Set forth below is the text of a comment that I recently posted to another blog entry at this site:
I think he meant your behavior was overpowering which is a turnoff
I don’t think you are so terribly far off the mark with this, Laugh.
My stuff IS overpowering. I get that.
I am the person who discovered the errors in the Old School safe withdrawal rate studies. I have over 200 endorsements of my work in the slider at the top of every page of my site, some from the biggest names in the field. No other blogger has anything even close to that. I have 5 unique calculators, each of which changes our understanding of how stock investing works in a fundamental way. I am the co-author of the most important piece of research published in this field in the past 30 years, research that shows millions of middle-class investors how to reduce the risk of stock investing by 70 percent. I have 200 podcasts that explore the realities of stock investing from every possible angle. And on and on and on and on and on.
Now THAT’s overpowering.
The odd thing here is that J.D. (and lots of others, to be sure) sees something bad about that. Valuation-Informed Indexing is Jack Bogle’s dream come true. It is the first true research-based strategy. We are looking at good stuff piled on top of good stuff piled on top of good stuff. What the heck is the problem?
The problem is that J.D. has lots of blogger friends who have recommend Buy-and-Hold strategies. It makes those people look bad for millions of middle-class investors to learn what really works. That’s the problem here, Laugh. It’s a turf fight. In ordinary circumstances, J.D. would want to help his readers. But his friends in the blogging community will hate him if he tells the truth. So I have put him (and lots of others, to be sure) in a tough spot. That’s why in this particular case “overpowering” stuff has a negative side to it in the eyes of many. It’s a turf fight, nothing more and nothing less.
Now –
Say that we were all 100 percent cynical people and we didn’t give a darn for whether the lives of millions of people were destroyed or not, all we cared about was making a buck. Would I be a true friend to my Buy-and-Hold pals if I kept everything hushed up?
I would not.
The cover-up cannot continue much longer. The total losses from the Buy-and-Hold Crisis will end up being in excess of $20 trillion. No economic system can survive that big a loss. So we are all going down together if we don’t work up the courage to correct the mistakes that the Buy-and-Holders made. We are ALL winners from having those mistakes corrected.
The mistakes are going to be corrected whether the Buy-and-Holders like the idea or not. Given that the mistakes are going to be corrected, why not just correct them now, when the embarrassment factor for the Buy-and-Holders is a lot less than it will be following the next price crash? That sure sounds like a good idea to me.
The other way to look at it is to consider the opportunities that follow from opening the internet up to honest posting on investment-related topics. We are going to see hundreds of super-successful blogs once people feel safe posting honestly. We are going to see tens of thousands of helpful books published. We are going to see thousands of people establishing successful careers HELPING investors with honest, research-based advice rather than destroying their lives with more of the smelly Buy-and-Hold garbage.
How do you hold that back indefinitely, Laugh? You can’t. If you cannot hold it back indefinitely, you are better off just making the move to the research -based stuff now, before you do yourself more harm. If you’ve got to make the change, make it now, for heaven’s sake! It’s not going to get easier after you cause more human devastation.
The reason my stuff is so overpowering is that we don’t have thousands of people promoting true research-based strategies today. Is that my fault? There is only one way to get from where we are today to where we all want to be tomorrow. My stuff is shocking because people have been afraid to tell the truth and thereby alienate the people pushing Buy-and-Hold. Lift the ban on honest posting and you will have thousands of people promoting Valuation-Informed Indexing all over the internet. No more surprise! No more shock! No more “overpowering”!
The first guy who works up the courage to tell the truth about something as important as stock investing is going to be perceived as “overpowering,” Laugh. There’s no getting around it. You know what the answer is? We all should be working TOGETHER to tell people the truth about stock investing. YOU could build a business telling the truth about stock investing. J.D. could build a business telling the truth about stock investing. Jack Bogle could build a business telling the truth about stock investing. When we are all doing it, there will no longer be anything overpowering or odd or special about it. When everyone else in the investing advice field is aiming to give honest advice, I WILL NO LONGER STAND OUT.
My stuff is as overpowering as all get out. All I intend is for it to be honest. The reason why my stuff stands out so much is that just about everyone else in this field is AFRAID to give honest advice. How about we try holding back a bit on the death threats and the unjustified board bannings and the tens of thousands of acts of defamation and the threats to get academic researchers fired from their jobs? Then we will have thousands of people putting forward honest stuff and my stuff will not stand out so much and I will no longer be perceived as being so darn “overpowering.”
Does all that not make good sense?
Rob
My stuff IS overpowering. I get that.
Your stuff is OVERBEARING. Do you get that?
Hmmm define “stuff”. Do you mean your opinion that valuations should be taken into consideration when setting asset allocation? That’s run of the mill, has been widely known about for decades, and is discussed almost daily on Bogleheads.
Your stuff is OVERBEARING.
Here are four statements, Miasma:
1) The Old School Safe-Withdrawal-Rate studies should have been corrected within 24 hours of when we learned of the errors in them;
2) It was the continued promotion of Buy-and-Hold strategies for decades after we learned of the dangers of them that was the primary cause of the economic crisis;
3) Millions of middle-class people will likely suffer failed retirements as a result of the 12-year cover-up of the errors in the Old School SWR studies;
4) Those who advanced death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs as part of the 12-year cover-up are guilty of multiple acts of financial fraud for which they will be going to prison following the next crash.
Examples of Rob Bennett being “overbearing”?
Or examples of Rob telling truths that our entire society needs to discuss if we are to bring this economic crisis to an end and spread the word about the exciting findings of the last 33 years of peer-reviewed research to millions of middle-class investors?
You know what I think.
Rob
Do you mean your opinion that valuations should be taken into consideration when setting asset allocation? That’s run of the mill, has been widely known about for decades, and is discussed almost daily on Bogleheads.
The research shows that the most likely 10-year annualized return when stocks are priced as they were in 1982 is 15 percent real. When stocks are priced as they were in 2000, the number is a negative 1 percent real.
How much of an allocation change does my good friend Jack Bogle say investors need to make to keep their risk profiles constant when the likely annualized 10-year return drops from 15 percent real to a negative 1 percent real, according to these daily discussions being held at the Bogleheads Forum?
Do the Lindauerheads permit HONEST posting on the valuations question or only b.s. marketing mumbo jumbo that protects the Wall Street Con Men from having to answer for the lies they tell to turn a quick buck?
I was banned for posting honestly on the errors in the Old School SWR studies. Are you saying that the policy of banning honest posting has been overturned? Somehow I feel that I would have heard the news if that were the case.
Just one of those funny feelings that I have been known to experience from time to time.
Rob
Do the Lindauerheads permit HONEST posting on the valuations question or only b.s. marketing mumbo jumbo that protects the Wall Street Con Men from having to answer for the lies they tell to turn a quick buck?
Thousands of posts with many strongly differing opinions on the topic suggest they most certainly do. Assuming you behave like an adult and post respectfully. In fact, I could post your comments about 15% vs 1% expected return rates right now, and I would hardly be banned.
Of course, I’d post respectfully, not boorishly, being open to differing opinions on the matter, and realizing that the future is so random and uncertain that many outcomes are possible.
In fact, I could post your comments about 15% vs 1% expected return rates right now, and I would hardly be banned.
You’d be banned in two seconds flat if you posted a link to The Stock-Return Predictor, which gives people all the numbers they need in any easy-to-access form. Why?
My friend Brian put up a post there when the Wall Street Journal ran an article saying that I was right about safe withdrawal rates and he was banned in two seconds flat.
I think you are probably right that if someone posted on a single occasion the 15 percent and 1 percent numbers, they would not be banned. But if someone made it a consistent practice to provide people the information they need and to answer questions and all that sort of thing, they would certainly be threatened with a banning. If they continued to post honestly in the face of the intimidation tactics, they would be banned. Again — Why?
The test for the Lindauerheards is — Are you helping people to appreciate the dangers of Buy-and-Hold investing strategies? If you say that you personally are using a low withdrawal rate, no one cares. If you point out that the Old School SWR studies get the numbers wildly wrong, you are putting the Buy-and-Holders at risk of being sued for financial fraud and they will take action to stop you from giving people the information they need to protect themselves.
Is it “respectful” to point out that the 12-year cover-up of the errors in the Old School studies is the biggest act of financial fraud in the history of the United States? Is it “adult” to do so? I ask because in other fields of human endeavor it is considered 100 percent adult and respectful to post honestly. I would like to see honest posting permitted in the investing field as well. In fact, I insist on it. I refuse to have my name associated with boards and blogs that demand dishonesty on the SWR matter as the price of admission.
I am 100 percent open to differing opinions on issues that don’t involve numerical calculations. Numerical calculations must be reported honestly and accurately. There is no room for differing opinions on whether a valuation adjustment is included in the Old School studies or not. The Wall Street Journal found no valuation adjustment. The Economist magazine found no valuation adjustment. Wade Pfau found no valuation adjustment. Are we to believe that there is some massive conspiracy here to pretend that there is no valuation adjustment in those studies even though there really is one?
Differing opinions on questions re which there can be reasonable differences of opinion are wonderful. It’s differing opinions that make a board work and that keep everybody honest. So differing opinions on non-calculation issues are a huge plus.
I agree that a variety of future outcomes are possible. My calculators show that as plain as day. All of the research shows that and all of the data shows that.
It’s a mistake to overstate that reality, however. The future is somewhat random but not entirely random. It’s debatable as to whether it is more random than predictable (in the long run) or more predictable than random. I would say that it is more predictable than random. There are reasonable people who would say otherwise. Investors need to hear both sides of the debate to be able to make informed decisions for themselves.
Buy-and-Holders and Valuation-Informed Indexers hold different views as to the extent to which long-term returns are predictable. If I say that long-term returns are predictable with a great deal of precision, I am speaking falsely. But if I say that I believe that returns are no more predictable than the Buy-and-Holders say they are, I am speaking dishonestly.
Shiller showed that returns are MORE predictable than most people believed back in the day when the Buy-and-Hold strategy was developed. It would be a lie for me to say that I do not believe that I learned something from Shiller’s research and from the follow-up research that has been done relating to the same themes that he explored in his research.
ALL posters should be permitted to post their sincerely held views. There should not be even the slightest amount of controversy re this point.
Rob
I would say that it is more predictable than random. There are reasonable people who would say otherwise. Investors need to hear both sides of the debate to be able to make informed decisions for themselves.
That certainly seems like a respectful, as opposed to boorish way of putting it. I could copy and past that sentence 1000 times on various Bogleheads posts and never be banned.
Buy-and-Holders and Valuation-Informed Indexers hold different views as to the extent to which long-term returns are predictable.
Not necessarily. We may both agree that historically speaking, the P/E 10 explains 38% of the variation in US stock returns (that’s mathematical fact). We may both project that into the future. But you may choose to vary your asset allocation based on that, while I don’t.
That certainly seems like a respectful, as opposed to boorish way of putting it.
It’s encouraging to hear you say that, Anonymous.
But you may choose to vary your asset allocation based on that, while I don’t.
I do indeed choose to do that.
I also choose to post honestly about the fact that I do it and about why I do it and about why I recommend that others do it.
My best wishes to you.
Rob
I have over 200 endorsements of my work in the slider at the top of every page of my site, some from the biggest names in the field. No other blogger has anything even close to that. I have 5 unique calculators, each of which changes our understanding of how stock investing works in a fundamental way. I am the co-author of the most important piece of research published in this field in the past 30 years, research that shows millions of middle-class investors how to reduce the risk of stock investing by 70 percent.
How do you feel about people you meet who make such enormously boastful (and in this case easily disprovable) statements? Are you attracted to those people? Do such antisocial behaviors earn them many friends?
Did Jesus talk about his miracles with similar hyperbole?
People don’t like boasting. That’s certainly so.
But those words are required by the job I am doing here, Anonymous.
The Buy-and-Holders are in a trap. When the peer-reviewed research showing they were wrong was published, they were shocked. They found it hard to accept that they were wrong.
Given those circumstances, the best reaction would have been to present their ideas in a more humble way. They could have said: “This is what we think, but there is another school of thought in which good and smart people come to very different conclusions.”
They didn’t play it that way. They elected to double down on the arrogance. So now they are in a fix. The evidence that valuations matter is no so great that they want to acknowledge it and to open the internet to honest discussions and to let people find their way to the truth through the normal means of testing different ideas and determining over time which make the most sense. But they feel that to do that would mean huge legal liabilities given how long the cover-up has gone on. They can see that the cover-up cannot be sustained much longer. But they cannot bear the thought of taking on trillions in legal liabilities or going to prison. They cannot move!
