I’ve posted Entry#450 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called High Stock Prices Have Grown More “Sticky” Because Investors Are More Emotional Than Ever Before.
Juicy Excerpt: Humans are the rational animal. Shiller does not question that. His insight is to note that humans are also the rationalizing animal. We think. But we are not data-processing machines. Our emotions dictate where we permit our logic to take us. We are capable of understanding that high stock prices cannot be sustained forever. But we are also capable of tuning out what we understand when the temporary rewards of high stock prices possess more emotional appeal that we are willing to pass up.
Emotional investing is when you think you can tune the market, short term or long term (like VII). Buy and hold is the opposite of that. Buy and hold takes out emotion and you continue to buy, regardless of the various ups and downs.
Thanks for stating the Buy-and-Hold position in a clear and concise and non-abusive way, Anonymous. It helps for you to do that.
If there were not 38 years of peer-reviewed research showing that valuations affect long-term returns, I would agree with you. If the market were efficient, Buy-and-Hold would be the ideal strategy. That certainly follows.
But, if valuations affect long-term returns, the market is NOT efficient. If valuations affect long-term returns, stock gains above those that produced returns of 6.5 percent real are the product of irrational exuberance, not positive economic developments. That means that those gains are rooted in nothing real and cannot be counted on to remain in place as sand passes through the hourglass. Irrational exuberance gains are temporary, not permanent and cannot be counted on in the planning of retirements (especially early retirements). If valuations affect long-term returns, stock investment risk is not stable but variable and the only way that the individual investor can keep his risk profile constant over time is to practice price discipline (long-term market timing) when buying stocks.
That’s my sincere take re these terribly important matters. I love and respect my many Buy-and-Hold friends. I have zero problem singing their praises for the many powerful insights that they have bestowed on us. But I cannot say that it is possible for any investor who refuses to practice long-term timing to keep his risk profile constant when we experience huge amounts of irrational exuberance. Given what the last 38 years of peer-reviewed research teaches us all, I believe that I need to tell people that when the subject comes up in discussions held on the internet. I believe that I would be engaging in fraud myself if I were to fail to do that. So thanks but no thanks, you know? Not this boy. No freakin’ way, no freakin’ how. Not even a remotely close call. 100 percent non-negotiable.
I do wish you all good things all the same. I like to think that that helps at least a tiny bit.
My best and warmest wishes to you and yours, as always.
Non-Apologetic-Buy-and-Hold-Critic Rob
Your interpretation of the last 38 years (which is really not peer reviewed) indicated the market would have crashed years ago. What we have learned is that you cannot predict what the market will do, get history tells us it will continue to grow in the long term. Your VII is yet another timing scheme that has not been proven to work.
Shiller’s research has been published in peer-reviewed journals.
You are correct that my interpretation and Shiller’s interpretation and Grantham’s interpretation of Shiller’s research findings led us all (and lots of others) to expect prices to crash a long time ago. In 1996, Shiller predicted that we would see a crash by 2006. 2006 is a long ways back in the rear-view mirror. So I don’t have any problem with you making this point. It’s a point that anyone considering going with a Valuation-Informed Indexing strategy needs to know about. Short-term timing really does not work. Even when you go ten years out with your predictions, you cannot be sure that they will prove out. That’s a very important caveat. I am with you that far.
I am not with you re the idea of banning honest posting, however, The difference between Shiller and Fama (both have been awarded Nobel prizes for their work in this field) is that Fama says that stock price changes are caused by the rational assessment of economic developments; thus, they are rooted in something real and investors can count on the numbers appearing on their portfolio statements to give them good guidance in planning their financial futures. Shiller say something very different. He says that price gains beyond those that provide for an annual gain of 6.5 percent real (the average long-term return) are the product of irrational exuberance; they are caused by shifts in investor emotion and CANNOT be counted on to remain in place for the long term — so they obviously cannot be used to support decisions to retire, whether early or in regular time.
