Set forth below is the text of a comment that I recently put to another blog entry at this site.
Roger Wohlner, Owner of the The Chicago Financial Planner blog: Isn’t this all just a bit over dramatic? C’mon this is investing, not the situation in the Middle East, the war on hunger or poverty, or most importantly the state of Green Bay Packer football.
Thanks much for stopping by, Roger. We very much need to hear fresh viewpoints.
I don’t believe that I have presented an overly dramatic statement of the case.
It was the relentless promotion of Buy-and-Hold strategies that was the primary cause of the economic crisis. This can be shown with numbers. Stocks were priced at three times fair value in January 2000. That means that we had $12 trillion worth of Funny Money floating through our economy at that time. Those who have followed the academic research of the past 32 years knew that that money would be disappearing from the economy sometime in the first decade of the new Century. Disappear it did. And, when it did, we saw tens of thousands of businesses fail and millions of workers lose their jobs.
That’s can never happen again once we open the internet up to honest posting on safe withdrawal rates and many other critically important investment-related topics. Stock prices are self-regulating so long as honest posting is permitted. Once we permit honest posting, we are going to see hundreds of academic researchers publishing honest research. We are going to see thousands of calculators developed giving accurate numbers for use in financial planning. We are going to see all the textbooks in this field rewritten. We are going to see middle-class people retiring many years sooner than they they ever before imagined possible. We are going to see people who are afraid of stocks today investing in them because we have transformed them into a virtually risk-free asset class. It’s good stuff piled on top of good stuff piled on top of good stuff once we permit honest posting. We are the luckiest generation of investors ever to walk Planet Earth.
Please compare that to the situation we have today. People are losing confidence in our political system because it no longer works for them. People have saved for decades to provide for their retirements and they are now seeing the money disappear because of the trickery of the Wall Street Con Men. There is a REASON why we have laws against financial fraud. It is because people who came before us saw how much damage it does and adopted laws to steer us away from it. Those people were wise. We should be heeding their warnings. We are seeing political friction from the left (the Occupy Wall Street movement) and the right (the Tea Party movement). We need to restore trust in our political and economic systems. We do that by shooting straight with people.
Would you let me post a Guest Blog Entry at your blog reporting on the death threats and the board bannings and the tens of thousands of acts of defamation and the threats to get academic researchers fired from their jobs? My guess is that you would feel uncomfortable doing that.
Why?
It’s because we humans have certain ethical standards that we have to observe or we start to hate ourselves. Those standards apply in all fields other than the investing advice field today. They do not apply in the investing advice field. That state of affairs cannot continue indefinitely. Either we need to invent a new type of human, one that can lie without remorse about things that cause millions of people to suffer horrible life setbacks or we need to permit honesty and integrity and accuracy and good faith in this field of human endeavor.
Why do we have tests that people have to take before becoming financial planners?
It is because financial planning MATTERS.
If it matters, it matters enough for us to want the professionals in this field to get the numbers right.
The errors in the Old School safe withdrawal rate studies became public knowledge on the morning of May 13, 2002. They should have been corrected by the morning of May 14, 2002. Had that happened, we would all be living in the greatest period of economic growth ever seen in our history. The peer-reviewed academic research that I published with my friend Wade Pfau (Wade holds a Ph.D. in Economics from Princeton) shows millions of middle-class investors how to reduce the risk of stock investing by 70 percent. Knowing that would give people hope and optimism for the future. But the Buy-and-Holders cannot permit anyone to hear about that research because it makes them “look bad” for having gotten the numbers so horribly wrong for so many years and for having failed to correct their mistakes for so many years.
It matters big time, Roger.
It obviously means a great deal to the Buy-and-Holders that the research of the past 32 years be hushed up, does it not? Why does it matter so much to THEM? They SEE that it matters a great deal indeed.
The work we have done in the past 32 years brings us to the end of a long journey. Humankind has been trying to understand how stock investing works for many, many years. The Buy-and-Holders got us halfway there. The Valuation-Informed Indexers have now travelled the other half of the football field. The only thing that is holding us back at this point is that the Buy-and-Holders have permitted their pride to interfere with their clear thinking. Deep in their hearts, the Buy-and-Holders want to help people and to do good work. We are helping them as much as we are helping everyone else to open the internet up to the possibility of honest posting.
None of us want to go to bed at night feeling that we have been doing unethical work all day, work that hurts our fellow humans in very serious ways. Jack Bogle doesn’t want that. Bill Bernstein doesn’t want that. Larry Swedroe doesn’t want that. J.D. Roth doesn’t want that. You don’t want that. Even the Goons deep in their hearts don’t want that.
So why have we tolerated this situation for so long?
It’s because it matters so much that we have had a hard time making the changes that we need to make. We believed in Buy-and-Hold for a time. So we were complicit in building it up. We feel bad about that. We don’t want those who have advocated Buy-and-Hold strategies to feel bad about themselves. We don’t want there to be prison sentences and lawsuits for financial damages and all this sort of thing. We want things to be pleasant and nice and happy.
And that instinct is of course a healthy one.
But we need to come to realize as a society that we ALL are capable of making mistakes and that it is by acknowledging mistakes that we move on to better things. Yes, we need to be loving and understanding to our Buy-and-Hold friends. Yes, we need to show respect and affection and gratitude for all the wonderful and powerful insights they have provided. All of that is 100 percent on the mark.
But we ALSO must move on to better things as we discover them through the use of academic research.
Jack Bogle had a dream. His dream was to provide a smart and simple and safe investing strategy to millions of middle-class people. He made a mistake in his first-draft effort to bring that dream to reality. So what? ALL pioneers make mistakes. We should be grateful that there are people who have the guts to be pioneers and stick their necks out on the line for us.
But we must also expect and demand that Jack correct his mistakes as he learns about them. That is where we messed up here as a society.
Jack caused the economic crisis. That wasn’t his intent. But that is the objective truth of what happened. Do we want him to be remembered as the guy who brought the U.S. economy to its knees?
Or do we want something better for him?
Or do we believe that he DESERVES something better for all the good work he has done for us over the course of many decades of fruitful efforts?
I say that Jack deserves our friendship. Which means that Jack deserves our unyielding DEMAND that he start posting honestly on these matters.
You won’t want to give me space to tell this story on your blog because it would sicken your readers to learn about it.
THAT”S WHY IT IS IMPORTANT.
All of us in this field need to be able to feel clean about ourselves again.
To achieve that clean feeling, we need to return to first principles. We are not in this field solely to make a buck. We also have aspirations of helping people live better lives. To realize those aspirations, we need to feel free to do honest work. The bottom line here is as simple and as complicated as that.
I was the person who built the Motley Fool’s Retire Early board to become the most successful board in the history of the Motley Fool site. I became friends with hundreds of people there, people from all walks of life. Those people believed that Greaney’s retirement study was at least roughly accurate. They planned retirements based on what was said in that study. The reason why they believed the study was accurate is that none of their friends ever said otherwise. Day after day after day he pumped the study and everyone acted as if it were a real thing.
Those people are in the process of suffering failed retirements today.
Because no one (myself included up until the morning of May 13, 2002) had the guts to call Greaney out on the absurdity of the methodology he used in that study.
Do those people’s lives matter?
They matter to me.
I believe that, had you spent the time getting to know them all that I spent getting to know them all, that their lives would matter to you as well.