While the Buy-and-Holders are frozen in place, knowledge of the error they made continues to spread. Shiller’s book was a best-seller. It is in most public libraries. It was in the news that he won the Nobel prize. People have heard about the economic crisis and they sense on some level of consciousness that the insane bull market must have had something to do with it.
So it is getting harder and harder to maintain the cover-up. The Buy-and-Holders have had to become more and more brutal in their intimidation tactics to keep everything from falling apart. This general dynamic (not as strong) was in place when I came on the scene on the morning of May 13, 2002.
I never went to investing school. I never managed a big fund. I am not a dummy. I possess at least average intelligence, but not a great deal more. I should not be able to do the things that I have done. I should not be able to revolutionize this field (Shiller was responsible for the revolutionary theory but I am the one who showed what that theory says about day-to-day investing decisions). I shouldn’t have been the one to point out the errors in the Old School SWR studies. Without the massive cover-up, someone else would have done that long before I came on the scene. I should not have been able to serve as co-author of the most important piece of peer-reviewed research published in this field in 30 years. All of that stuff is crazy stuff that in ordinary circumstances never could have happened.
I wasn’t responsible for the crazy circumstances into which I was thrust, Anonymous It wasn’t like I woke up one day and said to myself: “I know what I’ll do, why don’t I go revolutionize the field of stock investing>?”
I was the lead poster at an exciting discussion board at Motley Fool. We had an insanely abusive individual posting at that board. He shoved his discredited SWR study down our throats on a daily basis. I had responsibilities re that board community. I didn’t go looking for trouble. I was backed into a corner and left with no other option but to bring this fellow down or see the entire community go down. So I posted what I knew about safe withdrawal rates (which I learned not because I am a super-genius but because I read things that most people don’t read in the course of planning my own early retirement). That’s what set everything off.
I didn’t expect a 12-year saga. I knew that Greaney would respond in an abusive manner. But we were talking about the calculation of a number. And this was a board filled with people re which the accurate calculation of that number was a matter of great significance. So I figured that I would be in for two days worth of heat, three at the most. I figured that I could handle that if it meant getting the board back on the right track. So I pushed the “Submit” button.
I obviously discovered something that I didn’t expect. I discovered two things, actually. I discovered that a large percentage of the population possesses doubts about the conventional investing advice and a desire to learn about new ideas in this field. Nothing could be more clear from the shower of praise that I saw from hundreds of my fellow community members. And I discovered that the Buy-and-Holders are in great emotional pain because they too feel these doubts but cannot bear to given them serious consideration or even to see others give them serious consideration if they are within hearing distance.
No one ever talks about the intense emotional pain of the Buy-and-Holders. I don’t think there is one article in the literature about it. Nothing in the peer-reviewed journals. No blogs explore the phenomenon. Nothing in the magazines or newspapers. But here it was. I was seeing it with my own eyes. And it obviously was a very important reality. Buy-and-Hold is marketed as a research-based strategy. If it is research-based, it should be lessening investor emotion. But it is doing the opposite. Investors have become MORE emotional in the Buy-and-Hold Era. This got my attention.
It REALLY got my attention on the evening of August 27, 2002. That’s the night that Greaney put forward his first death threats. There were about 50 community members who gave voice to negative feelings about this (that’s roughly the number that endorsed a post by FoolMeOnce saying that the board has become something that no longer merited the support of people with self-respect). But there was another post by Greaney that won 200 endorsements a short time later. So the MAJORITY of the board was fine with death threats if that is what it took to stop people from challenging the Buy-and-Hold dogmas. Yikes!
Forget Shiller! You don’t need data to show that Buy-and-Hold is a big pile of smelly garbage if you have 200 votes for death threats. That was the night that I stopped thinking of myself as a Buy-and-Holder. Buy-and-Hold CANNOT be research-based if it generates that sort of reaction in that many people. It HAS to be emotion-based.
Ever since, I have devoted myself to developing and promoting the Valuation-Informed Indexing concept. Shiller has never even bothered to give a name to his model. It must have a name if it is going to grow. So I gave it a name. And I went about the business of developing it, adding insight upon insight by doing new research or encouraging others to do new research or by thinking through implications on long walks or by talking things over with both experts and ordinary investors on discussion boards or whatever. I learned a lot by recording the 200 RobCasts that I recorded. I would push the “Record” button and, as I talked about one topic, I would find my thoughts wandering to another topic and the next thing you know, I would have a new insight and an idea for a new RobCast! It has been an exciting process.
It shouldn’t have been possible for me to have earned all those accolades. But it WAS possible because I have been exploring The Great Unexplored Continent of Investing Insights. Most people in this field work on the numbers side. The idea is that that is the hard side and so that is what earns you respect. But the numbers stuff has been done to death. It is on the emotions side where all the action is. People trying to advance in this field don’t work that side because it is treated either with contempt or indifference by most of the people who focus on numbers. Because so few have been working it, there are THOUSANDS of low-hanging insights to be picked from the Investor Emotion Trees. I just keep picking them, one after another after another. Why shouldn’t I?
LOTS of people want to get in on the action. My sense is that just about everybody does, including my good friend Jack Bogle. It’s only the brutal intimidation tactics of the Buy-and-Hold Mafia that stop them. People want to mine the insights because they know it will make them rich and famous to do so. But they hold back because the Buy-and-Hold Mafia will destroy their careers if they come up with anything too good. All of the truly good stuff shows how dangerous Buy-and-Hold is. So it’s the good stuff that the Buy-and-Holders hate with a burning hate.
EVERYONE wants to make the transition to Valuation-Informed Indexing. But no one can figure out how to pin the bell on the cat. That’s the state of play in the investing advice field in 2014.
I’m like everyone else. I cannot figure out how to pin the bell on the cat either. But I get it loud and clear that we all must pull together to do so or else go over a cliff. So I am not about to waste my time working a model that has been discredited for 33 years now. If as a society we come to our senses and elect to bring the economic crisis to an end, I have 12 years of work that will help us bring on the greatest period of economic growth in our history. If we elect to go over the cliff, that’s just the way it is. It makes me sad to think that that might happen. But there’s not a thing that I can do about it that I haven’t already tried to do. So it’s one of those things that I just have to accept.
Given that background, it is essential that I quote the amazing outpouring of praise that my work has generated. There is no other blogger on the internet who has won for himself even a fraction of the praise that I have won. Why? Because all those people praising me want to see us get to the other side of the river. They want to come clean. They want to do productive work. They want to help people. They want to join in an effort to bury Buy-and-Hold 30 feet in the ground, where it can do no further harm to humans and other living things.
When I quote the praise that my work has won, I am not bragging about my own accomplishments. I am bragging about the government system under which we live, which permits and encourages such huge breakthroughs. I am bragging about the thousands of fine people who have helped me out every step of the way. I am bragging about the Buy-and-Hold Pioneers, who started out with a wonderful idea and who made hugely positive contributions before their false pride caused them to fall off the right track.
I am bragging about human nature itself! We are NOT doomed to fall into Get Rich Quick thinking over and over and over again. I hear that all the time. People say “why do you fight Rob, don’t you see that people are just weak?” No! People LOVE hearing about true research-based strategies! The only problem today is that they want to hear recognized experts confirm all that I have come up with. Once Bogle gives his “I Was Wrong” speech, my site will be the most popular site on the internet. We have seen huge interest in these ideas at every board and blog at which I have posted for 12 years until you Goons entered the picture to poison things. People WANT to overcome their Get Rich Quick impulse. Once the experts acknowledge their responsibility to help them do so, it’s over. Get Rich Quick/Buy-and-Hold investing is a thing of the past once Bogle gives his speech.
So it is right for me to cite the amazing amounts of praise that my work has won for itself. I am part of a community. Praise for my work is not praise for me along. It is praise for all who have made positive contributions. That’s thousands and thousands of people.
Our story is a positive one. The transition from Buy-and-Hold to Valuation-Informed Indexing is the biggest advance in the history of personal finance. There is nothing else in even a remotely close second place. It wasn’t Rob Bennett alone who made that happen. Robert Shiller played a huge role. John Walter Russell played a huge role. Wade Pfau played a huge role. Jack Bogle played a huge role. Bill Bernstein played a huge role. Andrew Smithers played a huge role. Ed Easterling played a huge role. And on and on and on.
Praise for Rob Bennett’s work is praise for all those people. And praise for Rob Bennett’s work is praise for every middle-class investor who ever expressed a desire for a truly smart and safe and simple way to invest in stocks that works. It’s my desire to give those people what they want and need that drives me. I never would have made it this far without the thousands of kind and warm and generous posts that those people put up in support of my efforts in the face of the most brutal intimidation tactics imaginable from you Goons.
So I will soldier on, Anonynous. And, yes, I will tell the positive side of the tale. You live in hate. But millions of your fellow community members live in love. And love will triumph over hate on the final page of this saga.
How do I know? I know because it always does. The first time hate triumphs is the time we all go down to a dark, dark place.
Not this boy!
No can do!
I can’t go for that!
My best wishes to you, my old Goon friend.
Rob
Boy Rob, you were having a couple of moments of clarity yesterday with talking about others view points. Alas this morning you fell back into full tilt hocomania. At least I think you did. Lord knows I’m not going to read beyond the first sentence. You need help, as I’m sure your family, neighbors, and everyone you interact with can see.
You Goons have a catch phrase that you use on me from time to time: “It’s not what you say, it’s how you say it.”
The Buy-and-Holders don’t mind people saying that they follow other strategies so long as they don’t point out the dangers of Buy-and-Hold. We all have a Get Rich Quick impulse within us. So, as long as the Buy-and-Holders are not called out on the fact that their claim that there is research that supports the idea of not exercising price discipline when buying stocks, their marketing pitch is unstoppable. Everybody is drawn to Get Rich Quick strategies and the Buy-and-Holders tell them that there is actually research supporting them. That’s one heck of a marketing message!
I want nothing to do with it. We are working at cross-purposes, Anonymous.
I have zero problem showing respect and affection for Buy-and-Holders. They have offered us many powerful insights. There wouldn’t be any Valuation-Informed Indexing today had Buy-and-Hold not come first. And of course there are millions of good and smart people who today believe in Buy-and-Hold. I was one of them myself for a long time. So it’s hard to imagine how I could be unsympathetic to the Buy-and-Holders or could try to silence them or anything along those lines.
But, no, I do not for two seconds want to see us as a society remain stuck with all the Buy-and-Hold garbage. We moved forward intellectually 33 years ago. Valuation-Informed Indexing is so far superior to Buy-and-Hold that it is a joke. When we permit honest posting on the last 33 years of research, we reduce risk dramatically while increasing returns dramatically. My job is to help us make that transition. My job is to take us out of the Buy-and-Hold dark ages and into a world in which millions of middle-class investors have available to them the first true research-based strategy, one that actually works in the real world.
Talking about other viewpoints is fine. But my aim is to see that we all achieve that transition from Buy-and-Hold to Valuation-Informed Indexing. ALL of my work is aimed at achieving that goal. Anyone who has somehow gotten the idea that I believe that there is some mystical, magical world in which Buy-and-Hold might produce good results for one or two long-term investors has somehow gotten the wrong idea. I want to see Buy-and-Hold fixed so that it can work in the real world. Valuation-Informed Indexing is Buy-and-Hold with the Get Rich Quick element removed.
That’s where I am coming from, in any event, Anonymous.
Other viewpoints — 100 percent A-OK.
Rob Bennett endorsing Buy-and-Hold — Never going to happen.
All of our problems today are rooted in the tentative way that those who have doubts about Buy-and-Hold express themselves. This is truly dangerous stuff. It has caused millions of failed retirements. It has caused the biggest economic crisis in U.S. history. A good number of people who were friends of mine in earlier days will be going to prison following the next crash because of the tactics they employed to “defend” this Get Rich Quick garbage. Support that? Huh? What? I don’t think so, man.
My best wishes to you and yours, Anonymous.
Rob
So I will soldier on, Anonynous.
Ok, so in other words while you could respect the views of others, interact with them politely, contribute constructively to the conversation, and recognize that the future is a very uncertain place, you’ll choose the path of antisocial boorishness.