There are two schools of academic thought as to how stock investing works, not one. 90 percent of the population believes in Buy-and-Hold and I certainly believe that all of those people who be permitted and encouraged to express their honestly held views. But I very, very, very much oppose the use of criminal acts to suppress the expression of the honest views of those in the 10 percent who believe that the 38 years of Shille’s Nobel-prize-winning research is legitimate research.
I want to see support for Valuation-Informed Indexing go from 10 percent support to 20 percent support and then to 40 percent support and then to 80 percent support. It ain’t going to happen for so long as those of us in the minority permit ourselves to being intimidated into silence by the outrageously abusive behavior of you Goons . We have to stand up on our two hind legs and insist that our right to post honestly is respected at every site on the internet. We need to do that not only for our own self-respect. We need to do that out of love for out country, which will in not too long a time be thrown into a frightening economic crisis in the event in the event that stocks continue to perform in the future at least somewhat as they have always performed in the past.
We need to do it as a show of friendship to you Goons. If you truly are our friends (and you should be given the good times we had with you in the days before we dared to “cross” you by posting honestly re these matters), we should want your prison sentences to be as short as they can possibly be given the realities that apply today. The length of your prison sentences is obviously going to be determined by the number of lives you destroy with your criminal acts. And the number of lives you destroy obviously increases with each day that the Ban on Honest Posting continues. So we all should be 100 percent united in calling you Goons out on your b.s.
My sincere take, Anonymous.
My best and warmest wishes to you and yours, in any event, dear friend.
Timing-Scheme-Promoter Rob
“Shiller’s research has been published in peer-reviewed journals.”
I said YOUR interpretation is not peer reviewed. Further, you have not listed all research conducted over the last 38 years along with a consensus statement that is also peer reviewed. Thus, your claim about 38 years of peer reviewed research is an outright false statement.
There is no controversy about what Shiller’s research shows. It shows that valuations affect long-term returns. That’s my interpretation. That changes everything that we once thought we knew about how stock investing works. It is because Shiller published peer-reviewed research that changed everything that we once thought that we knew about how stock investing works that he used the word “revolutionary” in the subtitle of his book. It is because Shiller published peer-reviewed research that changed everything that we once thought we knew about how stock investing works that Shiller was awared a Nobel prize. I just agree with what everyone else says about Shiller’s contribution.
There’s one thing that I do that few others do. I say that we should have a national debate re Shiller’s revolutionary research findings. That’s MY contribution.
One of the things that we need to discuss as part of that national debate is how we should go about changing our stock allocations in response to big swings in the CAPE level. The research that I co-authored with Wade Pfau addresses that question. That’s why I say that the Bennett/Pfau research is the most important research published in this field in the past 30 years. That’s why Wade said that he has to give credit for the Valuation-Informed Indexing concept to me — I was the only one that he had ever come across who was always saying that we should examine these matters in depth and speak about them fearlessly with the aim of getting them right.
Wade was amazed to learn that no one had ever researched whether or not long-term timing works until I suggested that that be done and he teamed up with me to do it. And of course Wade was amazed to discover as the result of our research project that long-term timing has always worked, that there has never been a single time in the historical record when practicing long-term timing (price discipline) did not dramatically increase returns while also dramatically diminishing risk.
How did I get smart enough to figure something like that out by myself? It doesn’t take an I.Q. of 140 to figure out that long-term timing is always going to work in a world in which valuations affect long-term returns. If valuations affect long-term returns, risk is not constant but variable, In a world in which valuations affect long-term returns, risk CHANGES when valuations change. So investors who want to keep their risk profile constant obviously must be willing to adjust their stock allocations when they see big changes in valuation levels. This is ABC stuff. I knew what Wade’s research was going to show years before he performed it. There is zero possibility that a Buy-and-Hold strategy could ever work for even a single long-term investor in a world in which valuations affect long-term returns and those who follow the peer-reviewed research have known for 38 years that we live in a world in which valuations affect long-term returns (and NOT in a world in which the market is efficient and long-term timing is thus not required, as the Buy-and-Holders believe).