Investing advice affects human lives. That’s the bottom line. If investing advice affects human lives, we all should be permitted to give honest investing advice. I could be wrong about that. But I’m not. Every single person reading these words knows on some level of consciousness that I am right about it.
The tragedy here is that we have let this turn into a “controversy.” There should be no controversy. We should all be 100 percent united in our desire to use the peer-reviewed academic research to learn more about how stock investing works in the real world. We all have been blessed to live at a time in history when there is more learning going on than there has been at any earlier time in history. And, instead of rejoicing at our good fortune, we have spent 11 years of our human energies arguing over whether honest posting on safe withdrawal rates should be permitted or not.
My sincere view is that this stuff matters very, very, very much, Roger. If I didn’t think that the financial futures of my readers mattered, I never would have spent one hour of my life working in this field in the first place.
It is my strongly held belief that the same is true of you. I believe that you are trying to persuade yourself that this stuff doesn’t matter but that deep in your heart, you believe as I do that it does. I believe that that is so of lots and lots and lots of people, including my good friend Jack Bogle. That’s why I know that I (and all of us!) win on the final page of this saga.
I hope we will have a chance to get together for coffee or a drink at FinCon13 in St. Louis. It would make me very happy if we could do that.
Please feel free to shoot back any thoughts if you believe I am off base here.
Take care, man.
Rob
Rob,
You stated that you don’t believe that you have made overly dramatic statements. We know that. The point is that everyone else believes that you have and that is what matters. This is the exact reason that people ask you to provide direct proof of death threats and job threats. Linking to your own posts is just you repeating the same comments. The defamation comments are just silly. You put things out there that provoke people and then act like a victim. Give me a break.
We’ll see what happens after the next price crash. Reality.
I believe that my Goon friends are going to end up in prison cells. So I feel an obligation to do what I can to get those prison sentences reduced.
That’s me.
You say you don’t believe that there will be any prison sentences.
Okay.
So go about your business.
No one is stopping you, man.
I can’t send you to prison. I have zero power to do that and have zero desire to seek such power.
If you are going to land in a prison cell, it is going to be because a prosecutor decided to prosecute you and a jury decided to find you guilty.
I ain’t no prosecutor.
And I sure as shootin’ ain’t gonna be picked to serve on your jury.
So I have nothing to do with any of this outside of the fact that I feel a moral obligation to let you know that I am willing to do anything in my power (short of committing a felony myself) to help you out.
Go in peace, my troubled pilgrim.
You have my blessing and my best wishes.
Rob
Rob,
There you go again making an unfounded dramatic statement. Secondly, you failed to address, as always, the lack of proof for your death threat comments as well as the job threats.
You put things out there that provoke people and then act like a victim.
Did my famous post of May 13, 2002, pointing out the errors in John Greaney’s retirement study provoke people?
It did.
I know because I was there. Lots of people who I consider friends used that study to make decisions as to when to hand in resignations from high-paying jobs and then live only on their savings for the rest of their lives. Those people’s lives were ruined by the trust they put in that now-long-discredited study.
I did provoke them, Reality. You’ve got me re that one.
I’m proud of it.
I’m proud that I worked up the courage to tell the truth re that important matter despite what I knew about how John Greaney would react. Today we have the Wall Street Journal saying that those studies are in error and the Economist saying it and Smart Money saying it and Financial Mentor saying it and Wade Pfau saying it and the Journal of Financial Planning saying it and lots and lots of other people saying it.
Journalists change the world for the better by daring to tell important truths that people of power and money want covered up. I did that. I did the thing that all journalists aim to do in a very big way when I worked up the courage to “cross” John Greaney by telling the world about the errors he made in his study.
If you think that I am someday going to apologize for the wonderful thing I did, you don’t know me. It hasn’t happened in 11 years. It won’t happen in 11 billion years. I gave more back to this world on the morning of May 13, 2002, than I had in earlier days even imagined as a remote possibility.
Do I like to see the people who placed their retirement hopes in that garbage study hurting so bad?
I do not.
If the question becomes “how can we help the people whose lives were destroyed by all the lies that were told to them PRIOR to May 13, 2002?” I am in.
For so long as the question remains “how many fresh lies can we make up to cover up the lies we used to cover up the lies we used to cover up the errors in those retirement studies for 11 years?”, I would be grateful if you would try to find someone else to do your dirty work.
The post provoked people.
For a very good reason.
Buy-and-Hold is a lie. The numbers in the Buy-and-=Hold retirement studies are wildly off the mark from the numbers you get from using analytically valid methodologies.
There will be a day in the future when we will ALL feel comfortable posting honestly about safe withdrawal rates and scores of other critically important investing-related topics. I very much look forward to that day.
On that day, we will all see the good side of provocative posts. Reports on huge advances always sound provocative on first hearing. Huge advances are wonderful.
It was once provocative to say that humankind would one day be able to fly above the clouds.
It was once provocative to say that some day in the future people with black skin would have the same civil rights as people with white skin.
It was once provocative to say women should be able to get jobs as doctors and lawyers.
My May 13, 2002, post was provocative as all get-out.
Good.
No apologies.
None whatsoever.
My warmest wishes to you and yours, Reality.
Rob
There you go again making an unfounded dramatic statement. Secondly, you failed to address, as always, the lack of proof for your death threat comments as well as the job threats.
http://arichlife.passionsaving.com/the-buy-and-hold-crisis/academic-researcher-silenced-by-threats-to-get-him-fired-from-his-job-after-showing-dangers-of-buy-and-hold-investing-strategies/
Rob
Thanks for proving my points. Read the posts again and see how you have made yourself look foolish yet again.
Okay, Reality.
Rob
g
I am not following. So prices were or were not ‘regulated’ before the Internet since there was no posting at all? Is this ‘non-regulation’ of prices some recent phenomena starting in 2002 when Rob Bennett was not allowed to post? Just seems like more KraZy talk.
g
Good one, Anonymous.
Adding a little humor to the mix never hurts.
Rob
So prices were or were not ‘regulated’ before the Internet since there was no posting at all?
Stock prices are SELF-regulating, Laugh. But this is so only so long as investors have easy access to the information they need to understand what they need to do to obtain good results.
That’s of course so in any market. Say that we didn’t allow people buying bananas to have access to the information they need to know how much they are paying for bananas. People who wanted bananas could take them to the register and purchase them. But they could never know in advance how much they were paying. What do you think would happen to the banana market in those circumstances?
Very bad things. The price of bananas would shoot up. Then they would shoot up again. Some people would swear off bananas. Which is a bad thing. The purpose of a market is to get people what they want at a good price. Having people swear off the product being sold is not what you want. What you want is people demanding better prices and getting them when they threaten to take their business to competitors. The back and forth between the sellers (who naturally want high prices) and the buyers (who naturally want low prices) is the magic that makes markets work. Take away that magic and you no longer have a functioning market.
We do not have that magic today in the stock market. Buy-and-Holders don’t let prices (valuations) influence their purchasing decisions. They buy the same amount of stocks at any price. That is why we are in an economic crisis today. The stock market is a big market. When that market collapses, lots and lots and lots of people get hurt.
We did not have the information needed to invest effectively for many years. That wasn’t the fault of the Buy-and-Holders. It was just one of those things. We don’t know it all. So we have had market collapses before. We had one in the early 1900s. We had the Great Depression. We had the Stagflation of the 1970s. Investing was not a subject of academic study in those days. So it wasn’t the cover-up of studies that was causing the problem. It is just the sad fate of the humans not to know some things.
