A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

Podcast #166 — The New Luxuries

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I’ve posted Podcast #166 to the “RobCasts” section of the site. It’s called The New Luxuries.

What do you get for the man or woman who has everything. Free time! Soul-Satisfying work!

Comments

  1. Rob:

    Podcast #166 was superb. You did not cover anything that hasn’t already been said long before you arrived on the scene, and many times over, but you clearly said it with conviction (dare I say “Passion”?) and in ways that those who are likely not saving might take to heart and begin to save, in their own way, for their own reasons. That is really your message, isn’t it — Don’t save because you ‘ought to’ or were told to or for ‘old age’, but for a goal or dream that excites you.

    Many of us got on the saving bandwagon early for very similar reasons that you did — your “Monkee Albums” were my “airplane models”. There was no way that my hard pressed parents were gonna plop down their own hard earned money, or even let me spend my own allowance on something as (in their eyes) ridiculous as little blobs of plastic that won’t last, and collect dust, and are frivolous, etc. But my heart was in building those models, and working odd jobs, then saving in order to buy and construct them was part of a love of aviation that continues to this day.

    So kudos.

    Now, stop here with reading, and/or with public posting of the message if you like, or aren’t prepared for what you will likely consider a ‘typical’ barb from a ‘hater.’

    Rob, Saving is something you clearly know about, that is not too complex, and that you felt you could help others with. And, I tend to agree. Congratulations to you on that, although I have not read your book, and likely will not.

    That said, IMHO, you seem to have made the all-too-human mistake of equating enormously positive feedback in that one area (sorry, the MF dialog on this was before my time, so I assume your characterization is accurate) and thought it gave you license in ‘similar’ or ‘related’ areas of withdrawal rates and/or investing. I have tried to listen to most of your nearly 200 podcasts, Rob, and this is the first and only one for which I can give any positive feedback whatsoever. The issue, Rob, is that in those more technical domains, your folksy homespun analogies are not sufficient. Saving, and altering a person’s individual perception of it, is a pretty easy matter, once approached. It doesn’t take formulae, it does not take math, it does not take analysis.

    But I beg you, I implore you, that if you insist on continuing to publicly attempt to speak on and influence people on matters of retirement, investing, asset allocation, and other economic matters, PLEASE spend some of those ‘freedom dollars’ you supposedly have accumulated and educate yourself (preferably through a formal program leading to a degree or certification) and allow your mind and thinking to CHANGE to accept things that maybe you have entrenched yourself against. ONLY, of course, if they do eventually make sense to you, but you must open your mind, just as you encorage others to do about saving. I predict it will be a very slow process (if you decide to undertake it) due to two things:

    * Your already entrenched resistance to anything smelling of ‘orthodoxy’ — Clearly, you love to be (or to pretend to be) a radical.

    * Your patently obvious innumeracy, that you wear like a crown and love to show off. Sadly. And to your great detriment. “Sharpe ratio?” (laughter from Rob)Rob, the Sharpe ratio may not be important, but you are totally a buffoon to laugh at it or any other concept of finance until you have the intellectual capacity to understand and deconstruct them. And clearly, you do not. This, and not anything else, is what draws the ire of so many, whom you deem to be “goons”, but are in reality, only people who insist on intellectual honesty and competence.

    Good luck on your journey, should you chose to take it.

  2. allow your mind and thinking to CHANGE to accept things that maybe you have entrenched yourself against. ONLY, of course, if they do eventually make sense to you, but you must open your mind, just as you encourage others to do about saving. I predict it will be a very slow process (if you decide to undertake it)

    Thanks for sharing your thoughts with us, Drip Guy.

    I am of course happy that you liked Podcast #166.

    There is good advice in the words above. It’s hard for all of us to follow that advice. It’s hard for me. It’s also hard for you. It’s also hard for John Bogle. It’s also hard for Robert Shiller. It’s really just part of the human condition that we all struggle with seeing the weaknesses in our own thinking.

    Could it be that I have gotten some things terribly wrong in the investing area? It could be. But I cannot say that I believe this to be the case until I am personally convinced. I am not today personally convinced. So my obligation is to continue to report things as I see them and to rely on people like yourself to point out any weaknesses they discover in my thinking.