The reason why thousands of other smart people do not say this every day on every discussion board and blog on the internet has nothing to do with any lack of proof in the peer-reviewed research for what I say. Others don’t say it because of the criminal acts that the Buy-and-Holders have engaged in to keep discussion of the peer-reviewed research suppressed. This massive act of financial fraud is killing us as a nation. Our laws against financial fraud are good and necessary laws. We need to pull together as a nation and insist on their reasonable enforcement. I strongly believe that we will do just that in the days following the next price crash, when we are all able to see with our own eyes how many millions of people have gotten hurt in very serious ways by the relentless promotion of the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind, the investment strategy that encourages investors to do the precise OPPOSITE of what the peer-reviewed research shows is necessary for long-term success (the research shows that exercising price discipline is the key to long-term success and the Buy-and-Holders hint that there might be some alternate universe where the practice of long-term timing might not be 100 percent required for all investors).
Once we have lifted the Ban on Honest Posting at every site on the internet, we will have lots of people coming forward with consensus statements of the type that you are describing. Wade Pfau holds a Ph.D. in Economics. If there were research somewhere showing that long-term timing is not required for long-term success, he would have discovered it in his 16 months of research. Please give me a freakin’ break. And if you Goons thought that someone would some day be able to develop such research, you would not have engaged in extortion to stop Wade from promoting the research that he did with me that be said he thought was worthy of publication in the most prestigious journal in the field. Once again, please give me a freakin’ break.
Valuations affect long-term returns. Greaney should have corrected his retirement study within 24 hours of the moment that he became aware of the error that he made in it, We need to pull together as a nation and insist on reasonable enforcement of our laws against financial fraud. Those laws are good and necessary laws.
Or so Rob Bennett sincerely believes, you know?
My best and warmest wishes to you and yours.
False-Statement-Making Rob
Again, it is your opinion of what one guy says. It is not 38 years of peer reviewed research as it does not include a full body of work along with a consensus of thought leaders.
Soon after you are placed in a prison cell we will have a consensus of thought leaders, Anonymous.
We cannot achieve a consensus of thought leaders for so long as you are free to threaten to send defamatory e-mails to the employers of any academic researchers who do honest work in this field. I mean, come on. Wade Pfau loved the idea of doing honest work. He hated the idea of seeing his career destroyed. Once we enforce the law, he will go back to doing honest work. And the things that he and others tell us starting on that day will in time produce a consensus of thought leaders. That’s how it works.
The reasonable enforcement of the laws against financial fraud is a key part of the process leading to a consensus of thought leaders. There is no way to get to that magical place where we all want to go without completion of that essential step. And guess who has been advocating that you Goons be placed in prison cells, where you belong, for many years now. It’s good old Farmer Hocus and no other!
Yes?
Farmer Rob
Your continued lies show that you lack basic morals and ethics.
I do wish you all good things.
Does that help?
Basic Morals Lacking Rob
Isn’t it odd that Wade will talk to anyone but you? Isn’t it odd how you are the only one that is widely banned? After all these years, you still want to blame some nameless goons and you won’t accept responsibility for your actions.
I’m the biggest threat to Buy-and-Hold, Anonymous. The material at my site brings Buy-and-Hold down. So the Buy-and-Holders feel that there has to be a big price paid for talking to me.
But what happens when the owner of a large site breaks the line because he just cannot stand to see more people suffer failed retirements? Then the entire thing comes crashing down.
It would have been better to play this pursuant to normal procedures. Yes, people would have moved away from Buy-and-Hold in bigger numbers and at earlier times. But we wouldn’t be seeing prison sentences and huge awards in civil cases. The financial fraud stuff was not a smart play.
One of the reasons why people have a hard time believing what I say is that people who live in the United States have never seen a case of financial fraud this big. I wouldn’t believe it myself if I hadn’t had a front-row seat to all the festivities going back to the first day. I was still a Buy-and-Holder from May 13, 2002, until August 27, 2002. I had to see death threats and endorsements of death threats for it to click for me how dangerous this stuff is.