Future investment returns are anything but certain, but the future of those who behave as you do toward other humans is quite predictable.
I believe in our system of government, Anonymous.
And our system gives me the right to post honestly re the last 33 years of peer-reviewed research on every board and blog on the internet. And it permits everyone else that same right.
So, yes, I am going to see that right recognized. When I do so, it’s not only my insights that will benefit people. When I am able to post honestly, my good friend Jack Bogle will be able to post honestly too. And my good friend Robert Shiller. And my good friend Wade Pfau. And my good friend Bill Bernstein. And on and on.
We are talking about an amazing amount of leverage. It’s pretty cool to think that one guy whose only claim to expertise in this field is that he figured out how to get his stuff posted to the internet could do so much good for so many people and make so much money for himself doing it.
Our system is a great system. Our system works. Our system is a system worth fighting for.
The future is in many respects uncertain. I’m happy to give you that one.
But I am as certain as it is possible for a human being to be certain that our system works and that that we should be applying the rules of our system to the discussion of investing just as we apply them in every other field of human endeavor. We are in an economic crisis today because we forgot to keep doing that.
And it’s not only the Buy-and-Holders who are responsible. The Valuation-Informed Indexers who behaved too timidly in the face of intimidation tactics of the Buy-and-Holders messed up in a big way too. I hope that I have not as times been so worried about being called “disrespectful” that I was guilty of that sort of thing myself.
The Buy-and-Holders don’t need any more of the phony respect they get from people trying to turn a quick buck and willing to prostitute themselves to do it. I offer the Buy-and-Holders the true respect of someone who believes that deep in their hearts they want to help people and therefore deep in their hearts they want to be called out on their nonsense when someone uncovers it.
I wish you the best of luck in all your future endeavors. That much is for sure.
Take care, man.
Rob
and recognize that the future is a very uncertain place,
If you feel so strongly that the future is so uncertain a place, why don’t you preface every one of your Buy-and-Hold claims with a caution that you could be 100 percent wrong in what you say?
That would help.
And it would help if my good friend Jack Bogle would do that too.
I hope you will consider helping me try to pull Old Saint Jack to a better place.
Rob
you’ll choose the path of antisocial boorishness.
I have never for two seconds bought into the idea that pointing out errors in a retirement study can properly be characterized as “boorishness.”
If I had made an error that was going to cause thousands of my friends to suffer failed retirements, I would want to know about it. I would think of the person who told me about the error as my best friend for life.
I believe that deep in his heart there is some good in John Greaney. So I will continue to call him out on his b.s. just as I would want him to continue to call me out on mine if the tales were turned.
I wish you (and John!) all good things, Anonymous.
Rob
You Goons have a catch phrase that you use on me from time to time: “It’s not what you say, it’s how you say it.”
Why don’t we focus on on the “what you say”, since that’s the substantive part. Are you in any disagreement with mainstream Bogleheads?
Bogleheads agree that historically speaking, valuations explain some of the variation in out of sample stock returns (38% in the case of US stocks over the past few decades, looking at the P/E 10). And you agree, right?
Bogleheads agree that current high valuations mean future stock and bond returns will be lower than average. You agree, right?
Bogleheads agree that the future is unknowable, but if you want to vary your asset allocation based on some valuation metric, that’s fine. You have chosen not to, according to your posts. Others have chosen to. You agree, right?
So, ignoring the “how you say it”, your views on the actual substance are the same as everyone else’s correct? If not, where do you differ on the points above. I’m talking about actual substance, is it relates to investing based on valuations.
If you feel so strongly that the future is so uncertain a place, why don’t you preface every one of your Buy-and-Hold claims with a caution that you could be 100 percent wrong in what you say?
You lost me, what could I be 100% wrong about? The future is an uncertain place. Investing in stocks involves risk, and they may under-perform. What could be wrong with those statements?
I have never for two seconds bought into the idea that pointing out errors in a retirement study can properly be characterized as “boorishness.”
Respectful, and capable of normal human interaction: “Hey, that was an interesting study; it was obviously a lot of work to put together. However, I think valuations are important, too. It would be great if the paper could be expanded to include them. I know that a that would add complexity, maybe I could pitch in a few hundred dollars to help fund it.”
Boorish, anti-social, and destined to be scorned: “That study has an error.”
There are, of course, many studies that do consider valuations, including those from Vanguard. If you think they need to be factored in, there’s no point in dwelling on the studies that don’t.
I believe in our system of government, Anonymous. And our system gives me the right to post honestly re the last 33 years of peer-reviewed research on every board and blog on the internet. And it permits everyone else that same right.
Ok, but this is a constitutional political issue. I was wondering about your investing views.
The violation here is a political violation.
You are entitled to whatever investing views you hold, Anonymous. But there are laws that you must respect in assertion of those views.
Those laws were adopted to protect ALL of us, Valuation-Informed Indexers and Buy-and-Holders alike. Those laws were put in place for a good purpose.
It is not an accident that there is not one web site today other than my own exploring the implications of Shiller’s revolutionary findings. That reality is the result of intimidation tactics employed by people making money from the promotion of Buy-and-Hold strategies. Those people need to be brought to justice for millions of middle-class investors to learn what they need to learn to provide for their retirements.
Advancing a death threat is not expressing a view on investing in an acceptable way.
Demanding an unjustified board banning is not expressing a view on investing in an acceptable way.
Putting forward tens of thousands of acts of defamation is not expressing a view on investing in an acceptable way.
Threatening to get an academic researcher fired from his job is not expressing a new on investing in an acceptable way.
You have ruined million of lives. The people whose lives you have destroyed will ultimately decide on the length of your prison sentence. My role will be to let them know what has been done.
Causing the Second Great Depression at a time when the peer-reviewed research needed for us to stop it is available to us is a political act, not an investing advice act or even an economic act.
That’s my sincere take re this terribly important matter, in any event.
I view your acts as acts with great political significance and I will be contacting politically-oriented people for help dealing with the problem. I haven’t had luck with that approach thus far. But I have hopes that I will see more responsiveness following the next price crash. What will happen remains to be seen. But that’s the path that I will be traveling as we see more and more lives destroyed.
Rob
So, ignoring the “how you say it”, your views on the actual substance are the same as everyone else’s correct?
No.
Every Buy-and-Hold strategic recommendation is rooted in a belief that risk is a constant. That’s Fama. If risk is a constant, Buy-and-Hold is the ideal strategy. I have zero problem saying that. Buy-and-Hold makes sense so long as you believe in what the research said prior to 1981. The problem with Buy-and-Hold is that there is now 33 years of peer-reviewed research discrediting the efficient market concept that is the foundation stone of every Buy-and-Hold strategic recommendation.
Every Buy-and-Hold strategic recommendation is rooted in a belief that risk varies with changes in valuation levels. That’s Shiller. If risk varies, Buy-and-Hold is the purest and most dangerous investing strategy ever concocted by the human mind. The way to help investors earn higher returns while reducing risk is to remind them daily of the dangers of staying at the same stock allocation at all times.
Bogle nailed it when he advised investors to Stay the Course. That is the key to long-term success.
If Fama is right, the way to Stay the Course is to stick to the same stock allocation at all times.
If Shiller is right, the way to Stay the Course is to change one’s stock allocation as needed to maintain the same risk profile in the face of valuation/price changes.
Buy-and-Hold and Valuation-Informed Indexing are OPPOSITE strategies. That reality is the source of all the friction. People have a hard time accepting that such a drastic change is needed. People have spent decades learning one set of beliefs and now they are being told to switch to an opposite set of beliefs. That’s hard. Had Buy-and-Hold never existed, it would be easy. All the evidence supports Valuation-Informed Indexing. But that’s not the way the history of our growing knowledge of how stock investing works played out.
The common theme is that both strategies were intended to be research-based strategies. The research of the past 33 years leads to opposite strategic recommendations than did the research from 1965 through 1980. Valuation-Informed Indexing will replace Buy-and-Hold in time. The longer it takes, the greater the financial ruin we face as a society as a result of the delay in bringing on the change. We all should be united in helping people to understand why it is imperative that we achieve this transition from a strategy that people once believed would work to the first true research-based strategy.
Either the research shows that valuation-based allocation changes are required or it does not. It cannot say both that valuation-based allocation changes are required and also that such changes are NOT required. It is a logical impossibility that both Buy-and-Hold strategies and Valuation-Informed Indexing strategies could work.
We do not all agree today re which model works. But there should be no dispute as to the reality that these two models proceed from OPPOSITE premises.
Rob
Respectful, and capable of normal human interaction: “Hey, that was an interesting study; it was obviously a lot of work to put together. However, I think valuations are important, too. It would be great if the paper could be expanded to include them. I know that a that would add complexity, maybe I could pitch in a few hundred dollars to help fund it.”
Boorish, anti-social, and destined to be scorned: “That study has an error.”
There are, of course, many studies that do consider valuations, including those from Vanguard. If you think they need to be factored in, there’s no point in dwelling on the studies that don’t.
We couldn’t possibly disagree more, Anonymous.
I pointed out the error in Greaney’s study on the morning of May 13, 2002. If he had corrected the error within 24 hours, he wouldn’t be on his way to a prison cell today. Neither would you be on your way to a prison cell. We wouldn’t be in an economic crisis today. We would all be Valuation-Informed Indexers today. We would have successfully buried Buy-and-Hold 30 feet in the ground, where it could do no further harm to humans and other living things. All of the problems we face today stem from the fact that Greaney failed to correct his study within 24 hours of learning of the errors in it.
AND from the failure of the rest of us to demand that he do so.
Saying that it is okay not to correct the errors in a retirement study is not an act of charity. It is an act of cowardice. It is the shame you feel as a result of your cowardice that explains the hate you bring to every comment you post here. You pretend to hate me. But the real source of the hate is the cowardice you see deep within yourself each time you take note that 12 years later you still have not worked up the courage to demand that Greaney correct his study immediately.
That’s the dividing line.
The Valuation-Informed Indexers say that retirement studies should report the numbers honestly and accurately.
The Buy-and-Holders say that we should engage in an endless parade of abusive acts to cover up the errors and thereby to keep the Buy-and-Hold “idea” alive another day, another week, another month, another year.
I would be grateful for anything you could do to spread the word all over the internet that I have been the lead voice calling for CORRECTIONS of the errors in the Old School SWR studies for 12 years now. Every little bit helps.
ALL studies must include valuation adjustments, not some. The very fact that you suggest that it might be acceptable for some researchers to fail to include valuation adjustments in their studies highlights why we are in an economic crisis today. Shiller didn’t publish his “revolutionary” (his word) research last week or last month or last year. He published it in 1981.
Any researcher who is 33 years behind in his reading of the peer-reviewed research in this field should be called out on his incompetence and on his possible involvement in a massive act of financial fraud. It shouldn’t be just me calling out the Buy-and-Holders. We ALL should be 100 percent united in doing that. That’s how we get our country back.
I wish you all good things.
Rob
You lost me, what could I be 100% wrong about? The future is an uncertain place.
The future is an uncertain place. But there is zero legitimate cause for anyone familiar with the last 33 years of peer-reviewed research to ever put forward a word of support for the Buy-and-Hold “strategy.” This strategy has become popular four times in U.S. history and it has caused an economic crisis on each of those four occasions.
It turns out that not only is Get Rich Quick not the answer. Get Rich Quick is actually the problem.
Rob
Ok, Rob, thanks for the replies. I was able to pick out a bit of substance there. I believe it boils down to labeling.
Buy-and-Hold and Valuation-Informed Indexing are OPPOSITE strategies.
Then I think we need a label for what everyone on Bogleheads does — let’s call it Strategy B. Strategy B says: “Historical data shows valuations explain some of the variability in future stock returns. If I choose to, and it makes sense for my circumstances, I may vary my asset allocation based on them.”
What do you think of Strategy B? Since it sounds like what you employ personally, and what most other investors (including myself) use, isn’t this a general system we can all agree on? If now, how is it flawed?
I agree that Strategy B is what most people follow today, Anonymous.
I certainly have no objection if people follow it. People should follow what they believe in. Lots of people believe in what you call “Strategy B.” They are right to follow it.
I don’t follow Strategy B. And it’s not true that all Buy-and-Holders follow Strategy B. I agree with you that most do. But I don’t believe that John Greaney follows Strategy B. I don’t believe that Eugene Fama follows Strategy B. Greaney and Fama are Buy-and-Hold purists. I am a Valuation-Informed Indexing purist.