Our luck changed when the Buy-and-Holders argued that investing SHOULD be the subject of academic research. That was a huge breakthrough. The Buy-and-Holders came up with many powerful insights as a result of their belief in following research-based strategies. Then they made one mistake (as just about all pioneers are certain sooner or later to do).
They discovered that short-term timing never works. That was a huge breakthrough, the second most important breakthrough in the history of investing analysis. Unfortunately, the Buy-and-Holders jumped to an unfortunate hasty conclusion. They came to believe (based on no research whatsoever) that, since short-term timing never works, it might be that there are occasions when long-term timing is not absolutely required either. Nothing could be further from the truth. The entire 140-year historical record shows that long-term timing is ALWAYS 100 percent required of every investor hoping to have any realistic hope whatsoever of long-term investing success. But the Buy-and-Holders never did research on this point. So of course they didn’t know.
Yale Economics Professor Robert Shiller (he won the Nobel prize a few weeks ago) did this research (the most important research ever done in this field) in 1981. NOW we knew (for the first time in the history of Planet Earth) how stock investing really works. I co-authored follow-up research with my good friend Wade Pfau (Wade holds a Ph.D. in Economics from Princeton) a few years ago showing that investors who root their strategies in the findings of the peer-reviewed academic research (a practice that the Buy-and-Holders once advocated but one which they have come to hate with a burning passion since the research was published showing that they once made a perfectly understandable mistake) thereby reduce the risks of stock investing by 70 percent while increasing their returns enough to retire five to ten years sooner than Buy-and-Holders.
That’s where we stand today, Laugh.
Stock market prices have always been self-regulating. But that can never help us until investors KNOW how stock investing works. We were all ignorant of how stock investing works until Shiller did his “revolutionary” (his word) research i 1981. From 1981 through 2002, there was a combination of cognitive dissonance and an industry cover-up (more the former in earlier years and more the latter in later years) keeping us from learning what we need to know to reduce the risk of stock investing by 70 percent. I came along on the morning of May 13, 2002, with a post to a Motley Fool board pointing out the errors in the Old School safe withdrawal rate studies and we were off to the races.
We know today what we need to know to transform stock investing into an essentially risk-free endeavor. But we “know” it only in that we have 32 years of peer-reviewed academic research showing it. We need to take the next step. We need to make use of the internet to spread the word with the millions of middle-class people that comprise the market. Once they learn the realities, the economic crisis comes to an end and we enter the greatest period of economic growth in U.S. history. The trigger point will be my good friend JAck Bogle working up the courage to walk to the front of a room and say the words “I” and “Was” and “Wrong.” Once JAck says those words, we won’t be seeing any more death threats or board bannings or defamation or threats to get academic researchers fired from their jobs.
The day of Jack’s speech will be one of the greatest days in the history of the United States. It will be the day of our financial liberation, the day we as a people break free from Buy-and-Hold “ideas” and all the human misery that naturally follows from them. I look forward to that day very much. I know that on some level of consciousness you do too, my old friend.
Please take good care.
Rob
So if they were/are always self regulating then whats the problem?
Also, if the market completely changes its behavior (no boom/bust cycles) why do you think long term returns would be the same? If stock markets level out and volatility falls, then to my mind the equity risk premium would dry up and stocks would be indistinguishable from bonds.
So if they were/are always self regulating then whats the problem?
I answered this above, Laugh.
For the market to be able to function properly, investors need to do their part.
To do their part, investors need to be aware of what is in their best interests.
For investors to learn what is in their best interests, we need to permit honest posting on ALL aspects of the stock investing experience. We need to permit honest posting on safe withdrawal rates, on asset allocation, on risk, and on and on and on.
That’s the game changer.
The only thing holding us back is that my good friend Jack Bogle has not yet made his “I Was Wrong” speech. Once Bogle acknowledges that Buy-and-Hold was a mistake, no one will have an interest in it. We will all move on to better things.
Rob
Also, if the market completely changes its behavior (no boom/bust cycles) why do you think long term returns would be the same?
Because stock returns are determined by the productivity of the U.S. economy.
So long as our economy remains roughly equally productive, stock returns will remain in the same neighborhood.
There COULD be some change in returns, either up or down. I have always said that investor who believe that there are going to be changes in the productivity of the U.S. economy should just make whatever changes in the numbers generated by making reference to the historical data that are needed to reflect those beliefs.
All of the calculators at this site play it down the middle. I don’t assume that our economy will be more productive than it has ever been before or less productive than it has ever been before. There is a caveat that applies to ever statement made at this site — it applies IF stocks continue to perform in the future at least somewhat as they always have in the past.
Rob
If stock markets level out and volatility falls, then to my mind the equity risk premium would dry up and stocks would be indistinguishable from bonds.
You are trying to make sense of things through the use of concepts developed by people who believed in the Buy-and-Hold Model, Laugh. This cannot be done.
Stock prices are determined by the productivity of the U.S. economy, not by market forces. The idea that stock returns are high because stocks are a volatile asset class is part of the Buy-and-Hold mythology. There is zero support in the academic research for this “idea.” Volatility is risk. Volatility is a bad thing. Volatility adds nothing. We will all be better off when volatility is greatly reduced. A big reduction in volatility will be the greatest free lunch we have ever enjoyed.
Look at where things stood in 2000. Stocks were the riskiest they have even been in history. So there should have been a huge risk premium, right? Investors should have been looking forward to long-term returns of 15 percent or 20 percent real as their reward for being willing to take on that sort of risk, according to the risk-premium advocates. Yet the research tells us that the most likely annualized long-term return in 2000 was a negative number. Huh? You take on more risk than any stock investor before you has ever taken on and your compensation is a negative return? That makes sense? There was a risk PENALTY in place in 2000, not a risk premium.
The error that the Buy-and-Holders continually make is to ASSUME investor rationality. Rational investors would demand a risk premium. That much is certainly so. Like everything else in the Buy-and-Hold Model, the risk premium is 100 percent logical. That is the problem.
Stock investing would be 100 percent logical if only the human investors who buy and sell stocks were 100 percent logical. They are not. So the idea that any model for understanding investing that ASSUMES 100 percent logic could ever work in the real world is of course 100 percent nonsense.
You MUST incorporate investor emotion into the mix. That’s what P/E10 does. P/E10 tells you how irrational investors are being at any given moment.
The magic of permitting honest posting on what the academic research says is that the humans can CORRECT their irrational behavior by looking at the research. It was an insane act to go with a high stock allocation when the likely long-term return for stocks was a negative number. Now consider how the Buy-and-Holders and the Valuation-Informed Indexers cope with this reality. The Valuation-Informed Indexers let investors know what the research says, that they are destroying their hopes of being able to retire when they want by giving in to the Get Rich Quick urge that says that price means nothing, to just go ahead and buy stocks no matter how dangerously overpriced they are. The Buy-and-Holders take it just the other way. They say that there is some magic pixie dust that they are sprinkling in the air to make stock investing work 100 percent the opposite of how it has always worked throughout history, that it is JUST FINE to stay at the same stock allocation when prices go to insanely inflated levels.
That’s why those who listen to the Valuation-Informed Indexers always end up so far ahead. VII is HONEST. Honest investing advice helps the investor more than does the Get Rich Quick garbage pushed so heavily by the Wall Street Con Men.
Or at least that is my sincere belief re these important matters, Laugh.
Please take good care.
Rob
and stocks would be indistinguishable from bonds.