I believe that it is going to click for lots of others when they see more than half of their life savings disappear into thin air. But I am not God. I could be wrong. We are just going to have to wait to see how it all plays out.
Wade won’t be showing any hesitation to talk to me once your prison sentence is announced. I have a funny feeling that I will be his best friend in the world once again when that day comes. And that makes me happy, you know? I enjoyed Wade’s friendship a great deal and I very much look forward to renewing it.
If Wade had continued promoting the research that he co-authored with me, you would be going after him as hard as you go after me and he would today be as isolated as me. That’s why he flipped. But that didn’t solve the problem, did it? To solve the problem, those of us who believe that the last 38 years of peer-reviewed research is legitimate research need to STOP flipping. It’s the flipping behavior that has kept Buy-and-Hold going for so many years after the research showing that there is precisely zero chance of it ever working for even a single long-term investor was published. Yucko! You know?
My best to you.
Over-the-Target Rob
You see yourself as someone who is fighting some big battle. All you have done is just talked yourself into a delusional fairytale.
Occam’s razor, Rob.
I believe in Occam’s Razor too, Anonymous.
When you point out an error in a study that thousands of people have used to plan their retirements and it remains uncorrected for over 17 years, there is some sort of funny business going on.
Rob
Here is Wade pointing out your error:
https://www.mcleanam.com/valuations-and-withdrawal-rates/
Thanks much for providing that link. I had seen some of those comments before. But I don’t believe that I have ever seen that particular article. It seems to me that Wade goes into more depth re his thinking on these matters than I have seem him go into elsewhere. So it is valuable to be able to look at that.
I think he makes some super points. I also think he makes some just okay points. And, finally, he make some absolutely awful points. The article is a mix.
He says that he doesn’t like the conventional safe-withdrawal-rate studies, that they are deeply flawed. I like the conventional safe-withdrawal-rate studies. I obviously believe that they are in error and that they will down the road a bit end up causing millions of failed retirements. So there are things that I do not like about them. But the full reality is that the conventional studies advanced our understanding of how to go about retirement planning in a very big way. Many of the people at the Motley Fool board would have been planning retirements that would call for withdrawals of 7 percent had Greaney not presented his findings there. He helped people by showing them that 7 percent was not safe. That’s a big deal. That’s the good side of the conventional SWR studies.
And I agree that there is no perfect, final answer to the question being examined. I published a calculator that includes a valuation adjustment. I believe that the numbers reported in that calculator are a HUGE improvement over the numbers reported in the conventional studies. But I don’t say that my numbers are the final word on this topic. I want to see people working to come up with calculators better than the one that I produced. So by all means we should continue working on these issues. But I don’t for a second agree with any suggestion that, since we cannot do the job perfectly, we should not do the job at all. One thing that Greaney and I very much agree on is that safe withdrawal rate analysis is a powerful tool. If Wade is suggesting that calculating the number properly is just too problemmatic to be worth doing, I certainly do not agree. Just thinking through the questions help us all learn. And that’s something we all should be trying to do.
The idea that Greaney settled the matter when he said that people could subtract something from the 4 percent number is crazy. That’s what I have proposed since my first post. My calculator gives the number that applies if you adjust for the valuation level that applies on the day the retirement begins. If Greaney is okay with that, why the death threats? And why the demands for unjustified board bannings? And why the thousands of acts of defamation? And why the threats to get academic researchers fired from their jobs?
None of that makes sense if Greaney had been sincere when he said that it was okay with him if people adjusted his numbers for the effect of factors that he failed to consider. Greaney is probably okay if people do that in the privacy of their own homes and don’t talk about it on “his” board. He is most certainly NOT okay with the idea of people doing the calculations that apply if additional factors are considered and then to report on those calculations at the various board and blogs. Greaney wants people to think that his way of doing the calculations is the only reasonable way to do them and to suppress any discussion of other ways. That’s fraud. And Wade is endorsing that fraudulent way of proceeding in his words in this article. That part of the article is deeply shameful stuff.
