from that unfortunate reality that you Goons have NOT been able to admit mistakes. It makes me feel good about myself to know that I played it very, very differently.

I also like it that I made the mistake. It didn’t do any harm. I realized (by seeing Greaney’s behavior) that I was wrong to make the apology within a day. But the fact that social pressure could cause me to make that mistake shows the power of social pressure to cause lots of others to make much worse mistakes. Wade Pfau obviously has been negatively influenced by social pressure imposed by Buy-and-Holders. So has Shiller. So was Bogle. So have lots and lots of others.

It helps me feel more sympathetic to all of the great people who have failed to speak out as strongly as they should have for me to know that I was afraid to stand up to social pressure at the time that I advanced that apology. So I possess that same human weakness that I am pointing out in all the other humans. We all want to get along with the other humans. I think that evolution put that inclination within us. And it is that inclination not to speak out about the absurdity of Buy-and-Hold strategies at times when our weakness for Get Rich Quick marketing slogans is making us all feel a lot richer than we really are that has historically made stocks a high-risk investment class.

Shiller’s “revolutionary” (his word) insight is that stocks are not inherently risky. When as a people we develop the courage to speak out publicly about the dangers of Buy-and-Hold, most of the risk of stock investing goes “Poof!” That’s the thing that made Wade so excited about Valuation-Informed Indexing. Our research showed that just by permitting people to talk openly about what the last 38 years of research in this field shows, we can reduce stock investing risk for everyone by nearly 70 percent. That’s the biggest advance in the history of investing analysis and there is nothing in even a remotely close second place.

I’ve seen a good number of wonderful discussion boards burned to the ground as a result of the efforts of you Goons to block millions of people from learning what they very much need and want to learn about how stock investing works. But none of the many amazing advances that we have achieved over the past 17 years would have been achieved had I not worked up the courage to push the “Send” button on that amazing post. I would do it again 10,000 times over if I knew then what I know now. And a lot of what has gone down has been exceedingly ugly stuff. It’s just that there is even more life-affirming stuff that has gone down and that, once we all get to the other side of The Big Black Mountain, it is only going to be the positive, life-affirming stuff that is going to matter.

No apologies for pointing out that Greaney got the numbers wrong in a study that thousands of my friends were using to plan retirements. No apologies whatsoever. I am thrilled that I was given the gift of living in a place and at a time in which it was possible to help so many people by putting forward those few brave words. The only thing that I apologize for today is that it took me three darn years to work up the courage to advance that post!

My best wishes to you, dear friend.

Apology Making Rob