The returns on non-stock asset classes ARE generally determined by market forces (rather than by the productivity of the U.S. economy).
So there is a legitimate point to be made that, if the risk of stock investing was reduced by 70 percent and the long-term return on stocks remained stable, there would need to be some adjustment in the returns paid by asset classes like certificates of deposit.
If stocks carry little risk and CDs carry little risk, you can’t have stocks paying 6.5 percent real and CDs paying 3 percent real. Those numbers need to move closer to each other.
Please note, though, that it is not the stock number that is likely to move. Our economy is an established one. The productivity of established economies is generally stable. The stock number might move down to 6 percent or so. It is not likely to move much lower than that.
So for the numbers to come closer together, the return on CDS must INCREASE.
The banks that sell CDs offer as low a return as they can get away with and still sell the CDs. Today, they can sometimes get away with paying very low rates of return because the relentless promotion of Buy-and-Hold strategies has made investors so emotional about stock investing. All that changes once we open the internet up to honest posting on safe withdrawal rates and scores of other critically important investment-related topics.
Investors will no longer have a bias in favor of stocks once we permit honest posting and it is possible for them to become educated as to the realities. That means that they will demand that banks offer higher CD returns or they will refuse to buy CDs. The banks will comply.
We will all not only enjoy far higher returns from stocks at greatly reduced risk following the end of the Ban on Honest Posting. We will also enjoy higher CD returns. It’s a win/win/win/win/win.
Rob
But our economy does not grow at 6.5% real so this all seems like hogwash.
Our economy has been growing at a rate sufficiently strong to finance an average annual stock market return of 6.5 percent real for 140 years, Laugh.
It’s not Shiller’s research that is hogwash.
It is the 11-year cover-up of the errors in the Old School safe withdrawal rate studies that is hogwash.
It is not the huge advances in our understanding of how stock investing works that will be sending you to prison, Laugh.
It is the multiple felonies you and your Goon pals have committed in your effort to block millions of middle-class people from learning what the research in this field really says that will be sending you to prison.
My best wishes to you, my long-time abusive-posting friend.
Rob
If the US economy grows at 3% and the stock market returns 6.5% real (which is even higher in nominal terms), how do you explain this 3.5%+ gap?
Most people understand that this gap is the equity risk premium and is compensation for the increased risk of owning equities. If that risk goes away because everything is ‘perfectly valued’ as in your utopia, why would stocks maintain any kind of premium?
Shiller’s “revolutionary” findings do not change just our understanding of stock investing, Laugh. They change our understanding of Economics as well. That’ why the guy won the Nobel prize.
You are citing ideas that are part of the Efficient Market/Rational Man/Buy-and-Hold Model. Those ideas have been discredited. I pointed out above how the idea of a risk premium has been proven absurd. Stocks were the most risky they have ever been in U.S. history in 2000 and the risk premium at the time was a negative number. You have’t even TRIED to explain that one. That’s because it is 100 percent impossible to explain. Our old ideas re how economics (and stock investing) work are WRONG.
Many people in the economics profession see that as a bad thing. They have made a good living for themselves pushing all this discredited nonsense. So they fight people who present legitimate research or who explore the implications of discredited research. I take it just the other way. I LOVE it that we have learned amazing things about economics and about stock investing in the past 30 years. These advances will make us all rich beyond our wildest dreams once we give ourselves permission to talk about them openly on the internet. I am the leading figure arguing for honest posting on safe withdrawal rates and LOTS OF OTHER CRITICALLY IMPORTANT INVESTMENT-RELATED TOPICS.
If you really want to know where the 6.5 percent real return comes from, do a Google search for Bogle speeches on that topic. He does a fine job of breaking it down. Bogle is honest in a good part of his writings. It was by reading one of Bogle’s books that I learned about the errors in the Old School safe withdrawal rate studies.
Where Bogle turns dishonest (whether intentionally or not) is when he says that a Buy-and-Hold strategy can work. The thing that distinguishes a research-based strategy from a Get Rich Quick strategy is the extent to which the investor is willing to change his stock allocation in response to price changes. Buy-and-Holders say that it is okay to not make any changes at all. That’s the farthest you can go in the direction of Get Rich Quick. Valuation-Informed Indexing is the farthest you can go in the direction of research-based. VII says that you should make whatever changes are required to keep your risk profile constant and not any more and not any less.
Buy-and-Holders and Valuation-Informed Indexers have no difference of opinion on where the 6.5 percent comes from. You can read Bogle’s speeches on that question and know that I am happy to sign on to what he says 100 percent.
We have a big difference of opinion of what the Buy-and-Holders call the risk premium. There is 140 years of historical return data showing that the risk premium (as the Buy-and-Holders imagine it) DOES NOT EXIST. Risk was the highest it has ever been in 2000 and return was the lowest it has ever been in 2000. Risk was virtually non-existent in 1982 and returns were off-the-charts high.
There IS a connection between risk and return. So the Buy-and-Holders were sort-of on the right track. The mistake they made was ignoring investor perceptions. Risk was sky high in 2000. But the PERCEPTION of risk was very, very low. Risk was virtually non-existent in 1982. But the PERCEPTION of risk was sky-high.
There is a perception-of-risk premium. But there is no true risk premium.
Why did the Buy-and-Holders get it so wildly wrong? As always, they ignored INVESTOR EMOTION. It is investor emotion that causes the perception of risk to be so wildly off from the actuality of risk.
What is the answer here?
PERMITTING HONEST POSTING.
The interests of the Wall Street Con Men are directly opposed to the interests of millions of middle-class investors. The Con Men LOVE, LOVE, LOVE Buy-and-Hold. Why wouldn’t they? It has made them millionaires.
But in the long run their relentless promotion of the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind hurts them as much as it hurts all of the unfortunate people who listen to their advice thinking that perhaps they are telling the truth. When you rape the middle class, you cause an economic crisis. People cannot buy things when they have no money! When you have an economic crisis, you have a political crisis. When you have a political crisis, all the money you obtained by pushing Get Rich Quick strategies is not of much value because you have no stable political system in which to spend it. Get Rich Quick is bad news!
That’s my sincere take in any event, Laugh. I believe that we should be permitting honest posting on safe withdrawal rates and on many other critically important investment-related topics at every board and blog on the internet.
My best and warmest wishes to you and yours.
Rob
Most people understand that this gap is the equity risk premium and is compensation for the increased risk of owning equities.
Stocks pay higher returns that most other asset classes. We agree on that.
And it is true that the primary reason is that people PERCEIVE stocks as more risky. We agree on that.
We do NOT agree that stocks are significantly more risky. Stocks are more risky for Buy-and-Holders, but not for Valuation-Informed Indexers. The risk is that you will fall for the arguments of those promoting Buy-and-Hold strategies (people who make a living selling stocks). So long as you buy stocks in the same manner as you buy everything else (ALWAYS taking price into consideration when making purchase decisions) stocks purchased through index funds are a low-risk asset class.
Yet stocks still pay higher returns. Why?
Because most people don’t understand the implications of Shiller’s research.
We need to be spreading the word. We need this stuff written up in every newspaper, on every blog, at every discussion board, on every investing-related television show.
We knew from research that smoking caused cancer a long time before people began cutting back on smoking. Why didn’t we cut back sooner?