    You say that I love to be a “radical.” There’s some truth in that. There’s no question but that provocative ideas hold a certain appeal to me. But there are lots of conventional ideas that I find entirely acceptable and good. For example, it is conventional wisdom today that investors should try to tune out the short-term noise and focus on long-term results. I agree 100 percent with this non-radical advice.

    I think the reason why you see me as focusing on the radical stuff is that I don’t bother to make the case about the stuff in which I agree with the majority because most people already know all the arguments. I focus on the areas where my ideas are questioned. It seems to me that working through why the ideas are questioned might lead to useful insights. Most of my writing discusses radical stuff. But lots of my ideas are perfectly conventional. I just don’t bother writing about that stuff too often.

    I am not a Numbes Guy. I am not proud of that. It just happens to be a fact. Yes, I do find humor in it. It seems funny to me that I am this fellow who is intimidated by numbers and that I have developed all sorts of investing insights and yet investing is widely believed to be a field in which being good with numbers is supposed to be important. Can you not see the humor in that?

    I have nothing against the Sharpe ratio. I am confident that studying it has generated insights. But I do not believe that the Sharpe ratio makes the investing world go around. Investing is done by humans. That’s a fact. We need to be looking at stuff OTHER than the Sharpe ratio. That’s my point. For example, we need to be looking at human emotion and how it affects stock prices.

    That’s the sort of area in which my skill set tends to come in handy. Lots of people who are good at numbers are not good at understanding human emotion and lots of people who are good at understanding human emotion are not good at numbers. One of the big problems in InvestoWorld (in my view!) is that there are too many Numbers Guys in the field and not enough Emotions Guys. Things are unbalanced today.

    This imbalance has created huge opportunities for me to “exploit.” I’m so lucky! (that’s a joke, kinda, sorta).

    Rob

  3. That is really your message, isn’t it — Don’t save because you ‘ought to’ or were told to or for ‘old age’, but for a goal or dream that excites you.

    Yes, this is my message on the saving side.

    I strongly disagree with you that this is the conventional take today. I would estimate that 90 percent of the saving arguments we hear today contain some sort of guilt trip. That sort of thing is not my particular cup of tea. And I don’t believe it works.

    What I believe works is what you describe above. I believe that most money management advice should be aimed at developing in people a strong MOTIVATION to save. Do that and all the rest just follows naturally, according to Rob Bennett. Fail to do that, and all the rest is just empty words, in my assessment. Motivation is everything, in my view.

    Rob

  4. my heart was in building those models, and working odd jobs, then saving in order to buy and construct them was part of a love of aviation that continues to this day.

    It’s great to hear this about you, Drip Guy. I keep telling people that, if you scratch a Goon, you will find a genuine human underneath. But does anybody take my word for it? Nooooo….

    Rob

  5. The issue, Rob, is that in those more technical domains, your folksy homespun analogies are not sufficient.

    Are you sure?

    Rob

  6. educate yourself (preferably through a formal program leading to a degree or certification)

    Not interested, Drip Guy.

    If I take one of them there formal degree programs on investing, what do you guess they are going to tell me about safe withdrawal rates? I’ve checked that one myself. I know what the numbers say re that one.

    I also know that the Old School SWR studies obtained Peer Review. That means that lots of guys and gals who went to Investing School gave those studies the thumbs up. Not good.

    What does that tell us about the stuff they teach in Investing School today?

    I love school. I think formal and systematic training can be wonderful. I don’t have it and I find no fault with those who value it. Valuing it makes sense.

    The reality remains that the people who went to Investing School messed up re the SWR matter. Someone has to pick up the ball and aim at doing a better job. Today’s reality is that the work has been passed down to us non-Investing School types whether we like the idea or not, whether we are “qualified” or not.

    I have no problem with people saying that I am not qualified. I feel that way myself. But I think that in fairness people need to add that the “Experts” haven’t been doing such a hot job in the investing field of late.

    When they start teaching the realities of safe withdrawal rates in Investing School, I will feel free to turn my journalistic attentions in a different direction, Drip Guy. It won’t break my heart to do so. I would prefer to live in world in which I could count on them there “experts” to get it right.