We have lots of posts and e-mails in which Wade revealed his state of mind at various points in the debate. He learned a lot through his participation in our discussions. He couldn’t have written that article before he participated in our discussions. So he should want everyone else to be able to enjoy the learning experience that results form these sorts of discussions. But he is suggesting that it is fine for Greaney and his Goon Squad to shut such discussions down. I couldn’t possibly disagree more.
Wade once told me that he thought that the numbers in the Greaney study were “dangerous.” If they are dangerous, they should be corrected. If there is even a one in one–hundred chance that those numbers are dangerous, we should be getting the word out to every retiree and aspiring retiree alive today. People need to know the limitations of these studies. He says that corrections are not needed because “that’s not how research is done,” you just have different people exploring different aspects of the question. It is of course a good idea for different people to explore different aspects of the question. If Greaney had never tried to stop people from posting their honest views, I would never have said that he was working a con. We could have presented people with both the Greaney numbers and with the valuation-adjusted numbers and then they could have decided for themselves which ones to use. But only Greaney was engaging in intimidation tactics. So only one side of the story was told. That’s fraud. Greaney and those who posted in “defense” of him are liable for any losses suffered as a result of their criminal acts. And those losses are likely to be in the many trillions of dollars, in the event that stocks continue to perform in the future anything at all as they have always performed in the past.
And I could easily see Wade being held responsible for those losses as well given what he says in this article. There were many occasions in which Wade indicated his fear of the Lindauerheads and the Greaney Goons re what they would do to him if he posted honestly. No academic researcher should feel any fear re posting his honest views at an investing board. Why was he afraid? Because he saw the fraud and he saw the acts of intimidation and because he realized what could happen to his career if he “crossed” you Goons. His proper course of action was to report you to the authorities, not to make excuses for your behavior in this article. If he was afraid, there were terrible things going on. He should have acted to put a stop to those terrible things, not put forward misleading words aimed at justifying the criminal behavior.
A failed retirement is a serious life setback. None of us know all the answers re retirement planning. I certainly agree with the statements he makes along those lines. But the proper response to knowing that you do not know all the answers is to always let the other guy speak and to see if you can learn something from him. Wade in this article is trying to justify his flip to the Goon side of the table (while mixing in some solid points that all looking into these matters should consider seriously). My rule is — If I feel intimidated, that’s a sure sign that there’s funny business going on and I need to make sure that I speak up in opposition to it to keep myself on the right side of the felony line. I wish that Wade had followed that rule. He did at times. But he certainly did not follow that rule in this particular article. There’s good stuff in the article. But there’s also a lot of bad stuff. Seeing that bad stuff in an article under Wade’s name makes me feel a great deal of sadness.
We should not only permit honest posting at every discussion board and blog. We should encourage it. Honest posting helps all of us. It helps us get to the truth. And it protects us when we make mistakes, as we all do sooner or later. I have said many times that I am the best friend that Greaney ever had in this world. I pointed out his error to him so that he could correct his study and avoid further embarrassment and legal liability. By engaging in Goon tactics, he made his situation 50 times worse than it would have been had he simply acknowledged the error (or at the very least added language to his study letting people know that there are two schools of academic thought as to how stock investing works and that including a valuation adjustment in the calculation produces very different numbers from the ones that he claimed were “100 percent safe”).
I did a great thing by launching The Great Safe Withdrawal Rate Debate. I am very proud that I worked up the courage to advance that amazing post of May 13, 2002. It pains me to think that there will be people whom I consider friends going to prison in the days following the next price crash. Wade could help us all out by going to the authorities and telling them what he has seen (as I have done). I wish that he would do that. It would not surprise me one tiny little bit if he finally does it in the days following the next price crash. That will be very late. But very late is a lot better than never. So I hope at this point that that is what we eventually see from our good friend Wade Pfau.
My best wishes to you.