The only problem I would have with Strategy B being “a general system we can all agree on” is if making that the general system means that the Buy-and-Hold purists and the Valuation-Informed Indexing purists cannot speak their minds.
We do not today know all there is to know about how stock investing works. Perhaps the Valuation-Informed Indexing purists are right. Perhaps the Buy-and-Hold purists are right. Perhaps the Strategy B people are right. Members of all three groups should express their sincere views and members of the other groups should show them respect when they are speaking. In time, one of the three groups will win the day. But we are just not there yet.
You are saying something important when you say that Strategy B is the most popular belief system today. That really is so. The problem for me as a Valuation-Informed Indexer is that most people view Strategy B as an offshoot of Buy-and-Hold and view both Strategy B and Buy-and-Hold as “acceptable” strategies. Valuation-Informed Indexing, in contrast, is viewed as “out there” and hard to accept.
Valuation-Informed Indexing will not become more popular over time unless people hear about it and are able to ask questions about it. So I need to open up space for debate over Valuation-Informed Indexing at every board and blog. I have no intention of closing up space for Buy-and-Hold or for Strategy B when doing that. My intent is a positive one, not a negative one. I am trying to add something, not to put an end to something (except to the extent that that something tries to put an end to Valuation-Informed Indexing before it even has a chance to grow into something big).
I view this as an encouraging post. If you are checking with me as to whether I am okay with the idea of all “sides” taking a less dogmatic position re what they believe in, I support that effort 100 percent and want to do anything in my power to see that it is successful.
I don’t personally believe that Strategy B is the right answer in an ultimate sense. But it IS more popular than either of the two purist approaches and it is also less dogmatic than either of the two purist approaches, which is a plus from a process standard. If there is ever going to be a time when large numbers of people are going to become Valuation-Informed Indexers, there probably is first going to need to be a time when there is widespread support for Strategy B.
It is a lot easier to make the shift from Buy-and-Hold to Strategy B than it is to make the shift from Buy-and-Hold to Valuation-Informed Indexing. And it is a lot easier to make the shift from Strategy B to Valuation-Informed Indexing than it is to make the shift from Buy-and-Hold to Valuation-Informed Indexing.
Helpful post. I hope we can work together to use it to take us all to good places.
Rob
I certainly have no objection if people follow it. People should follow what they believe in. Lots of people believe in what you call “Strategy B.” They are right to follow it.
I don’t follow Strategy B. And it’s not true that all Buy-and-Holders follow Strategy B. I agree with you that most do. But I don’t believe that John Greaney follows Strategy B. I don’t believe that Eugene Fama follows Strategy B. Greaney and Fama are Buy-and-Hold purists. I am a Valuation-Informed Indexing purist
Thanks for you reply, Rob. I agree – we are making progress. I have a couple of minor nits with your post (mainly that you’re a VII “purist”, since you’ve never varied your allocation, and stated you didn’t in 2008-09 due to considerations beyond valuations. That’s the very definition of a Strategy B guy like me). But hey – call yourself whatever you want, I’ll give it to you, let’s shake hands and agree that most educated investors, including you and me, have very similar opinions regarding valuations and asset allocation. There are many Bogleheads threads that back this up.
With the investment aspect sewn up, let’s turn to the other area of your writings:
Where you disagree with most people seem to be in the legal arena. You want the courts (I guess, or Congress?) to compel anyone who starts a website to allow you to post there. You want to require everyone to consider valuations when investing. You want to ban SWR research if it does not factor in valuations. Etc. Generally, you want changes to existing laws.
Does this sound right?
let’s shake hands and agree that most educated investors, including you and me, have very similar opinions regarding valuations and asset allocation. There are many Bogleheads threads that back this up.
We don’t agree, Anonymous.
Everyone says that valuations matter. We agree re that much.
But different people have ended up in very different places. Greaney has been going with a 90 percent stock allocation for a long time. I have been going with a 0 percent stock allocation for a long time. That’s a big spread!
People need to know why the spread is so big. People need to hear both sides of the story.
Fama and Shiller both won a Nobel Prize last year. They have OPPOSITE views on how stock investing works. Fama’s ideas have been pushed relentlessly for decades now. The implications of Shiller’s ideas are virtually unknown. That’s why my stuff generates such strong reactions. People are shocked to learn about the implications of Shiller’s research because there is no other site exploring the implications of his research in an in-depth way.
We need to change that. We need to get Shiller’s ideas out before every middle-class investor.
Then the many people who already say that valuations matter will know what it means in a practical sense for valuations to matter. How much of an allocation is required to keep one’s risk profile constant? Most investors who say the words “valuations matter” don’t know the answer to that one. So, no, most investors do NOT have similar opinions on asset allocation. Most investors are not sufficiently educated as to what the last 33 years of peer-reviewed research says to even have an informed opinion on this question!
Rob
Where you disagree with most people seem to be in the legal arena. You want the courts (I guess, or Congress?) to compel anyone who starts a website to allow you to post there. You want to require everyone to consider valuations when investing. You want to ban SWR research if it does not factor in valuations. Etc. Generally, you want changes to existing laws.
I don’t want to commit financial fraud. I don’t want you to commit further acts of financial fraud. And I don’t want others to commit financial fraud.
I would like to see those who have already committed acts of financial fraud (that’s you, Anonymous!) to do what they can do to get their prison sentences reduced a bit. I would be happy to help them. And I would like to see lots of my fellow community members offer to help them as well.
It obviously would be an act of financial fraud for me to say that I believe that the Greaney SWR study gets the numbers right. So I don’t want to go there.
It obviously was an act of financial fraud for you and the other Goons to threaten to get Academic Researcher Wade Pfau fired from his job if he did not agree to stop publishing honest research on the dangers of Buy-and-Hold. It was obviously an act of financial fraud for Wade to agree to do so.
The 12-year cover-up of the errors in the Old School SWR studies is the greatest act of financial fraud in the history of the U.S. I want no part of it. The only way I want my name associated with it is as the #1 person posting in OPPOSITION to continuation of the cover-up.
I’ve said all this before. Many times. You are playing a stupid game in pretending that you don’t know my position. Your stupid games do not help. They hurt.
Rob
I don’t want to commit financial fraud. I don’t want you to commit further acts of financial fraud. And I don’t want others to commit financial fraud.
Ok, but can you describe specifics, like those I posted? “Fraud” doesn’t tell me much. What changes do you want to see? What was wrong about what I said?
You are playing a stupid game in pretending that you don’t know my position. Your stupid games do not help. They hurt.
I don’t know your position at all re: my specific questions. Otherwise I wouldn’t be asking.
The questions you posted above are idiotic.
If you post real questions, I will respond.
To respond to that garbage encourages more of it. And more of that stuff hurts all of us.
If you don’t want to have a serious conversation, we can wait until we see the next price crash and see how things go then. That’s your call.
Believe it or not, I wish you all good things.
Rob
Rob,
When your comments are based on lies and exaggerations, you will continue to see the same lack of results you have seen for the last 12 years. That is why you life consists of living as an internet troll in you little Virginia house versus living in the real world.
The real world for investors is a far better place than it was in the days before Nobel-Prize Winning Economist Robert Shiller published his “revolutionary” (Shiller’s word) research, Anonymous.
I am going to continue doing my best to get the exciting news about Valuation-Informed Indexing out to the millions of middle-class people who need to hear about it to have any realistic hope of effectively financing their retirements.
I naturally wish you the best of luck in all your future endeavors, my long-time Goon friend.
Rob
The questions you posted above are idiotic.
They certainly weren’t meant to be. I was trying to engage you in a meaningful, respectful way. You’ve said you want some changes in society, and I simply wanted to understand the mechanics of that. It’s a question anyone would ask.
I don’t care much about the legal/political angle anyway, however. I simply wanted to know your views on valuation adjustments. They sound identical to mine, and most to people’s.
I don’t know a single person that says one should never, ever adjust their AA based on valuations (“Buy and Hold purist” in your vocab). And I don’t know a single person that says you must always, always, constantly adjust your AA based on P/Es (“VII purist” in your vocab).
There’s only one opinion, which everyone shares, including Mr. Bogle. And that is Strategy B above. Extreme, opposite positions are just straw men.
We disagree, Anonymous.
The idea that the market is efficient was once a real thing. There were many serious people who believed this. If the market is efficient, Buy-and-Hold is the ideal strategy. There are legitimate reasons why Buy-and-Hold became the dominant strategy.
Shiller’s research changed that. Shiller showed that risk is not stable but variable. That means that investors MUST change their allocations in response to valuation shifts. There can be legitimate differences of opinion re how much they should change their allocations. But allocation changes are absolutely required at some point.
The problem we have today is that few investors know when the allocation changes are needed or how great they need to be or what the consequences will be if they are not made. You say that everyone believe in “Strategy B.” Most people really do believe in something in the middle of the two extremes. That really is so. But most people do not have much effective guidance available to them to help them decide when to make allocation changes and how great the changes they make should be.
Answering those questions is the future of investing analysis. Getting your stock allocation right is the most important thing. It is 80 percent of the game. If you get that right and get everything else wrong, you are likely to do well in the long run. If you get that wrong and get everything else right, you are likely to do poorly in the long run. Investors desperately need guidance on how much to change their stock allocations in response to valuations shifts and there is very little guidance available today.
The reason why there is so little guidance on this critical question is that it makes the Buy-and-Holders feel bad for them to see the opportunities they have missed. We have to get past this. It is imperative. We have millions of middle-class people charged with the responsibility of financing their own retirements who have no means by which to learn what the last 33 years of peer-reviewed research says on this question.
I watched the first episode of Season Seven of Mad Men last week and then looked on the internet for commentary. There was more top-level commentary on that episode of a television show available on the internet within 24 hours of the ending of the show than there is on the implications of Shiller’s revolutionary finding 33 years after it was published. That is downright scary. This situation must change. Investors MUST be provided the information they so desperately need.
I care about the Buy-and-Holders. It is not my desire to hurt their feelings. But they end up experiencing MORE hurt feelings in the end by being denied the information they need. So even the Buy-and-Holders are being hurt by the Ban on Honest Posting. It’s a situation that must change. No one else has stepped forward to lead the charge. So I guess I have been elected.
I am going to continue to give it my best shot. I can do no more and I can do no less.
That’s pretty much the story here.
My best wishes to you and yours.
Rob
That means that investors MUST change their allocations in response to valuation shifts
But neither Shiller nor any other serious person ever made such a statements. And you broke this rule yourself, maintaining the same allocation through the dramatic valuation extremes of 2001 and 2008-09.
Shouldn’t whether or not to adjust valuations be a personal choice? After all, the investor earned his money, not you. America’s a free country, where people can invest as they choose. Don’t you think?
But most people do not have much effective guidance available to them to help them decide when to make allocation changes and how great the changes they make should be.
I don’t think most people have effective guidance about investing in general. But I don’t think there’s any special level of ignorance regarding valuations. Shiller’s a pretty famous guy. 3,000+ Bogleheads threads about him! If you want to popularize his views, though, knock yourself out.
So even the Buy-and-Holders are being hurt by the Ban on Honest Posting.
But I don’t see such a ban – valuations are discussed everyday on Boglehead’s. Wheres the ban? I simply don’t get it. You seem to be making statements in your last post that fly in the face of reality.
But neither Shiller nor any other serious person ever made such a statements.
If it were not for the Buy-and-Hold Mafia and its intimidation tactics, there would be thousands upon thousands upon thousands of people making such statements today. If we imposed career death on anyone who said that it’s a good idea to try to quit smoking, there would be no one saying today that it is a good idea to try to quit smoking. Fortunately for us, the Tobacco Mafia does not possess as much power or as much money as the Buy-and-Hold Mafia. You have no idea how many people would be offering good investing advice today if the Wall Street Con Men and their Internet Goon Squads knocked off the funny business.
And you broke this rule yourself, maintaining the same allocation through the dramatic valuation extremes of 2001 and 2008-09.
This is Goon Talk. There is never a need for a Valuation-Informed Indexer to make quick allocation changes. We always have lots of time to think things over. Stocks offered a strong value proposition for a number of months in early 2009. The research shows that I would have likely done well had I bought stocks at that time. The research ALSO shows that I would have liked done well had I held off buying stocks at that time. I chose to do well under the second approach rather than the first. Stock prices are not going to stay at reasonable levels for a few months. They ALWAYS stay at reasonable levels for a long time. I will have many, many opportunities to buy at the prices that applied in early 2009 and at prices well below that.