    We don’t live in such a world today, in my assessment. So I feel that I have an obligation to do the best job I can do, despite the limitations that come from not having gone to Investing School (and having just about zero interest in attending at this late date).

    Like President Obama sometimes says, I didn’t create this mess, you know? It was left to me to clean it up. I’m doing the best I can given the circumstances in which I was placed and my intent is just to keep on doin’.

    Those who insist on degrees from Investing School from those who offer their thoughts on how to invest effectively need to look elsewhere. This site is not the right place for those people.

    The agenda here is to aim to get it right regardless of what the books say. When my retirement fails, I cannot turn to the authors of the books approved by the Investing Schools to get my money back, can I? Until the day comes when the “experts” offer money-back guarantees on their advice, I feel that I have a responsibility to think this stuff through myself just a wee bit. Call me madcap.

    Rob

  7. you are totally a buffoon to laugh at it or any other concept of finance until you have the intellectual capacity to understand and deconstruct them.

    Yeah, yeah.

    Rob

  8. This, and not anything else, is what draws the ire of so many, whom you deem to be “goons”, but are in reality, only people who insist on intellectual honesty and competence.

    Um — good point, Drip Guy.

    That explains the death threats.

    What you say here makes good sense.

    Rob

  9. I would not dismiss what Rob has to say just yet. I’m the newcomer to the debate and am trying to take an objective look at Rob’s views on the P/E10. Remember, Rob may not be a numbers guy but John Walter Russell (his partner in the calculations) is a numbers guy and so is Dr. Shiller.

    I am not endorsing any strategy yet but I can tell you that John has put a lot of work into the Valuation indexing model. I am in the process of reading every line of John’s site as well as the base data behind the calculation assumptions. Mr. Russell has done a lot of quality homework folks.

    Again, I am not ready to offer an opinion on these matters just yet. However, read Mr. Russell’s site line by line and also the base assumptions in the Shiller studies. The P/E 10 project is is not a fly by night analysis project as some would pretend.

  10. I would not dismiss what Rob has to say just yet.

    I should think not!

    (That’s a joke, kinda, sorta.)

    Thanks for stopping by and sharing your thoughts, Larry.

    Rob

  11. Mr. Russell has done a lot of quality homework folks.

    Thanks in particular for sharing this observation, Larry.

    I have often described John as the best loved and most respected Numbers Guy in the history of both the Retire Early and Indexing discussion-board communities. This is obviously the case if you go by the grateful comments of the 80 percent of our community members who come to our boards with a positive intent in mind.

    The other side of the story of course is that there is a small gang of internet predators that have made it their life’s work to smear those who post in an honest and informed way on important investment topics at our boards. I think it would be fair to say that this group of “contributors” hates the fine work that John has put forward with a burning passion.

    And, yes, there are a good number of Normals who have never seen such ugliness at any other time of their lives and who thereby have come to presume that humans are not capable of such viciousness and presume that there must be something to the nonsense smears we have seen put forward. We all do harm to these people by failing to speak up when we see the Smear Campaigns play out in front of us. Those who make efforts to correct the record a bit do us all a great kindness.

    John’s work will stand the test of time. The “work” of the Goons will be blown away in the wind. We all should of course feel as much gratitude for the former as we feel contempt for the latter. How can the two emotions not go together? The more that we all feel that people should be given the help they need to learn to invest effectively, the stronger we inevitably feel that the thousands of community members who have expressed a desire that honest posting be permitted at our boards should have their rights to hold the conversations that they want to engage in respected by us all.

    John is the tops! So are the thousands who have expressed a desire that honest posting on his findings be permitted at all of the boards we have built together!

    My sincere take.

    Rob

  12. The P/E 10 project is is not a fly by night analysis project

    Not unless seven years of work (performed under less-than-ideal circumstances) can be characterized as “fly-by-night”!

    For those who have not been with us since the early days, it was on Day Six (May 18, 2002) that John posted the sensitivity study showing that it was not a good idea for any aspiring retiree to put his or her confidence in the Old School safe withdrawal rate studies.

    What a long strange trip it’s been!

    Rob

  13. I am not ready to offer an opinion on these matters just yet.

    Our entire community is grateful for the time and effort and patience that you have directed to this matter, Larry. It seems to me that you are going about things in precisely the right way.