Because the people who made money selling cigarettes were happy to see millions of people die from cancer so long as it meant that they made an easy buck. That’s how it is with the Buy-and-Holders today. There has OBVIOUSLY never been a single study showing that Buy-and-Hold can ever work for even a single long-term investor. But so long as the penalties imposed for telling the truth are great enough, you can still get very rich promoting the smelly Buy-and-Hold garbage, no?
Did the people who financed advertising campaigns saying that everyone should be sure to take up smoking because of all the wonderful health benefits enjoyed by smokers “know” that their lies were causing huge amounts of human misery?
They did and they didn’t. They obviously knew that it was all b.s. That’s why they were so defensive when questioned about the “studies” that they said backed up the absurd claims. But they didn’t focus on the millions of deaths. They rationalized. They told themselves “oh, smoking probably isn’t that bad, everyone has to make a buck in this world.” They smoked themselves, you know? They said “I am not trying to persuade anyone to do anything that I don’t do myself!” And that was true.
So it is with the Buy-and-Holders. There obviously has never been a single study published showing that long-term timing is not 100 percent required of all long-term investors. The idea is absurd. It would defy common sense for such a thing to be so. But there sure is a LOT of money to be made pretending that you believe that such a study exists, is there not?
So people say they believe this baloney. And they rationalize. They say “oh, we survived the First Great Depression brought on by the promotion of Buy-and-Hold, who is to say that we will not survive the Second?” And they tell themselves that they follow Buy-and-Hold strategies themselves, so they are not really horrible people. And they do follow Buy-and-Hold strategies themselves. That part really is true.
The problem is that smoking really does cause cancer.
And Buy-and-Hold always brings on a financial wipeout for every investor who comes to believe in it.
And the collective losses caused by the widespread promotion of Buy-and-Hold “strategies” are always large enough to cause an economic crisis in the society that permits the relentless promotion of this Get Rich Quick garbage.
So we have to do something about the b.s..
We need to open the entire interest to honest posting about safe withdrawal rates and many other critically important investment-related topics.
That’s my sincere take in any event, Laugh.
I naturally wish you all the best that this life has to offer a person.
Rob
If that risk goes away because everything is ‘perfectly valued’ as in your utopia
I can bring in my good friend Eugene Fama to argue my case re this one, Laugh.
You suggest that there is something “utopian” about everything being perfectly valued.
Are you familiar with Fama’s work?
His core claim is that things should ALWAYS be perfected valued. He says that the market is “efficient.” That means it processes all information quickly. All that is known about stocks is almost immediately incorporated into the price of stocks. That’s perfect valuation, is it not? There is no better price than the one that incorporates all known information bits.
There is nothing even a tiny bit utopian about a world in which stocks are properly priced.
The reality is that there is only one thing standing in our way.
The thing standing in our way is you Goons.
Wade Pfau wants to tell the truth about stock investing very, very much. He made that clear in his e-mails to me over and over again.
Wade is obviously going to get the Nobel prize for the research that I co-authored with him once he feels free again to post honestly, right?
THOUSANDS of academic researchers are going to follow Wade’s lead once he wins the Noble prize. So we are soon going to have THOUSANDS of academic researchers telling the truth about stock investing.
You don’t think that is going to make a difference?
I think it is going to make a HUGE difference.
They key is getting your prison sentence announced, Laugh.
That will go viral. When every web site is talking about your prison sentence, Bogle is going to feel pressured to give his “I Was Wrong” speech. Once Old Saint Jack gives that speech, no one is ever again going to be afraid of what the Wall Street Con Men and their Internet Goon Squads will do to them if they dare to “cross” them by telling the truth about what the last 32 years of peer-reviewed academic research says about how stock investing works in the real world.
Laugh going to prison is Utopia realized for all of us. No?
It really is. Even for Laugh. Because the sooner you go to prison, the less damage your Campaign of Terror against us will have caused. And the less damage you end up causing, the shorter your prison sentence will end up being.
Does that not make sense, my old friend?
Rob
why would stocks maintain any kind of premium?
I believe that stock will always pay higher returns than certificates of deposit.
The difference is that stocks are virtually risk-free only for those willing to hold them for 10 years. Please keep in mind that short-term timing never works. You MUST be willing to hold your index funds for 10 years for the magic of VII to apply.
You don’t have to hold CDs for 10 years. So there is a perfectly good reason why the return on CDs should be lower.
But the difference in returns that we see today will not be sustainable in a world in which we permit honest posting on what the last 32 years of peer-reviewed academic research says.
I would guess that the difference in return might end up being 3 percentage points.
So, if stocks continue to pay 6.5 percent real, the return on CDs might be 3.5 percent real, perhaps a bit more than that.
That sounds good to me, Laugh.
Are you able to imagine any possible downside?
Rob
I don’t see a single good reason why stocks would maintain that large of a gap between CDs or bonds if stocks have no risk other than a small liquidity premium over a 10 year period.
“Yet stocks still pay higher returns. Why?
Because most people don’t understand the implications of Shiller’s research.”
This makes no sense – you seem to be arguing that once people ‘understand the implications’ that stocks will pay lower returns? Why would we want that then?
“I would guess that the difference in return might end up being 3 percentage points.”
What is this based on?
“All that is known about stocks is almost immediately incorporated into the price of stocks. That’s perfect valuation, is it not?”
No, which is why we have one word for efficient and another for perfection.
“When you have an economic crisis, you have a political crisis. When you have a political crisis, all the money you obtained by pushing Get Rich Quick strategies is not of much value because you have no stable political system in which to spend it. Get Rich Quick is bad news!”
This makes less sense. So somehow if everyone adopted your thinking then the economy crashing and the political system crashing should not affect equity valuations?
To be honest, your logic is utterly inconsistent and borderline loony .
I don’t see a single good reason why stocks would maintain that large of a gap between CDs or bonds if stocks have no risk other than a small liquidity premium over a 10 year period.
There’s room for more than one reasonable point of view re this one, Laugh.
It is entirely possible that the gap between CD return and stock returns will be less than what I guessed it would be up above.
We will all soon find out, in any event!
Rob
you seem to be arguing that once people ‘understand the implications’ that stocks will pay lower returns?
This is Goon Talk.
I of course never said any such thing.
Yucko!
Rob
which is why we have one word for efficient and another for perfection.
Buy-and-Holders use fancy words for the purpose of tricking people (including themselves!).
Legitimate ideas can be described with simple words.
An efficient market is one in which things are priced properly. We can never have an efficient market until we open the internet up to honest posting on safe withdrawal rates and on many other critically important investment-related topics. Investors cannot act in their self-interest until they have access to honest and accurate reports on what the last 32 years of peer-reviwed academic research says.
Rob
your logic is utterly inconsistent and borderline loony .
I believe you because I know that you are one of them there Unemotional Investors, Laugh.
Truly outstanding!
Rob
“Yet stocks still pay higher returns. Why?
Because most people don’t understand the implications of Shiller’s research.”
What does this mean then?
“An efficient market is one in which things are priced properly”
What do you mean by ‘properly’? It can mean ‘proper’ in that whatever available information is incorporated into the price via market action or it can mean ‘proper’ in that the price reflects perfect knowledge of the past/present/future. Based on your demonstrated limited knowledge of how investing works I somehow suspect it is the latter – which is a misguided view of…well…the Universe.
It can mean ‘proper’ in that whatever available information is incorporated into the price via market action or it can mean ‘proper’ in that the price reflects perfect knowledge of the past/present/future.
The Buy-and-Holders mean the former.