And you know all this because it has been discussed on hundreds of earlier occasions. Why then do you elect to engage in deception? Because you feel that you have no hope of prevailing in the debate if you participate honestly. That’s what believing in Buy-and-Hold has brought you to. That’s what happens when you go with your emotions rather than your reason when deciding on an investing strategy for your retirement money. Not this boy.
Shouldn’t whether or not to adjust valuations be a personal choice?
Yes.
And it should also be a personal choice whether to engage in financial fraud and go to prison for it. No?
But I don’t think there’s any special level of ignorance regarding valuations.
If there weren’t a special ignorance, the errors in the Old School SWR studies would have been corrected within 24 hours of the time I pointed them out. The majority of the Motley Fool community would have demanded it.
Shiller’s a pretty famous guy. 3,000+ Bogleheads threads about him!
And Bogle today pushes the same investing advice that he pushed in the years before Shiller published his revolutionary research. We don’t need 3,000 threats filled with deceptions. One honest thread would be better. To have an honest thread, we need to permit people who have explored the implications of Shiller’s research and who have the guts to tell people about them to appear at the site. I’m happy to do the job. You know what my good friend Jack thinks of that idea.
If you want to popularize his views, though, knock yourself out.
Will do, Anonymous,
News of your trial is going to go viral on the internet. That publicity is going to help a lot. It’s not the way that I would have chosen to spread the word. But I can live with it. What matters to me is that I get the word out to every one of the millions of middle-class investors whose lives are in the process of being ruined.
You seem to be making statements in your last post that fly in the face of reality.
Reality changes. What we know about investing today is not the same as what we knew about investing prior to the publication of Shiller’s revolutionary findings of 1981. It may be that it will take a prison sentence for us to get news of that change in the realities out to the entire world. I hate thinking that it has to be done that way. But this is bigger than me. If that’s the way that it has to be done, I just have to accept that that’s the way that it has to be done.
I know which side I am on. I have never had two seconds of doubt in my mind re that one. I am on the side of the millions of middle-class investors. When it is possible to help you out without betraying the millions of middle-class investors, I am on your side as well. But if the words that I collect at this site cause a prison sentence for you while also freeing the millions of middle-class investors from the ignorance they are condemned to live in for so long as the Ban on Honest Posting remains in place, I have no choice but to accept that that’s the way it has to be for reasons that I will probably never fully understand.
Time will tell the tale, Anonymous.
I wish you the best of luck with all your future endeavors, in any event.
Rob
If it were not for the Buy-and-Hold Mafia and its intimidation tactics, there would be thousands upon thousands upon thousands of people making such statements today.
Rob, grand conspiracy theories are an indicator of mental illness, nothing more.
The research shows that I would have likely done well had I bought stocks at that time. The research ALSO shows that I would have liked done well had I held off buying stocks at that time.
OK, sounds like your strategy involves buying an holding through even the lowest valuations in decades. Makes you sound like a Buy and Hold purist, not the Strategy B guy I was hoping you were.
They ALWAYS stay at reasonable levels for a long time.
Rob, the future won’t ALWAYS be like the past. Markets move based on new information and investor insights. It’s a random place.
And Bogle today pushes the same investing advice that he pushed in the years before Shiller published his revolutionary research.
What Bogle advises is exactly what you’ve been doing for 20 years – setting an allocation plan that meets your unique needs, and sticking to it. What do you want Bogle to say exactly, that one might vary their allocation as certain valuation extremes? I’m sure he’d be fine with that. His strategy does that anyway by rebalancing.
Reality changes.
Exactly, which is why humility regarding the future is an absolute must. Vanguard reports the P/E 10 explains just 38% of future stock returns, leaving 62% unaccounted for, for example.
But this is bigger than me.
You might want to step back, maybe ask some friends and family members, and assess how many of your theories about the future are “bigger than you”, and how many only exist in your head. Tip: If you can’t link to a NYT or WSJ article about it, it probably doesn’t exist in the wider world.
Rob, grand conspiracy theories are an indicator of mental illness, nothing more.
I pointed out the errors in the Old School SWR studies in a post dated May 13, 2002, Anonymous.
Today’s date is April 21, 2014.
Not one of the studies has yet been corrected.
That tells the tale.
I don’t call it a “grand conspiracy.” I think it would be reasonable to call it a “conspiracy of ignorance.” That’s something different than what people signify when they use the phrase “grand conspiracy.” There were no people who met in a smoke-filled room and agreed to give bad investing advice until the U.S. economy collapsed.
That said, the reality remains that today’s date is April 21, 2014, and not one of the Old School studies has been corrected as of this morning.
That’s a big problem.
It’s not just that we are going to see millions of failed retirements. That part alone constitutes one of the biggest social crises we have seen as a nation. We are going to have millions of old people left homeless because the Big Shots in The Stock-Selling Industry were not honest enough to acknowledge a mistake they made for 33 years after the peer-reviewed research uncovered it. We obviously cannot as a society leave those people homeless. So there is going to be a government bailout. That is going to explode the Federal budget deficit at a time when most people believe that we should be trying to lower it. This part of the question alone constitutes a catastrophe.
But the massive bailout that will come about as result of the millions of failed retirements is the relatively SMALL problem here.
The bigger problem is the hundreds of people who have participated in the 12-year cover-up, the biggest act of financial fraud in the history of the United States. My good friend Jack Bogle knows about this. He has done nothing. Motley Fool knows about this and has done nothing. Index Universe knows about this and has done nothing. Morningstar knows about this and has done nothing. Lots of my blogger friends know about this and have done nothing.
I am telling, Anonymous.
I only have two choices. I can participate in the cover-up myself. Or I can tell. Participating in the cover-up myself means that I go to prison too. ZERO INTEREST. Telling means that a good number of my friends go to prison. I don’t like that outcome. But that is what I have been left with, presuming that I don’t want to go to prison myself. So we are back to ZERO INTEREST.
You call it whatever you like. Call it a conspiracy if you must. Call it a Conspiracy of Ignorance if you want to be more accurate. Call it something altogether different if doing so makes you happy.
But please don’t ever pin any hopes on the thought that I might add my name to the long list of people now associated with this massive act of financial fraud.
I am telling.
If you can stop me, stop me.
If you cannot stop me, word will get out.
That’s where it stands. There will be no negotiation on this point.
I naturally wish you all good things.
Rob
Rob, the future won’t ALWAYS be like the past.
Stocks may continue to perform as they always have in the past or they may not.
But it is an act of financial fraud to say that you are telling people how stocks will perform in the future presuming that they perform in the future as they always have in the past while leaving out any reference to what the last 33 years of peer-reviewed research tells us about how stocks have always performed in the past.
I will have no part of it.
I will tell.
That’s the deal here.
Rob
Markets move based on new information and investor insights. It’s a random place.
Not in the long term, it’s not.
Not according to the last 33 year of peer-reviewed research in this field.
Rob
What do you want Bogle to say exactly, that one might vary their allocation as certain valuation extremes? I’m sure he’d be fine with that.
Bogle says that the most that anyone should change his stock allocation at valuation extremes is 15 percent. He argues that even that much of a change is not a particularly good idea. But he says that a 15 percentage point allocation change is acceptable at the height of a massive bubble.
The most likely annualized 10-year return when stocks are priced as they were in 1982 is 15 percent real. The most likely 10-year annualized return when stocks are priced as they were in 2000 is a negative 1 percent real. An 80 percent stock allocation makes sense in the first scenario. A 20 percent stock allocation makes sense in the second scenario.
Going from an 80 percent stock allocation to a 20 percent stock allocation is a change of 60 percent, not a change of 15 percent. Bogle’s number is off the mark by 400 percent.
That’s not acceptable. It’s not a close call.
The most charitable thing that one could say about Bogle’s number is that he pulled it out of his backside, that he never even bothered to look at the data when giving that number. If that’s the case, he needs to say that. Millions of middle-class people look up to Bogle and expect him to give reasonable investing advice. He dropped the ball re this one in a major way.
And everyone in this field should have been pointing this out going back to the day he first dropped the ball, which was many years ago. Money magazine should have run a cover story pointing out how Bogle dropped the ball. There should be threads at the Bogleheads Forum on a daily basis reporting on how Bogle dropped the ball. There should be bloggers writing articles explaining how he dropped the ball and demanding that he correct the error.
Why are we not seeing that, Anonymous?
We are not seeing it because Bogle has misled millions of investors into believing that the smelly Buy-and-Hold garbage can work. Those people are scared to death of what the research shows. So they become upset when anyone reports honestly and accurately what the research shows. So those whose primary goal is to turn a buck keep it zipped re what the last 33 years of research shows. And we all continue our journey down, down, down.
I ain’t going there, Anonymous.
I never went to Investing School. I never managed a big fund. I acknowledge right up front that I have been wrong about important things before in my life and that it is entirely possible that I am wrong again. I acknowledge that, if I were, I would probably be the last to know.
But I am not going to post dishonestly re the numbers that people use to make important investing decisions. It is not going to happen. Not in 12 years, not in 12 billion years.
Bogle pulled that number out of his backside and he has hurt millions of people by failing to say so. People hear that number and they presume that there is some sort of research or data or expertise or logic behind it. And there is none. It is just a number that one of the Wall Street Con Men pulled out of his backside. Nothing more and nothing less.
I love Jack Bogle. I have learned many important things from him. I learned about the errors in the Old School SWR studies by reading his book. Valuation-Informed Indexing is a bunch of Bogle’s ideas combined with a correction of the one huge mistake he made and has refused to correct for the 33 years since it was brought to light by the peer-reviewed research. It gives me a great feeling of pride to know that I have accomplished what Bogle set out to accomplish as a young man and failed to accomplish at the time because the research he needed to pull it off had not yet been published. I look forward to the day when I can stand next to Old Saint Jack on a stage and talk honestly about what we know about how stock investing works and have him helping out and feel free to give him the credit for all the wonderful insights for which he truly is responsible.
But I want nothing to do with a massive cover-up that in all likelihood is going to end with my good friend Jack being disgraced and humiliated and possibly being sent to live his final days in a prison cell.
Find someone else, you know?
I can’t go for that.
No can do.
It’s not my particular cup of tea.
It’s not a close call.
Rob
His strategy does that anyway by rebalancing.
It does not.
Rebalancing is staying at the same stock allocation.
The last 33 years of peer-reviewed research shows that investors must CHANGE their stock allocations in response to big valuation shifts to have any realistic hope of achieving long-term investing success.
To say that rebalancing can work in the year 2014 is a LIE. I want no part of it.
Many of the people who advocate rebalancing do not appreciate this. I think it is possible that NONE of the people who advocate rebalancing appreciate this.
It is true all the same. Or at least it is true that this is what the last 33 years of peer-reviewed research tells us.
All of the people who today unknowingly repeat the lie that rebalancing can work would be spared that embarrassment if honest posting were permitted at every investing board and blog on the internet. It is by permitting honest posting that we all learn what we do not today know and come up to speed on the far-reaching implications of Shiller’s revolutionary findings of 1981.
We need to permit honest posting. This is 100 percent imperative.
Or at least that’s my sincere take re this terribly important matter.
Rob
Exactly, which is why humility regarding the future is an absolute must.
Re this one we are in 100 percent agreement.
It is not an act of humility to ban honest posting on the findings of the past 33 years of peer-reviewed research.
Rob
Vanguard reports the P/E 10 explains just 38% of future stock returns, leaving 62% unaccounted for, for example.
I am not agreeing or disagreeing with the 38 percent number for purposes of this post. For purposes of this post, it doesn’t matter whether the number is accurate or not.
Say for purposes of this discussion that that number is correct. That 38 percent is the only factor under control of the investor. The investor cannot influence the 62 percent of unknown factors. He has to focus in on what he controls. He controls the 38 percent. He can elect to make the necessary changes in his stock allocation or he can elect not to do so. That’s the difference between having an excellent chance at long-term success as an investor and having virtually zero chance at long-term success as an investor.
If the Vanguard study is right, every investor on the planet should begin this morning making changes in his or her stock allocation in response to big valuation shifts.
To get the word out, we need to open every board and blog on the internet to honest posting.
The Wall Street Con Men aren’t going to like it. But that’s too darn bad, isn’t? There are millions of middle-class retirements at stake.