    Rob

  14. Rob reminds me of that Iraqi Defense Minister who kept declaring victory every day of the war. The funny thing is, he might have been right – just many years too early. However, I do not think Rob will be as fortunate – just equal to his ridiculousness.

  15. he might have been right – just many years too early.

    Check out Podcast #78, Hello World:

    http://www.passionsaving.com/personal-finance-podcasts-page-ten.html

    It addresses this precise topic. It is entitled “My Great Crime — I Predicted the Stock Crash 12 Years Too Soon.” If I had the power to tell people the day before it began that it was coming the next day, I would have done that. I do not possess that power.

    I did not “invent” Rational Investing any more than John Bogle invented Emotional Investing. The two have been competing against each other since the first stock market opened for business. That doesn’t mean that there have never been changes in how things have been done.

    The big change that Bogle brought to the scene was to use academic research to make the case for Emotional Investing. By doing that, he (and all other Passive Investing advocates) was able to make stocks more dangerous than they had ever been in any other emotional time for stock investing. There’s power in numbers. People believe things they see “proven” by numbers. In the Passive Era, people engaged in reckless strategies that they never would have been willing to follow had there not been numbers “support” for them.

    All that I am doing is taking the Bogle innovation (using numbers to make the case) and arguing that it be put to use in a Rational context. What if instead of using the numbers to persuade people to invest more recklessly than ever before, we used them to persuade people to invest more effectively than ever before? We would be using the same power that made Passive Investing so popular for good purposes. That’s the idea. It’s numbers oriented. But the idea is this time to permit discussion of accurate reports of what the numbers say. That flips it.

    I do not think Rob will be as fortunate – just equal to his ridiculousness.

    I’ll be proven right, Hello World.

    How can I be so sure?

    Take a look at The Stock-Return Predictor and consider what it does. It reports on numbers that have already been revealed to us. How the heck could I be wrong in “predicting” something that has already happened? It’s like telling people that it rained last Tuesday or that it was sunny last Wednesday. It cannot be wrong. We already know what happened. The historical data is — historical!

    People who don’t care to take into consideration how stocks have always performed in the past are of course free not to do so. I have of course said this on thousands of occasions. I don’t propose that any of this be forced down anyone’s throat. I propose that we permit those who have expressed an interest in learning about it the option of learning about it. How could providing an option possibly be a negative? The very idea is preposterous, especially in our culture, a culture that favors the pursuit of options (What is “the pursuit of happiness” if not a pursuit of options for improving one’s life?).

    I know that I am right about this one because the claim that I am making is so incredibly modest that it is barely even a claim at all. I am saying that those who have expressed a desire to be able to learn what the numbers are if they are calculated accurately be permitted to hear that information. You are saying that you feel some doubt as to whether I will ultimately be proven right about this?

    I don’t believe you. You’re too smart to believe such a thing. It may be that this is the lie you tell yourself today to ease your pain. But you don’t believe it on a deep level anymore than you believed seven years ago that there was some mystical planet on which the safe withdrawal rate was always 4 percent.

    Middle-class people use the stock market to finance their retirements. We have to grow up in our understanding of how stock investing works. We need to get to a place where reporting the numbers accurately is no longer shocking but is just the ordinary course of business.

    I personally don’t believe that there is any other way that our economic and political system can survive for too long into the future. The other side of the story is that, if we permit the good side of our humanity to influence our investing decisions again (their capacity to make rational decisions is one of the things that I like about the humans), there is nothing that can stop us from accomplishing things that today hardly seem imaginable to us.

    Each morning we all are faced with the decision whether our actions of the day are going to turn this world into a place a little more dark and cold than it was the day before or into a place a little more bright and warm than it was the day before. The tricky part for “your side” is that John Bogle deep in his heart wants to turn the world into a place brighter and warmer. He’s going to turn on you one of these days, Hello World! Don’t say you hadn’t been warned!

    And you too have that icky human stuff hiding somewhere within. You are going to turn in the end too. You’re not going to be able to help yourelf! You’re just too darn Rational to remain forever Passive!

    My sincere take re all this.

    Rob