Rob
“And, finally, he make some absolutely awful points. The article is a mix.”
Wade is the expert. You are not. You owe him and John Greaney an apology.
He’s an expert on many things. And I learned a lot from him. And there are things that he knows that I would not even be able to understand well enough to be able to learn from him. So he has the edge on me in many respects.
But he does not have the edge on me re whether honest posting on safe withdrawal rates and scores of other critically important investment-related topics should be permitted or not. I have the edge on him re that one. B a factor of 50.
I taught Wade lots of things relating to safe withdrawal rates and lots of things re Valuation-Informed Indexing in general. It shouldn’t be possible. He should know more than me re every possible topic in this area given that he holds a Ph.D. in Economics. But I have scores of e-mails in which he asked me questions and then learned from the answers I provided. That happened over and over again.
They don’t teach the implications of Shiller’s “revolutionary” (Shiller’s word) research findings in the Ph.D. programs. That’s the problem, Anonymous. That needs to change. We need to teach Valuation-Informed Indexing in every Ph.D. program. We need to discuss it on every discussion board and teach it in every Ph.D. program.
The expertise that it takes to understand why we need to discuss this stuff openly is the expertise held by a journalist. That’s the expertise that I possess. Wade is 50 times smarter than me in the areas where he is strong and I am weak. But I am 50 times smarter than him in the areas in which I am strong and he is weak.
I owe Wade no apology. I tried to help him out. I answered every question that he directed at me. Everything that I told him checked out. He learned from me. A lot.
I learned from him too. Different things.
I acknowledge what I learned from Wade. He does not return the favor. Not today. He did before he was threatened. But once he was threatened and agreed to do things that he knew were wrong to be able to save his career, he began singing a different tune. No one should ever be put in that position. And, when Wade flipped, that meant that the intimidation stuff will just continue and the cover-up will continue and the fraud will continue. Which helps precisely no one.
Rob
“But he does not have the edge on me re whether honest posting on safe withdrawal rates and scores of other critically important investment-related topics should be permitted or not. I have the edge on him re that one. B a factor of 50.”
Yes, because your education, experience and track record all show that you know more than Wade, just as you know more than Shiller, Bernstein, the former Jack Bogle (described as the biggest con man ever), etc.
I know more about how the 17-year cover-up has hurt us all. Wade himself said that many times during the 16 months when we were working together on the most important peer-reviewed research that has been published in this field in the past 30 years. Wade marveled at how no one before him and me had ever actually checked whether there is reason to believe that it is not necessary to engage in long-term timing (price discipline) when buying stocks. He expressed the view that our research was worthy of publication in the Journal of Finance, the most prestigious journal in the field. He openly acknowledged that he learned everything that he knows about Valuation-Informed Indexing from me, that he felt that he had to give me credit for that huge advance because no one before me had explored the far-reaching implications of Shiller’s “revolutionary” (Shiller’s words) in as much depth as I had.
Wade learned from me. A lot. And I learned from Wade. A lot. When honest posting is permitted, we all learn from each other. That’s why I support it so strongly.
And, yes, Bogle is con man. Buy-and-Hold is a con and there has been no bigger advocate of Buy-and-Hold than Bogle. That doesn’t change the fact that Bogle is the second most important investment analyst in history (second to Shiller). Bogle is one of those darned humans. So he got something wrong (valuations). I had the courage to ask the great man to correct his error so that he will go down in history as one of the greatest rather than as one of the participants in the biggest act of financial fraud in U.S. history. I have acted as a friend to Bogle, just as I acted as a friend to Mel Lindauer and to John Greaney and to Wade Pfau. A friend is not always the person who tells you what you want to hear. There are times when the essence of friendship is telling you what you need to hear even if it is not going to go down too easy.
I offer no apologies for being a good friend to Jack Bogle, Anonymous. He was a great man and we all learned amazing things by listening to him. I don’t forget learning experiences. I admire the man’s accomplishments and I was proud of him when he worked up the courage to offer his semi-endorsement of Valuation-Informed Indexing. I only wish that he had found it in himself to word it a bit more strongly, strongly enough to get the job of opening up the Bogleheads Forum to honest posting on the last 38 years of peer-reviewed research achieved.