Rob
I don’t call it a “grand conspiracy.” I think it would be reasonable to call it a “conspiracy of ignorance.”
You lost me. You say there’s a mafia intimidating thousands of poeple. This can’t be ignorance. It has to be people doing something somewhere. Do you have any proof of this (cite the NYT, WJS or some other reliable news source?)
That said, the reality remains that today’s date is April 21, 2014, and not one of the Old School studies has been corrected as of this morning.
But, don’t you agree that this is a free country, and folks can publish blogs or papers or whatever including whatever factors they want? I’d never force you to include the effect of, say, interest rates in every post.
Bogle says that the most that anyone should change his stock allocation at valuation extremes is 15 percent.
But isn’t this a free country, where Bogle or anyone else can form and express any opinion they choose? Especially given that the future is such a random and unknowable place.
It seems the beauty of America is, to quote Patrick Henry : “I may not agree with what you say but I will fight to the death your right to say it?” Can’t you have your view, and give others the freedom to have theirs?
Tip: If you can’t link to a NYT or WSJ article about it, it probably doesn’t exist in the wider world.
If you take a look at the “People Are Talking” section of the site, you will come across a quote in which Bret Arends says in the pages of the Wall Street Journal that the Wall Street Con Men pushing Buy-and-Hold strategies 33 years after the peer-reviwed research showed that there is zero chance that they could ever work for even a single long-term investor are “leaving out half the story.”
Arends is saying that those pushing Buy-and-Hold today are involved in a massive act of financial fraud. He doesn’t use the blunt language that I do because he knows what would happen to his career if he did so. But “leaving out half the story” is financial fraud. The millions of people who have never heard the other half of the story are suffering in very serious ways. It was leaving out half the story that caused our economic crisis. Millions of people are unemployed today because of the decision by the Wall Street Con Men to leave out half the story of what the peer-reviewed research in this field tells us about how stock investing works.
This site tells the other half of the story, the half that the Wall Street Con Men leave out of their articles and speeches and studies.
Good for me for telling the full truth about these matters. I expect to become one of the richest men in the United States following the next price crash, when the massive act of financial fraud is exposed for all to see. I will offer no apologies for my the massive wealth I will have attained at that time. I will have earned it. There are millions of middle-class people who very much need to hear the full story of how stock investing works and I intend to bring it to them. And under our system I should be compensated in a huge way for being the first person to have the guts to do what has long needed to be done.
Those who are leaving out half the story while pretending to be “experts” are committing crimes under the laws of the United States. I am telling.
My best wishes to you and yours, Anonymous.
Rob
You say there’s a mafia intimidating thousands of people. This can’t be ignorance. It has to be people doing something somewhere.
It’s mostly ignorance. There are people doing things to perpetuate the ignorance, that much is fair to say. But ignorance is the driver here. The people who are engaging in corrupt and fraudulent acts do not appreciate the full extent of the harm they are doing. They are ignorant of how much harm they are causing.
We did not possess full knowledge of how stock investing works until Shiller published his breakthrough research in 1981. Had the Stock-Selling Industry not already spent millions of dollars promoting Buy-and-Hold strategies, that research would today be universally regarded as the biggest advance ever achieved in personal finance. But that’s not the way it played out. The industry HAD already spent millions promoting Buy-and-Hold, the OPPOSITE of what works, according to Shiller’s breakthrough research. Thousands of people in this field felt that keeping their high-paying jobs meant keeping millions of middle-class investors in the dark about how stock investing really works. If word got out re what the research says, they would not be viewed as “experts” since they have gotten it wrong for a long, long time.
We have lots of multi-millionaire “experts” putting their self-interest above the needs of their clients and readers. Is it really so hard to believe what has happened? Humans are weak. Tempt a plumber with a million dollars for selling out his clients and he might take that dark path as well. Lots of us would engage in corrupt acts if we could get away with it.
The difference in this field is that there is so much money in it. The Wall Street Con Men have lots of money and lots of power and lots of connections. They can get away with things that people in no other field can get away with, and for far longer time-periods.Many of these people have consciences. They WANT to tell the truth. They would LOVE to be able to tell the truth. They HINT at the truth all the time. But they don’t dare to tell the truth in plain and simple and blunt language. They have seen what has happened to other people who have tried to do this and they want no part of “the treatment” that the Buy-and-Hold Mafia visits on people who “cross” them by putting their clients or readers first and the cover-up of the massive corruption in this field second.
People engage in corrupt acts every day of the week. So, yes, there are “people doing something.” It doesn’t necessarily follow that they possess a full knowledge of what they are doing.
The Wall Street Con Men and the members of their Internet Goon Squads are not convinced that Buy-and-Hold cannot work. They see the holes in the concept. They become insanely defensive when challenged as to their claims that Buy-and-Hold is supported by research. But they have never spent much time exploring the principles of Valuation-Informed Indexing. They prefer to remain in the dark; it makes it easier for them to live with themselves if they don’t know just how dangerous Buy-and-Hold strategies are. So they don’t know.
They tell themselves that maybe Buy-and-Hold is not perfect but that it may work all the same. They tell themselves that, despite whatever flaws there may be in the Buy-and-Hold concept, it may work well enough. They tell themselves there is nothing better (while making sure to keep themselves in the dark re the research-based strategies that really are far superior).
Is that a conspiracy?
It’s not like a conspiracy in which the people responsible for the conspiracy are stealing a million dollars from someone. In that sort of conspiracy, the ones engaging in the conspiracy know precisely what they are stealing and precisely from whom they are stealing it. In this case, the people engaging in trickery do not know how much financial ruin they are causing because they do not want to know. And they are causing financial ruin to themselves as well as to millions of others. The Buy-and-Hold advocates follow Buy-and-Hold strategies themselves. They are ruining themselves while they ruin their clients and readers and million of middle-class investors who need to know how stock investing really works to be able to finance their retirements effectively.
This is a Conspiracy of Ignorance. We learned something very important when Shiller published his “revolutionary” (his word) 1981 research. But we haven’t as a society benefitted from that learning experience because the Wall Street Con Men and their Internet Goon Squads have made sure that the penalty for telling the truth about what the last 33 years of peer-reviewed research in this field tells us about how stock investing works is so great that no one making a living in the field will dare to tell the truth in the simple and plain and clear language that millions of middle-class investors need to hear to make sense of things.
Many, many people in this field long to tell the truth.
But we are going to have to decide as a society that we will stop threatening to kill their loved ones before they will work up the courage to use their talents to help us understand what we all need to understand rather than to keep shoving the long-discredited but oh-so-profitable Buy-and-Hold garbage down all our throats. I say that we should give all these smart and good and hard-working and generous people — and ourselves! — a break and open up every investing board and blog on the internet to honest posting on the last 33 years of peer-reviewed research.
That’s my sincere take re these terribly important matters, in any event.
Rob
Rob
don’t you agree that this is a free country, and folks can publish blogs or papers or whatever including whatever factors they want? I’d never force you to include the effect of, say, interest rates in every post.
The purpose of peer review is to protect us all from the sorts of people who would “include whatever factors they want” in a retirement study rather than including all the factors that are known to bear on the question being examined. We have known for 33 years now that the valuation level that applies on the day that a retirement begins is the most important factor affecting the safe withdrawal rate for that retirement. Studies that failed to include the most important factor should not have been approved.
And, when the error became public knowledge (this happened on the morning of May 13, 2002), the studies that contained the error should have been promptly corrected or taken down.
If the investing advice field had not become 100 percent corrupt during the Buy-and-Hold Era, there would not have been one researcher or one investing expert or one journalist who would not have called for immediate correction of every one of the Old School SWR studies.
Yes, we are all “forced” to report the numbers that people use to plan their retirements accurately and honestly. The horror!
Rob
But isn’t this a free country, where Bogle or anyone else can form and express any opinion they choose?
Numerical calculations are not a matter of opinion.
And one of the freedom we possess in this country is to decide to make it a felony to engage in acts of financial fraud and to impose prison sentences on those who do so.
Especially given that the future is such a random and unknowable place.
There’s nothing random or unknowable about long-term stock returns. There is now 33 years of peer-reviewed research showing this.
It seems the beauty of America is, to quote Patrick Henry : “I may not agree with what you say but I will fight to the death your right to say it?” Can’t you have your view, and give others the freedom to have theirs?
The reason why we have as a nation elected to make it a felony to advance death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs in support of a massive act of financial fraud is that we want people to feel free to express their sincere views. These criminal acts are not sincere expressions of opinions, they are acts of intimidation aimed at blocking the expression of sincerely held viewpoints.
If there were any research supporting the key Buy-and-Hold claim that it is not necessary to exercise price discipline when buying stocks, we never would have seen any of the abusive behavior that we have seen from the Buy-and-Holders for 12 years now. The Buy-and-Holders may continue to hold whatever beliefs they care to hold. But we as a nation have elected to put in place laws that protect those who hold other views from the acts of intimidation and deception regularly employed by those seeking to “defend” the smelly Buy-and-Hold garbage 33 years after the peer-reviewed research showed that there is precisely zero chance that it could ever work out well in the long term for even a single long-term investor.
Rob
Ok Rob, after some mostly respectful dialog with you over the last couple of days, I think I now fully understand you.
You agree that historically, peer reviewed academic research shows that valuations explain some of the variability in future price movements (38% for the P/E 10). You agree that respected, Nobel prize winning economists disagree on what this means for the future, but you favor Shiller’s view that one should use valuations to adjust asset allocation. Your words and actions also show that these adjustments are very personal things, and one investor may choose not, for example, to increase stocks even at the valuation lows of 2009 (while another investor would).
In short, your views and conclusions are exactly the same as the hundreds of posters on Bogleheads who have investigated the issue. There are no “VII” or “Buy and Hold” Nazis, but only those who think valuations are useful and should be considered.
What makes you unique, banned, ignored, and ridiculed, is the way you state this opinion. You’ve taken a single investing topic and presented it in a bullying, boorish, and bizarre way, with wild claims about the future (stock crashes, prison sentences, $500 million checks) no reasonable person is going to pay attention to.
This seems like a bad idea on a few levels. It won’t further the views you care about, since when treat others disrespectfully, they ostracize and ignore you. It also seems going through life with the aim of behaving rudely toward others is awfully unchristian and immoral. Finally, putting such personality flaws on public display must be very embarrassing to your family.
Chip said it well: http://socialize.morningstar.com/NewSocialize/forums/p/195344/195344.aspx
If you take a look at the “People Are Talking” section of the site, you will come across a quote in which Bret Arends says in the pages of the Wall Street Journal that the Wall Street Con Men pushing Buy-and-Hold strategies 33 years after the peer-reviwed research showed that there is zero chance that they could ever work for even a single long-term investor are “leaving out half the story.”
Arends is saying that those pushing Buy-and-Hold today are involved in a massive act of financial fraud. He doesn’t use the blunt language that I do because he knows what would happen to his career if he did so.
Rob, saying it “left out half the story” is a blunt, but respectful opinion. Calling it “financial fraud”, on the other hand, is indeed blunt, but also rude and boorish.
And, when the error became public knowledge (this happened on the morning of May 13, 2002), the studies that contained the error should have been promptly corrected or taken down.
Ok, so you don’t believe I have the right, in 2014 America, to publish a blog about SWRs than doesn’t mention valuations, correct? You may disagree with it, but do you believe I have the right to do so?
Numerical calculations are not a matter of opinion.
True, but we’re not talking about historical numerical calculations. Nobody’s disagreeing that the P/E 10 explains 38% of the variation in historical returns. But the future is a matter of opinion, don’t you agree?
There’s nothing random or unknowable about long-term stock returns. There is now 33 years of peer-reviewed research showing this.
But if only 38% of historical variability is explained by valuations, it means that even if this trend continues, 62% is not. If Russia bombs the US tomorrow, our stock market may go to zero. Doesn’t matter what history says.
If there were any research supporting the key Buy-and-Hold claim that it is not necessary to exercise price discipline when buying stocks, we never would have seen any of the abusive behavior that we have seen from the Buy-and-Holders for 12 years now.
Again, the research says that 38% of historical price variability is explained by valuations. Everyone is in 100% agreement on this fact. There is no debate on “the research”. But we all have to make personal decisions as to what we do about “the research”, given an unknown future.
Chip said it well:
Chip loved my stuff and said so in the days before the Lindauerheads made clear that they had targeted me for elimination. Then he changed his tune so that he would not be banned himself.