What they are missing is that information that is “known” in a theoretical sense but that may not be discussed is not “known” in a practical sense.
The Valuation-Informed Indexers knew in 2000 that stocks were priced at three times their real value and that two-thirds of every stock investor’s portfolio was comprised of cotton-candy nothingness that was fated to be blown into the wind in coming years.
If we did not have a Ban on Honest Posting in place, every investor would have known this and would have acted appropriately in response to the knowledge and those actions would have pulled prices back to fair-value levels. If we did not have a Ban on Honest Posting in place, we would all be able to take advantage of what we “know” and the market really would be efficient (and Buy-and-Hold would work in the real world).
So long as the Wall Street Con Men and their Internet Goon Squads can threaten to destroy the careers of any academic researchers who dare to “cross” you by publishing honest research, the millions of investors who need access to honest research to set their allocations properly are not able to act on information that has been “known” in a theoretical sense for 32 years but that has been kept from most in a practical sense until today.
We need to get that prison sentence of yours announced by the close of business today, Laugh!
Take good care, man.
Rob
or it can mean ‘proper’ in that the price reflects perfect knowledge of the past/present/future.
No one says that we have perfect knowledge of the past, present and future.
We don’t need that to be able to predict long-term stock returns effectively.
You seem to think that, to predict where stock prices will be tomorrow, we need to know events that will happen in the future. We do not.
I know where stock prices are headed because I take note of things that have already happened that you ignore. Today’s P/E10 level is a present-day reality. I don’t need to look into the future to know today’s P/E10 level. You could take note of it too if you cared to, you just don’t care to. The P/E10 level tells us the level of emotionalism in the market and the panic brought on when that emotionalism fails the investors taking comfort in it today is the thing that will cause prices to tumble. There is no event that I am expecting to see take place in future days that is going to cause prices to fall 65 percent. The “event” that will end up being the cause of the next price crash is the high level of emotionalism present today, an emotionalism that you evidence in your every post.
What Shiller showed is that it is investor emotions, NOT unforeseen economic and political events, that cause stock price changes. If it were economic and political events that caused stock price changes, future returns would be random (that’s why the famous book advocating Buy-and-Hold is titled “A RANDOM Walk Down Wall Street”). Shiller showed that long-term returns are NOT random. That’s the “revolutionary” finding (Shiller’s word) that Buy-and-Holders have not yet incorporated into their thinking. When they DO incorporate it (and they will when the market crushes them for the emotionalism that they today refuse to give up), they will no longer be Buy-and-Holders. They will be Valuation-Informed Indexers.
And we will all live happily ever after.
Rob
I am pretty sure in 2000 you weren’t banned.
“What Shiller showed is that it is investor emotions, NOT unforeseen economic and political events, that cause stock price changes.”
Um, where does he show that? Did you ask him about that? I sincerely doubt he would agree that he showed anything of the sort.
“You seem to think that, to predict where stock prices will be tomorrow, we need to know events that will happen in the future. We do not.”
You seem to have some bizarre view of the world where stock prices are divorced from economic performance or in fact, stock prices drive economic performance. This is wacky and not supported by any research at all. Equity prices reflect an aggregate market forecast of economic and individual company performance. In the short term this may be driven by ’emotions’ but no one (with the exception of an unemployed guy in nowhereville VA) contends that long term stock returns are a product of ’emotionalism’.
I am pretty sure in 2000 you weren’t banned.
The Ban on Honest Posting was in place long before I came on the scene, Laugh.
I obviously didn’t know about it on the morning of May 13, 2002. And I obviously can testify only to developments that have taken place since that date. But there had to have been a ban in place or we would not have seen the reaction we saw to my post of the morning of May 13, 2002.
Shiller published his research showing that valuations affect long-term returns in 1981. If valuations affect long-term returns, there is zero chance that a Buy-and-Hold strategy can work for a single long-term investor.
So everyone should have known by May 13, 2002, that there is zero chance that a Buy-and-Hold strategy can work. That obviously was not the case. So some sort of funny business was going on. I refer to that funny business as “the Ban on Honest Posting.”
People who understood the implications of Shiller’s work were being penalized in various ways and people that continued to promote Buy-and-Hold strategies even though they had been discredited by the peer-reviewed academic research were being rewarded.
I believe that in 1981 very few people appreciated the implications of Shiller’s findings. His work really was revolutionary. It takes some time for revolutionary findings to sink in.
Then the bull market came and people were not looking for anything better than Buy-and-Hold. The general feeling was that Buy-and-Hold worked just fine.
Since the crash there is a widespread desire for something better. But the cover-up has gone on for so long now that people feel a lot of embarrassment over it. So people feel funny talking about the 32-year cover-up. And of course we cannot move forward until we start talking about this stuff openly and honestly and clearly and completely.
Rob
Um, where does he show that? Did you ask him about that? I sincerely doubt he would agree that he showed anything of the sort.
You need to read the book “Irrational Exuberance,” Laugh. The entire book addresses this point.
If we didn’t have a Ban on Honest Posting in place, you would know the answers to all these questions without needing to ask me. And you of course would be a lot better off knowing the answers. Even if you elected not to follow Shiller’s model, you would be better off knowing about it. It is painful to realize that you don’t even know hardly anything about the thing that you have spent 11 years raging at.
In contrast, I know ALL ABOUT Buy-and-Hold. It would be impossible for anyone not to have heard every Buy-and-Hold principle 20 times. But people like yourself who have spent years discussing investing on the internet don’t know understand even the most basic principles of Valuation-Informed Indexing, the research-based alternative to Buy-and-Hold.
Something like that doesn’t happen by pure accident.
Rob
You seem to have some bizarre view of the world where stock prices are divorced from economic performance or in fact, stock prices drive economic performance.
Stock prices have been driving economic performance for 140 years, Laugh.
There is 32 years of peer-reviewed academic research showing this to be so.
If you educated yourself on these matters, you wouldn’t find the research-based findings to be “bizarre.”
That’s ignorance and arrogance and wounded pride talking.
If you felt confidence in the strategies you follow, you would feel no need to speak in this manner.
Rob
This is wacky and not supported by any research at all.
I am convinced because you have presented such a powerful argument for your case.
Rob
Equity prices reflect an aggregate market forecast of economic and individual company performance.
You read a magazine article written by someone who sells stocks for a living before you posted here.
How can I hope to respond to something so powerful?
Rob
In the short term this may be driven by ‘emotions’ but no one (with the exception of an unemployed guy in nowhereville VA) contends that long term stock returns are a product of ‘emotionalism’.
That explains why Wade Pfau, who makes his living doing investment research and who holds a Ph.D. in Economics from Princeton, made the comments quoted (and linked to) at the bottom of this article:
http://arichlife.passionsaving.com/the-buy-and-hold-crisis/academic-researcher-silenced-by-threats-to-get-him-fired-from-his-job-after-showing-dangers-of-buy-and-hold-investing-strategies/
It also explains why you Goons were so afraid of what would happen when millions of middle-class investors learned of the peer-reviewed academic research that I co-authored with Wade that you threatened to send defamatory e-mails to his employer in an effort to get him fired from his job.
It also explains why people like Jack Bogle and Bill Bernstein and Scott Burns and Larry Swedroe and Rick Ferri did nothing when they learned of your tactics. These people are all shooting straight with us. They have not permitted financial considerations to influence their public statements about what the peer-reviewed academic research of the past 32 years really says.
That all makes perfect sense, Laugh.
Truly outstanding!!!!