My best wishes to you, as always.
Bogle-Lover (and Critic!) Rob
I have read what Wade has said. I do not put any credibility in your interpretation of Wade’s comments. You have a singular focus of elevating yourself to the status of an expert, yet have only made a fool of yourself and a target for jokes.
Okay, Anonymous.
I do wish you all good things, in any event.
Joke Target Rob
it destroys any credibility you might have when you repeatedly threaten with prison those that disagree with you.
I have never once threatened you or anyone else with prison, Anonymous. I have said that I believe that you will be going to prison in the days following the next price crash. That’s not the same thing.
I performed a Google search for the word “threatened.” Here’s what came back:
“state one’s intention to take hostile action against someone in retribution for something done or not done.”
I am not going to take hostile action against you.
I have said many times that what I intend to do is to put your actions in the best light possible. That’s not a threat. That’s a promise to help out. That’s the OPPOSITE of a threat.
None of us know for certain what is going to happen. This is obviously an exceedingly strange situation. You have committed crimes. You have done so on numerous occasions. The crimes affect millions of people in very serious ways. They were committed in public. They are documented. They have not been prosecuted. Not only have you not been sent to prison for your crimes, you haven’t even been removed from the discussion boards and blogs at which you committed them. That’s a weird set of realities. It doesn’t seem possible that all of those realities could be true at the same time. But they are. Mix all those realities together in a soup and that’s where we stand today.
A number of academics who communicated sympathetically to me said that we are going through a “paradigm shift.” Again, I will turn to Google. The following words are from Wikipedia:
“A paradigm shift, a concept identified by the American physicist and philosopher Thomas Kuhn, is a fundamental change in the basic concepts and experimental practices of a scientific discipline. Kuhn presented his notion of a paradigm shift in his influential book The Structure of Scientific Revolutions.”
You are on one side of the paradigm shift (the Buy-and-Hold side) and I am on the other side of the paradigm shift (the Valuation-Informed Indexing side). There is not one school of academic thought as to how stock investing works today, there are two. The men who prepared the research in which both schools of thought are rooted were both awarded Nobel prizes. So both schools of thought are highly respected by the experts in the field. In ordinary circumstances, there wouldn’t be even the tiniest bit of controversy that would follow from describing the how-to-invest implications of either school of thought.
In this case, there has been a great deal of controversy. If Buy-and-Hold is the answer, then the safe withdrawal rate is always 4 percent. If Valuation-Informed Indexing is the answer, then the safe withdrawal rate is a number that sometimes drops to as low as 1.6 percent and sometimes rises to as high as 9.0 percent, depending on the CAPE level that applies on the day the retirement begins. If someone planning a retirement at a time when the safe withdrawal rate is 1.6 percent believes the Buy-and-Holders and takes a withdrawal of 4.0 percent , he stands a very strong chance of suffering big life setbacks when stock prices drop hard, as they always do once they reach such insanely dangerous levels. I don’t want to be associated in any way with an effort to cause millions of people such horrible pain. So I insist on recognition of my right to post honestly re these matters. The Buy-and-Holders view that as “bad behavior” and I am banned at every large investing site on the internet, making it impossible for me to earn a living doing the work that I have trained my entire life to do.
We will have to decide as a society in the days following the next price crash how we feel about that strange set of facts, Anonymous. I think that I am going to see a good number of my friends go to prison at that time. It breaks my heart. I would prefer not to see it. But if it were my preferences that decided things, there never would have been a single abusive post. My preferences obviously are not always the deciding factor. Perhaps you’ve noticed.