I was the person who discovered the errors in the Old School safe-withdrawal-rate studies. I put forward my famous post on this on the morning of May 13, 2002. This was nearly 10 years before the Wall Street Journal reported on those errors.
Had Greaney corrected his study within 24 hours of learning of the errors in it, there never would have been any problem. He should have thanked me for saving him further embarrassment. Instead, he went into attack mode and the members of his Goon Squad joined him in committing acts of financial fraud to keep the errors in the study covered up.
Once a person has committed criminal acts, he really, really, really does not want the truth to come out. So the abusiveness has gotten worse and worse and worse over the years.
None of this is my doing. I sent an e-mail to Motley Fool in June 2002 letting them know of the problem. The site administrator told me that my words were “thoughtful” but did not remove Greaney from the site. When you allow people to get away with death threats, you encourage more death threats. Death threats “work” in a way that no civil and reasoned argument could work for a Buy-and-Holder.
People need to know about the behavior of the Buy-and-Holders. Their behavior tells us that even the Buy-and-Holders lack confidence that their strategy can be defended in civil and reasoned debate.
The ultimate goal is to have civil and reasoned discussions of all of the many far-reaching implications of Shiller’s breakthrough research. But to get there, we need as a society to deal with the Goon issue. There is no other path from the horrible place where we are today to the wonderful place where we all (including you Goons!) want to be tomorrow.
My warmest wishes to you and yours, Anonymous.
Rob
Rob, saying it “left out half the story” is a blunt, but respectful opinion. Calling it “financial fraud”, on the other hand, is indeed blunt, but also rude and boorish.
Using the phrase “financial fraud” is a clearer way of conveying the same message.
No apologies whatsoever.
If Arends had used the phrase “financial fraud,” the ugly side of this would be behind us today. We would have brought the economic crisis to an end and ushered in the greatest period of economic growth in U.S. history. Plus — You Goons would be looking forward to shorter prison sentences.
Stating the message as clearly as possible is all upside and no downside whatsoever. People hedge not out of kindness but out of cowardice. The charitable thing to do here is to do what it takes to bring the Campaign of Terror to a full and complete stop before the close of business today.
That’s my sincere take re this terribly important matter, in any event.
Rob
The purpose of peer review is to protect us all from the sorts of people who would “include whatever factors they want” in a retirement study
Peer review mafia!
LOL
Ok, so you don’t believe I have the right, in 2014 America, to publish a blog about SWRs than doesn’t mention valuations, correct? You may disagree with it, but do you believe I have the right to do so?
Financial fraud is a crime under the laws of the United States, Anonymous. Does Bernie Madoff have the right to re-open his fund and screw even more investors out of their retirement money?
I don’t believe that Greaney was committing financial fraud prior to May 13, 2002, when he didn’t know about the errors in his study. In those days, he was making a mistake. He certainly has a right to make mistakes, as we all do.
But once he crossed the line and turned to threats of physical violence to keep his mistakes covered up, he became guilty of financial fraud. Once he learned of the mistake, it was no longer a mistake but a deliberate deception.
I wrote an article about Greaney’ self-deceptions. I said that I believe that Greaney would tell his best friend that 4 percent is always “safe.” I still believe that. I believe that he is suffering from cognitive dissonance. I believe that of Jack Bogle too. I believe that of all the Buy-and-Holders.
But we cannot as a society excuse threats of physical violence or threats to get academic researchers fired from their jobs on grounds that the person engaging in these acts is suffering from cognitive dissonance. Bernie Madoff was interviewed in prison and he said that he was trying to help people. Are we going to excuse what Madoff did on grounds that he was suffering cogntive dissonance? There has to be some limit to what we can tolerate. Those engaging in this behavior cross the line when they advance death threats or demands for unjustified board bannings or tens of thousands of acts of defamation or threats to get academic researchers fired from their jobs.
I think a case might be made that it would not be financial fraud for someone to publish an Old School SWR study even after he became aware of the flaws in those studies if he made his readers aware of the New School criticisms of those studies. In that case, it might be said that the readers of the studies knew what they were getting into if they used the studies to plan their retirements. But using death threats and other abusive acts to keep the readers of the studies from becoming aware of the flaws in them is financial fraud. I don’t see how any reasonable person could argue otherwise. That’s as clear a case of financial fraud as I am able to imagine. It’s every bit as clear a case in my eyes as is the Madoff case.
Rob
Peer review mafia!
For so long as academic researchers in this field live in fear of what will be done to their career if they do honest work, they are really just glorified go-fers in the marketing departments of the big Wall Street firms.
Doctoring results because you fear what the Wall Street Con Men will do to you if you do the work you were trained to do in an honest and competent manner is shameful and degrading behavior.
It will not be just bloggers who will become liberated to do clean work when we open the internet to honest posting on SWRs and other critically important invested-related topics. The academic researchers will be so liberated as well.
Good!
I’m all for it!
I cannot wait!
Rob
Nobody’s disagreeing that the P/E 10 explains 38% of the variation in historical returns. But the future is a matter of opinion, don’t you agree?
Every SWR study contains the caveat that it assumes that stocks will continue to perform in the future somewhat as they always have in the past. So the honest researcher is bound to report what the number is if stocks continue to perform in the future as they always have in the past. Valuations have always affected the result in the past. So the honest researcher is bound to take the valuations factor into consideration.
But if only 38% of historical variability is explained by valuations, it means that even if this trend continues, 62% is not. If Russia bombs the US tomorrow, our stock market may go to zero. Doesn’t matter what history says.
The honest researcher reports to his reader what he knows and what he doesn’t know. He doesn’t engage in cover-ups.
Again, the research says that 38% of historical price variability is explained by valuations. Everyone is in 100% agreement on this fact. There is no debate on “the research”. But we all have to make personal decisions as to what we do about “the research”, given an unknown future.
The honest researcher must report the numbers accurately. It is up to each individual investor as to how to act given what he learns from the research. The researcher may not doctor the results with the aim of tricking his readers into making the choices he prefers. The researcher must report the numbers accurately for the reader to become empowered to make informed choices.
Rob
Valuations have always affected the result in the past. So the honest researcher is bound to take the valuations factor into consideration.
Ok, so we agree that any honest research or blog postings about valuations should contain the following two facts:
1. This assumes market prices going forward should behave like they have in the past.
2. Even if the future is like the past, valuations explained only 38% of future returns. So note future price changes will be due mostly to non-valuation factors.
This is certainly very different from saying that adjusting valuations based on P/E 10s is some sort of sure thing! The future is a very uncertain place!
Chip loved my stuff and said so in the days before the Lindauerheads made clear that they had targeted me for elimination. Then he changed his tune so that he would not be banned himself.
He may have loved your investing insights. But he sounds there like someone gently trying to let you know that being kind and respectful toward others was the best way to behave, even if your views differ from theirs. That’s how Christians like myself see it.
This is certainly very different from saying that adjusting valuations based on P/E 10s is some sort of sure thing! The future is a very uncertain place!
The New School SWR studies do exactly what SWR studies are intended to do — They identify the withdrawal rate that will work in a worst-case scenario in the event that stocks continue to perform in the future at least somewhat as they always have in the past.
There is no sure thing. No Old School researcher has ever said that he was providing a sure thing and no New School researcher has ever said that he was providing a sure thing. The “sure thing” question is a red herring.
Rob
he sounds there like someone gently trying to let you know that being kind and respectful toward others was the best way to behave, even if your views differ from theirs.
No. He sounds like someone who had seen you Goons in action on numerous occasions and who feared what would happen to him if he shared his honest thoughts about your behavior with the board community.
I want to see that garbage come to an end. The board communities will not live in fear of you once a number of us call you out on your b.s.
Consider yourself called out.
Rob
If someone agrees with Rob, they are an expert. If they disagree with Rob, they are lying.
That’s not right, Anonymous.
My good friend Jack Bogle does not agree with me. He is the lead proponent of Buy-and-Hold and I am the lead proponent of Valuation-Informed Indexing.
I do NOT say that Jack is a liar. I say that he is a giant in the field. I say that I learned about the errors in the Old School SWR studies by reading his book. I say that there would be no Valuation-Informed Indexing if not for all the things I learned from him. I call Jack my friend.
I also say that his behavior in failing to address the Lindauer matter has been shameful. I say that there is a chance that he will be going to jail for financial fraud. I also say that I hope that that does not happen. I have extended the hand of friendship to my old friend. I say that I would like all the other people who care about Jack, including you Goons, to speak up and help him out.
I believe that Jack is wrong in his advice re asset allocation. I do NOT say that he lies when he gives the advice he gives. I say that he is suffering from cognitive dissonance. That’s something very different. That’s what I say about you Goons as well, by the way.
How do we solve this cognitive dissonance problem?
BY TALKING THINGS OVER.
We solve our problems by engaging in civil and reasoned discussions.
There is no other way.
Jack Bogle has done many wonderful things. He has made one huge mistake. I don’t believe that he is lying. There is a lot of evidence backing up my take re this one. But lying or not, he is hurting millions of people. He needs to hear the other side of the story. For that to happen, we need to open every board and blog on the internet to honest posting.
We should be sure to do that by the close of business tomorrow.
That is my sincere take re this terribly important matter, in any event.
Rob
You don’t “talk things over” Rob. You lecture.
He is the lead proponent of Buy-and-Hold and I am the lead proponent of Valuation-Informed Indexing.
Rob, imagine you live in a town where everyone drives to work. You declare that all the other citizens fly helicopters, and that this is bad, and the only way to get to work is by bike.
In truth, though, nobody takes helicopters, or bikes. They all drive. Including you. So your words make no sense.
Same case here. Both you and Bogle agree that knowing historical valuations are useful, and investors may make personal decisions to vary their allocations based on them. There are no two dramatically opposing sides to this issue. You may disagree on the amount you’d vary your portfolio (In increasing my stock allocation in 2009, I “disagreed” with what your choice, for example), but this again is a personal decision.
So what’s the point of making yourself hated and ostracized, and embarrassing your family, over such a minor difference of opinion about an investment topic regarding a future nobody knows anyway?
You don’t “talk things over” Rob. You lecture.
I argue forcefully for my positions, Anonymous. That much is fair to say.
I wish that my many Buy-and-Hold friends felt that they could do the same in return. It’s not my fault that Buy-and-Holders lack confidence in their investing strategy.
Buy-and-Hold is a dead idea, Anonymous. It would have been better if we had all acknowledged this years ago. By stretching out the burial ceremony, we are just making everyone feel awkward and ashamed and sad.
If it gets this hard to make the case, perhaps the case is not worth making.
Rob
So what’s the point of making yourself hated and ostracized, and embarrassing your family, over such a minor difference of opinion about an investment topic
The Bennett/Pfau research shows that we can reduce the risk of stock investing by 70 percent just by opening ourselves to the idea that price discipline is required when buying stocks as much as it is when buying anything else available for sale on this planet.
That’s the biggest advance in this history of personal finance.
It’s not a close call.
regarding a future nobody knows anyway?
My good friend Jack Bogle told me that we can learn important things about how to invest effectively from the peer-reviewed research in this field.
I believed him.
Sue me.
Rob
The Bennett/Pfau research shows that we can reduce the risk of stock investing by 70 percent.
Could you provide a link to Dr. Pfau’s paper? I looked on your main page and under “Bennett/Pfau research” but couldn’t find it. Then I’ll be happy to take a look and discuss the details.
Buy-and-Hold is a dead idea, Anonymous. It would have been better if we had all acknowledged this years ago.
There are no buy and hold purists, Rob. You’ve already agreed that most folks are Strategy B types, who find valuations useful, and may choose to vary the allocations based on them. Nobody’s flying helicopters. We’re all driving cars.
The next step is to let everybody post their sincere views and not to punish any particular viewpoints.
It’s one thing to acknowledge that nobody truly has confidence in the Buy-and-Hold concept. It’s something else to begin letting people learn about the research that will help them build confidence in the strategy that is on its way to replacing Buy-and-Hold.
My take.
Rob
We’re all driving cars.
Without brakes.
Price discipline is the brake on the stock investing car.
And without maps.
The peer-reviewed research tells you how to get where you are going.
And without seatbelts.
The published posting rules are their to help us rein in any unfortunate Goon tendencies so that we don’t end up ruined by the sorts of “accidents” that put people in jail for financial fraud.