Rob
“So everyone should have known by May 13, 2002, that there is zero chance that a Buy-and-Hold strategy can work. That obviously was not the case. So some sort of funny business was going on. I refer to that funny business as “the Ban on Honest Posting.””
Unless you have some evidence of this, the rest of the world will refer to it as ‘Rob Bennett’s Paranoia’
“If valuations affect long-term returns, there is zero chance that a Buy-and-Hold strategy can work for a single long-term investor.”
I thought you just said that ’emotions’ drive stock returns. Is it valuations or emotions?
“It also explains why you Goons were so afraid of what would happen when millions of middle-class investors learned of the peer-reviewed academic research that I co-authored with Wade that you threatened to send defamatory e-mails to his employer in an effort to get him fired from his job.”
I looked up Wade’s paper, you are not listed as a co-author. As far as I can tell, his paper was published and he got fairly good reviews for it across the board. Middle class America is free to read it as much as they like. Unfortunately, they don’t have any money to invest with since they are too busy buying iPads.
“You need to read the book “Irrational Exuberance,” Laugh. The entire book addresses this point.”
I have read this book. Can you please quote which part of it says that ’emotions’ are the primary driver of all stock returns?
“Stock prices have been driving economic performance for 140 years, Laugh.
There is 32 years of peer-reviewed academic research showing this to be so.
If you educated yourself on these matters, you wouldn’t find the research-based findings to be “bizarre.””
Ok, I call your bluff. What papers in the past 32 years say that stock prices drive economic performance for 140 years?
You’re being argumentative on every point, Laugh.
To learn, you need to WANT to learn. Or at the very least, you need to be OPEN to learning.
Here’s the article in which I report on the 16 months in which Wade Pfau and I worked together to produce that wonderful piece of peer-reviewed academic research showing millions of middle-class investors how to reduce the risk of stock investing by 70 percent:
http://arichlife.passionsaving.com/the-buy-and-hold-crisis/academic-researcher-silenced-by-threats-to-get-him-fired-from-his-job-after-showing-dangers-of-buy-and-hold-investing-strategies/
The quotes at the bottom show that not only was I the co-author of that paper, I was the PRIMARY author of that paper. There’s no one who was in a better position to know who made the more important contributions than Wade, He was there. And Wade makes it clear as clear can be that he considered himself the student and me the teacher. He went so far as to say that, when he first approached me, he was afraid that I would view his request to be able to work with me as an attempt to “steal my thunder.” I didn’t see it that way. But Wade did. That tells the tale.
There are lots of things to reflect on re this reality. Wade got his Ph.D. from a fine institution (Princeton). He SHOULD have known as much as me about Shiller’s work and its implications. Why didn’t he?
He didn’t because of Goons like you. And because of Wall Street Con Men who tolerate Goons like you or who in some cases even encourage Goons like you.
That must stop. The 11-year cover-up of the errors in the Old School safe withdrawal rate studies has caused millions of middle-class people to suffer failed retirements. The losses you have caused with your ruthless and relentless use of the most abusive tactics ever employed on the internet to stop people from enjoying a learning experience has brought on an economic crisis that has already caused significant amounts of political conflict.
Every day that the Ban on Honest Posting continues, your prison sentence grows longer. For what good purpose?
My best and warmest wishes to you and yours, Laugh.
Rob
I am also being right on every point. Your logic and reasoning are sloppy in the absurd.
Take a good long hard look at this sentence you wrote:
“The quotes at the bottom show that not only was I the co-author of that paper, I was the PRIMARY author of that paper.”
Do you really believe this? Wade did give you credit for contributing – as he did several other people – but you believe you authored the paper itself?
I wish you well, but I think you have built an impenetrable prison in your own mind with a sentence as long as infinity.
I am also being right on every point.
You know it all, Laugh.
Once you enter a discussion, all that is left for the rest of us is to bow our heads in shame at our unworthiness of being in the presence of your perfection.
Rob
Your logic and reasoning are sloppy in the absurd.
That explains the 200 endorsements of my work that appear at the “People Are Talking” section of the site (the slider at the top right-hand corner of every page), Laugh.
Those people (including some of the biggest names in the field) are all stone-cold morons.
They should have checked in with you before offering their thoughts.
Rob
Wade did give you credit for contributing – as he did several other people – but you believe you authored the paper itself?
I was the primary co-author. Wade was the secondary co-author.
Wade made a huge contribution. I have said publicly that I believe his work on that paper merits the Nobel prize in Economics. So it is obviously not my intent to suggest that his contributions were not huge.
But he was OBVIOUSLY the secondary co-author. I had already spent 8 years developing the Valuation-Informed Indexing concept when Wade became excited about it and wrote me an e-mail asking if I would be willing to teach him some of what I knew so that he could participate in the writing of breakthrough research. There are scores of e-mails in which Wade makes it 100 percent clear that he views me as the teacher and himself as the student.
And these e-mails were sent in the days before you Goons threatened to send defamatory e-mails to his employer in an effort to get him fired from job in the event that he continued doing honest research. So there is no reason to doubt that Wade was saying what he truely believes in all those scores of e-mails.
Rob
I wish you well, but I think you have built an impenetrable prison in your own mind with a sentence as long as infinity.
I will continue posting honestly on safe withdrawal rates and on other critically important investment-related topics, Laugh.
I think it would be fair to say that John Walter Russell was the finest and most generous person ever to grace any of the Retire Early or Indexing boards (you Goons naturally laughed on the day you learned that he had died an early death). John told me that this would all end better than any of us were able to imagine. It is becoming more and more clear to me with every passing day that John will be proven right re that one as well as on just about every other question to which he addressed himself in his writings and research.
I consider it an honor to be associated in the public mind with people like Wade Pfau and John Walter Russell and Rob Arnott and John Bogle (it was by reading my friend Jack’s book that I learned about the errors in the Old School safe withdrawal rate studies) and to be known as the object of an undying hate in the minds of the sorts of individuals who have put up posts in “defense” of Mel Linduaer and John Greaney, Laugh.
I wish you the best of luck in all your future endeavors.
Rob
But how much of the paper did you actually write? Did you actually write any of it or do you claim to be the author of all material that talks about long term stock timing based on valuations or emotions?
Wade wrote all of the words that appear in the paper.
I don’t claim to be the author of all material that talks about long-term timing based on valuations/emotions.
Robert Shiller is the person who published (in 1981) the research showing that there is zero chance that a Buy-and-Hold strategy can ever work for even a single long-term investor. John Bogle incorporated Shiller’s findings into material that appeared in the book “Common Sense on Mutual Funds.” That material showed that the the Old School safe withdrawal rate studies got the numbers wildly wrong. I reported on that reality on the morning of May 13, 2002.
Hundreds of my fellow community members expressed great excitement over the discussion that followed as a result of my now-famous post. But a number of Buy-and-Holders vowed to shut down the discussion, indicating that they would be willing to burn the entire board to the ground if that is what it took. They followed through on their threats. I was amazed to see what I saw. So I looked around for other sites at which the implications of Shiller’s “revolutionary” (his word) findings were being discussed in depth. I discovered that there were none! So I made a decision to devote the remaining years of my life to making this site the central repository of information and insights relating to the first TRUE research-based model for understanding how stock investing works.