I will put in a good word for you. I will say that to some extent you were a victim of circumstances. You were embarrassed to learn that the numbers in Greaney’s retirement study, a study that you used yourself and that you publicly supported, got the numbers so wildly wrong. You couldn’t think of any way to escape the embarrassment other than to engage in insanely abusive behavior because we were talking about the calculation of a number, which is not a subjective matter. After you engaged in insanely abusive behavior that you thought would put the matter to rest, that crazy Rob Bennett fellow didn’t stop. When he got banned at one site, he just went to another. When he got banned at all sites, he just retreated to working on a book that he believed would become popular only after the next price crash, when everyone would be able to see with their own eyes just how dangerous the smelly Buy-and-Hold garbage truly is in the long run. You felt pressured not only to engage in a cover-up but in a cover-up of a cover-up of a cover-up of a cover-up.
You Goons couldn’t have even engaged in a single cover-up if our entire society did not keep it zipped about the cover-up taking place before their eyes. I wrote an e-mail to Motley Fool asking that they give Greaney the boot in June 2002. Had they administered their published site rules in a reasonable way, Greaney would be at zero risk of going to prison today. So would all of his Goon pals. But they didn’t do that. Motley Fool wanted the short-term profits that come from staying on the wrong side of the paradigm shift for a time. And they hurt you (and me! and millions of others!) by doing so.
I can point that out following the crash. I can say that, had all the rest of us behaved properly (including me — I was too afraid of what would happen to me if I pointed out the error in Greaney’s study to mention it for the first three years in which I posted at the Motley Fool board), Greaney and all of his Goon pals would not have been able to cause the destruction of so many lives. If people go for that, fine! That’s so. I have no problem with the idea of people going for that. Maybe that will happen, you know? I cannot see into the future. It’s certainly a theoretical possibility.
But I do not think that I would be much of a friend to you if I told you that I sincerely believe that that is likely to happen. I saw how people who invested with Bernie Madoff reacted when they learned about his acts of fraud. They were not happy. Madoff said in an interview with New York magazine that he was just trying to help people, that he was a good guy. The people who lost their life savings as a result of his fraud were not impressed. Madoff went to prison. That’s what I think is going to happen with you Goons. People don’t like being cheated out of their life savings. It makes them very, very angry and they lash out. In cases where the people responsible for the losses committed felonies, they demand prosecution of those individuals. I cannot say that I don’t have any sympathy for these people. Those laws are there for a reason. Everyone knows that financial fraud is a bad thing. Everyone knows on at least some level of consciousness that there are risks associated with going down that dark path.
Every single person in our society has been affected by our slowness in working our way from one side of the paradigm shift to the other. I believe that I was put on this earth to tell this story and thereby to help the country that I love make the transition. All that I care about is seeing every discussion board and blog on the internet opened to honest posting. If I could sign a piece of paper that insured that not one of you Goons would go to prison in exchange for an agreement that every site would be opened to honest posting re the last 38 years of peer-reviewed research, I would sign that piece of paper this morning. That option is not open to me.
If I were to lie about my belief that you are going to go to prison, that would only make things worse for you. Then I would be one more person appeasing you because I want things to go easier for myself and thereby putting you in even greater danger. If you were to come clean today, you obviously would end up hurting fewer people. If you hurt fewer people, you obviously would go to prison for a shorter length of time. So it is obviously in your best interest to come clean today. Me telling you that there will be no consequences for your criminal acts would obviously not increase the odds that you would come clean today. So I just don’t feel comfortable going there.
I believe that you will be going to prison. I am not 100 percent sure. We have never seen anything like this before. So I don’t think it is possible to be 100 percent sure. I am rooting for you. I wish you all the best that this life has to offer a person. I am rooting for the millions of middle-class people whose lives you are in the process of destroying too. If I ever see a way to open every site on the internet to honest posting without seeing you go to prison, I will jump at that. I just don’t think that that is a realistic possibility. So I acknowledge to you that I believe that a prison sentence is in your future. While doing everything in my power to get it shortened by encouraging you to come clean by the close of business today.
Does all of that not make a good bit of sense? Does it help at least a tiny bit?
My best wishes, as always, dear Goon friend.
Goon Sympathizer Rob