Shiller had not given his model a name. So I did that. I first called it “Rational Investing” but I made a change later to “Valuation-Informed Indexing.” I spent years of my life developing five powerful calculators that exist nowhere else on the internet. I recorded 200 podcasts exploring every aspect of the new model in great depth. I wrote 100 full-length articles on VII and thousands of blog entries and guest blog entries. I published three weekly columns at other sites. I helped John Walter Russell in his research, which I think it would be fair to say is the most important research that has ever been done in this field. My knowledge base naturally over time grew deeper and deeper and deeper. I think it would be fair to say that today I am the world’s leading expert on the question of why Buy-and-Hold strategies are so dangerous and on why our discovery that it is necessary to take valuations into consideration when making any strategic choice is the most important breakthrough in the history of investing analysis.
It’s clear that the fact that I have reached such a high level of expertise in this field bothers you Goons a great deal. I cannot help it, Laugh. I am a highly reluctant investing expert! If others want to take over the top spot, I am 100 percent happy to give up the spotlight. I am not at the top today because I possess the most I.Q. points. There are lots of people with many more I.Q. points still pushing the smelly Buy-and-Hold garbage. Is that my fault?
The deal here is that anyone who possesses a desire to pass me and get to the top will need to stand up to you Goons. I think it would be fair to say that not too many care to take on the job this sunny Fall morning. I WANT TO SEE THAT HAPPEN. I don’t like carrying the responsibilities that come with being in the top spot. I do not have the education or background needed to hold this spot. If you know of someone who longs to take over the top spot, please tell that person that he or she may do so with my blessing. That’s part of what I was trying to groom Wade for. Why the heck do you think I spent so much time giving complete answers to his every question? He showed a little bit of backbone and I thought he might be a good fit for the job. He did too. Until you Goons came on the scene and threatened to send defamatory e-mails to his employer in an effort to get him fired from his job.
You hear me talking about your prison sentence all the time, Laugh. THIS IS WHY.
Once your prison sentence is announced, that will go viral and then Bogle will feel pressure to give his “I Was Wrong” speech. Once Jack gives that speech, no one is going to be afraid to post honestly about safe withdrawal rates or hundreds of other investment-related topics. We are going to be deluged in good, solid, research-based, life-affirming investing advice. I will not be #1 anymore. EVERYONE in the field will be saying the things that I have been saying for 11 years now. So I will not be so special anymore. I will not stand out so much anymore.
We obviously agree that that would be a very good thing. Right?
Now —
How do we make it happen?
It seems to me that you need to go to prison for it to happen. Wade is not going to do honest research again until he feels that it is safe to do so. There are thousands of other researchers in this field who would love to be doing honest research but who do not feel safe doing so and who are not willing to see their careers destroyed just to help out the millions of middle-class people who very, very much need access to honest research in this field. How the heck you do your propose that we persuade these people to step forward?
I say that we can do it by getting Bogle to give his speech. And I say that we can persuade Bogle to give his speech by putting you Goons in prison.
Do you have a different idea as to how we can get to the same place, a place where we all obviously want to be?
If you do, I would sure like to hear it.
My claim is that I have been working harder than anyone else alive on Planet Earth to get corrections made to the errors in the Old School safe withdrawal rate studies for 11 years now. I DID NOT START OUT SEEKING THIS DISTINCTION AND I DO NOT PARTICULARLY WANT TO RETAIN IT. But my exhortations to thousands of people possessing more I.Q. points than I possess have thus far not born good fruit. If you know the secret to getting these people to work up the courage to stand up to you Goons, I would sure like to hear it.
Until then, I remain your humble servant and the leading expert on how stock investing works alive on Planet Earth today (only because I am the only one dumb enough to insist on my right to post honestly despite the brutally abusive tactics employed by the Wall Street Con Men and their Internet Goon Squads to keep the findings of the last 32 years of peer-reviewed academic research from being shared with the millions of middle-class people who very, very much need to know about them).
Yowsa!
Rob
So you didn’t write a word of the paper yet you are the author. OK, makes sense.
That’s how Supreme Court justices do it, Laugh.
Do you think they write all the words that appear under their names?
They hire clerks to do that.
The clerks write the words. The Supreme Court justices DECIDE WHICH WORDS WILL APPEAR.
Wade had to learn about a lot of things to be able to write the words that appeared in our peer-reviewed study.
He knew little about the subject matter. He holds a Ph.D. in Economics from Princeton. But they do not teach Valuation-Informed Indexing in the Princeton Ph.D. program. I wonder why.
So, as each question came up where he needed some background on what the peer-reviewed academic research in this field says, I told him. I wrote many long e-mails in response to Wade’s many intelligent questions about how stock investing works in the real world.
To Wade’s credit, he is a quick learner. He got it. He was jumping up and down when he learned for the first time in his life how stock investing really works. He said that he would be seeking to get our paper published in the Journal of Finance, the #1 journal in the field. He had visions of winning a Nobel prize in Economics for the work we did together. He acknowledged over and over and over again that I deserved the credit for developing the Valuation-Informed Indexing concept and that he was grateful that I had been willing to share with him what I knew and thereby to bring to him a good measure of fame and fortune an the good feeling inside that comes from helping millions of middle-class people learn the realities.
Then you Goons entered the picture. You threatened to destroy Wade’s career in the event that he continued to do honest research. Jack Bogle signaled support (or at least tolerance) for your efforts. So did Bill Bernstein. So did Scott Burns. So did Larry Swedroe.
All of a sudden, Wade was singing a very different tune and receiving offers of big job promotions. I wonder whether he was being honest during the 16 months he spent co-authoring that study with me or if he was being honest when he started singing the praises of Internet Goons John Greaney and Mel Limnduaer, two individuals for whom he expressed contempt in earlier and more innocent days.
I developed the ideas through eight years of 24/7 work on the VII concept. Wade asked to tap into my knowledge so that he could be the co-author of the most important paper published in this field in the past three decades. I agreed and shared everything I knew with him. Wade wrote the words that appear in the study.
We were co-authors. I was the primary author and Wade was the secondary co-author. You Goons were the ones who committed financial fraud and thereby assured yourselves long prison sentences following the next price crash.
I wish you all good things, Laugh.
Rob
We were co-authors. I was the primary author and Wade was the secondary co-author.
So you claim, again providing absolutely no evidence. The paper does not name you as the primary author, or co-author, or even a contributor. Just a vague acknowledgement: “I am also grateful to Rob Bennett for motivating this investigation…”
Let me guess – Goons? Why would anyone just passively submit to having years of work brazenly stolen from them? That’s ultimate wimpy.
Wade was 100 percent up front about giving me full credit for the Valuation-Informed Indexing concept. There was zero problem. He stole nothing. People were obviously going to learn all about me and my web site as the paper we wrote together was publicized on the front page of every newspaper in the country.
The problem began on the day you Goons threatened to destroy his career and he discovered by the lack of reaction from Bogle and Bernstein and Swedro and Burns that you could carry if off.
Now we are all in even a worse pickle than we were before.
Isn’t it always the way?
You start doing one wrong thing. Then you find you need to do a second wrong thing to cover up the first wrong thing. A few years down the road, you are covering up the cover-up of the cover-up of the cover-up.
Yuck!
We are the luckiest generation of investors who ever lived. We are the first investors who have 32 years of peer-reviewed academic research showing us how to reduce the risk of stock investing by 70 percent. We should be living in the greatest period of economic growth in our history instead of enduring the worst economic crisis in our history.
I vote for all the good stuff.
That’s why I vote AGAINST all the Goon stuff.
Take care, old friend.
Rob