Rob
The next step is to let everybody post their sincere views and not to punish any particular viewpoints.
All viewpoints are allowed regarding this topic are allowed over at Bogleheads.
Like any civilized gathering, however, rude or antisocial behavior won’t be tolerated. That’s true in any social setting, and why social skills are so valuable. If there was a student in class that constantly picked on the other kids, he’d be dealt with or removed.
Why not just express your views while treating other humans like humans? It’s win win win win win win. You can see hundreds of examples of folks doing this a Bogleheads everyday.
It’s something else to begin letting people learn about the research that will help them build confidence in the strategy that is on its way to replacing Buy-and-Hold.
Thousands of kind and respectful posts at Bogleheads on this topic. Thousands.
Could you provide a link to Dr. Pfau’s paper?
http://arichlife.passionsaving.com/wp-content/uploads/MPRA_paper_35006.pdf
Rob
Ok, thanks. I read this paper, and also found an extensive discussion of it over at Bogleheads (all participants were posting respectfully and politely):
http://www.bogleheads.org/forum/viewtopic.php?t=75585
Sounds like, as you would expect (since the P/E 10 itself was teased out of back tests) historically, you got:
9.11% SD of 13.93 for Wade’s strategy.
8.60% SD 18.02 with 100% stocks
7.08% SD of 8.98 for 50/50 stocks/bonds rebalanced annually.
Interesting study. I always try to be aware of valuations when investing. My criticisms would be the same as on that Bogleheads thread: What about taxes and transaction costs? Where’s the sensitivity analysis? What if the past isn’t like the future, and you switch to 100% stocks at age 65, only to have them not recover?
Would this make me alter my asset allocation in retirement? While I would reduce my stock allocation if P/E 10s got to very high levels, I’ll always hold plenty of bonds during my draw down phase. When P/Es are low, it’s because risk is high (see the great depression, or 2008-09). I wouldn’t bet my retirement on that risk not showing up.
Rob, I’m still unclear why, if you want to promote your views, you don’t just post on these boards in a civil way. What’s the downside?
When P/Es are low, it’s because risk is high (see the great depression, or 2008-09).
We disagree on this part, Anonymous.
When the P/E10 is low, risk is virtually non-existent.
The lowest P/E10 we have ever seen is 5. A P/E10 of 7 is rock-bottom low. So if you buy stocks at 7, there is close to zero chance that the P/E10 is going to drop. If the P/E10 is stable, you get an annual return of 6.5 percent real. That’s the worst-case scenario! The odds are you are going to do a lot better than that.
This is one of the big differences between Buy-and-Hold and Valuation-Informed Indexing. BH posits that price changes are caused by economic developments. So low stock prices mean a bad economy. There certainly is a connection between low stock prices and bad economies. So the Buy-and-Hold take on things is plausible and logical. But I believe (based on what I have learned from thinking about Shiller’s revolutionary 1981 finding) that it is wrong.
Shiller showed the it is NOT economic developments that cause stock price changes. If it were, prices would fall in the pattern of a random walk. Prices are NOT a random walk in the long term. So it must be something other than economic developments causing price changes. VII posits that it is investor emotion.
VIIers acknowledge that there is a connection between low prices and bad economic times. But we see the correlation proceeding in the opposite direction. Insanely low prices always follow in the wake of bull markets. Prices go to insanely high levels, investors know on one level of consciousness that they cannot be sustained and eventually they abandon stocks, sending prices down to fair-price levels. That drop takes trillions of dollars out of the economy and causes hundreds of thousands of businesses to fold and millions of workers to lose their jobs. People can no longer afford to buy stuff. That causes an economic crisis!
It is low stock prices that causes bad economic times, not bad economic times that cause low stock prices.
When stock prices are low, investing risk is at its lowest. When prices are low, the only direction in which prices can go (in the long term, which is all VIIers care about) is UP. So risk is pretty much taken out of the equation.
Rob
all participants were posting respectfully and politely
People whose participation was vital were not even present in the room, Anonymous!
I am the lead author of that paper. I was not invited to the discussions. It’s actually worse than that. There was a guard standing at the door with instructions to give me the boot if I made an effort to enter the room.
Naughty, naughty!
Rob
Rob, I’m still unclear why, if you want to promote your views, you don’t just post on these boards in a civil way. What’s the downside?
We are working from opposite beliefs as to what constitutes civility or kindness, Anonymous.
The proper response from John Greaney when I posted about the errors in his retirement study was for him to say “Thank you!” to me for having the courage to act in a way that would save him future embarrassment by permitting him to correct his mistake and get it quickly behind him rather than seeing this thing dragged out for years and years. John did not thank me. And his other friends failed to insist that he do so. I did insist. That’s true friendship. It is through John’s failings and the failings of his other friends that we got on the dark path that led us to the horrible place where we are today.
On October 23, 2002, I engaged in a second act of charity. I put up a post demanding John’s removal from the community. Motley Fool had said that they wanted to see a community expression of a desire for his removal before they would enforce the published rules of the site which called for the removal of posters who put up death threats. We got 25 votes for removal. Motley Fool did not consider that enough and John stayed on.
That’s why he is in a place today where he is headed for a prison sentence following the next price crash.
Say that John had been removed back in October 2002. Six months later, I would have asked Motley Fool to reinstate him. I believe that I would have gotten most of our fellow community members to endorse that request and Motley Fool would have gone along. So all our troubles would have been over. We wouldn’t be worrying about prison sentences today.
There is nothing “mean” about the published rules of our boards and blogs. And there is nothing “mean” about the laws we have forbidding financial fraud. We put these rules and laws in place to ENCOURAGE civility. We need to see that they are enforced in a reasonable manner if we are to insure that civility remains the order of the day.
Because too few of us had the courage to do the right thing back in 2002, we are all in a big mess today. I don’t like it, you don’t like it, Bogle doesn’t like it, Shiller doesn’t like it. But here we are.
You are suggesting that the same cowardice that got us on this dark path will show us the way to a brighter path. I don’t buy it.
I talk about financial fraud and prison sentences not because I enjoy the thought of seeing you behind bars, Anonymous. I talk about financial fraud and prison sentences because I want us as a society to come to terms with what we have done over the past 12 years and to bring the ugly side of this saga to a full and complete stop. I don’t know what the length of your prison sentence would be if you were to come clean today. There has never before in U.S. history been a situation like this. So it is not possible to say. But I know that it is prosecutors who bring charges and I know that prosecutors feel a need to answer to public calls for action. So I believe that the best way to see that your prison sentence is on the short side rather than the long side is to do all that I possibly can do to make the millions of middle-class investors who have been done harm happy with their circumstances rather than angry about their circumstances.
Shiller’s revolutionary 1981 findings represent the biggest advance in the history of personal finance. If we go into the Second Great Depression, it will be the first optional Great Depression in our nation’s history. Shiller has told us how to AVOID a depression. It’s better than that. Shiller has shown us how to avoid all future economic crises, even those not bad enough to turn into depressions. It’s better than that. Shiller has shown us how to reduce the risk of stock investing by 70 percent. It’s better than that. Shiller has shown us how to invest so that we can retire five to ten years sooner than we ever imagined possible in the Buy-and-Hold Era.
It’s not possible to imagine how it could ever get any better than that.
If we shared what we now know about how stock investing works with the millions of middle-class people who have been done great harm during the 12-year cover-up of the errors in the Old School SWR studies, those millions of people would be far less inclined to demand prosecution of acts of financial fraud than they will be if the cover-up continues and we see another price crash.
Could it be that the millions of middle-class investors will be excited enough about the huge breakthroughs that you Goons could avoid prison altogether?
I don’t know. I don’t think it is possible for anyone to know.
What I know for certain is that, whatever your prison term will be if the cover-up continues until we see another price crash, it is going to be a lot less if you come clean before the close of business today. I have zero doubt re that one.
So I know how we need to proceed.
The way that I propose that we proceed obviously benefits me. But it does not benefit ONLY me. It benefits you Goons. It benefits the millions of middle-class investors. It benefits Bogle. It benefits Shiller. It benefits Pfau. It benefits Motley Fool. It benefits EVERYONE!
We are all in the same boat re this thing. There are no two sides. The idea that there are two sides is an illusion.
We need to stop thinking that there are two sides, recognize that we are all in this together, and work together to do what deep in our hearts we all know needs to be done here.
Am I going to become rich and famous as a result of us all taking the right steps? You betcha! And you know what? That’s just fine. That’s not a problem AT ALL.
Bogle will be ten times the hero following us coming clean than he is today. He is a popular guy today. But when Buy-and-Hold is revised in way that reduces stock investing risk by 70 percent, he will be ten times MORE popular. Bogle is big winners if we all come clean by the close of business today.
So is Shiller.
So is Pfau.
So are you Goons.
So is EVERYONE.
We have to go there. We all know it on some level of consciousness. None of us want this ugly stuff hanging over our heads forever and ever and ever. So we know what we need to do.
Now we just need to work up the courage to do it.
That’s my sincere take re this terribly important matter, in any event.
I wish you all good things, Anonymous.
Rob
rude or antisocial behavior won’t be tolerated.
If you give specifics as to what it is you don’t want me to say, I can let you know whether in good conscience I can avoid saying those things.
Without specifics, it is not possible to respond other than to note that I obviously would never engage in any behavior that I viewed as being in any way, shape or form “antisocial.”
Rob
There are no buy and hold purists, Rob.
We do agree on this, Anonymous.
Most people don’t care about theory. But the EXPERTS care about theory. The experts root their advice in theory. And most people DO care about what the experts say. So in a practical sense most people today are following the Buy-and-Hold theory. They are not dogmatic about it. And they do not know precisely why they are doing what they are doing. They are relying on a belief that the experts are shooting straight with them. They leave it to the experts to worry about theory.
I say that the experts are not shooting straight with them. It’s not that the experts are dishonest by nature. The experts are deceiving THEMSELVES because they have so much riding on the Buy-and-Hold theory; they feel that their entire careers are at stake if Buy-and-Hold is found to be deficient. The experts tell themselves that Buy-and-Hold is good enough and that it is okay not to trouble their clients and readers with discussions of the implications of Shiller’s findings. The ordinary investors don’t even know that there is an issue. They don’t look into things carefully enough to discover this. So, when I put forward views that are very much at odds with what the experts say, the ordinary investors see that what I am saying makes perfect sense but presume that there must be something wrong with what I am saying because if I were right the experts would be saying the same thing.
This is why I am always talking about the importance of Bogle giving an “I Was Wrong” speech. We need a major event that is widely publicized to turn things around. If Bogle gave such a speech and it were written up in all the major papers, all of the experts from that point forward would feel comfortable giving the Shiller take on things along with the Fama take on things. As more and more people came to understand the Shiller take, hundreds of blogs would pick up on these questions and we would see the launching of a national debate. We need to see a national debate re this stuff very, very badly!
I feel that you are suggesting a non-dogmatic approach to things. I can live with a non-dogmatic approach. But I am not clear re how what you are suggesting would play out when it comes time for me to compose posts.
Say that I am posting at the Bogleheads Forum. Someone comes on and says “I am about to retire and need to decide how much I am going to withdrawal each year.” Someone else posts a link to FIRECalc. What do it do?
Do I post a link to The Retirement Risk Evaluator?
How does Mel Lindauer respond when I do that?
Am I subjected to The Treatment?
Or does he let it pass out of deference to this new non-dogmatic approach?
I don’t feel any need to say “Buy-and-Hold is wrong” so long as there are no Buy-and-Holders saying “Valuation-Informed Indexing is wrong.”
If you are saying that we ALL should be non-dogmatic, I am cool with the idea. But Valuation-Informed Indexing cannot grow if, every time a VII idea is put forward, it is smashed down by people who claim that Buy-and-Hold is Scientific Truth. I need protection from that sort of thing. The protection that I have relied on in the past is the 33 years of peer-reviewed research supporting the VII strategy (and discrediting the earlier research that was thought by many to support the BH strategy). If we go the route you propose, do you intend to jump in when Buy-and-Holders say that their approach is Science and let them know that the majority of the board is non-dogmatic and that it is disrespectful to them to say that kind of thing? If not, how do you propose that I respond, given that I believe in Valuation-Informed Indexing and want to persuade people of its merits while also wanting to always be 100 percent respectful of the views of other community members?
Rob
When the P/E10 is low, risk is virtually non-existent.
Well Rob, it’s obvious to me (and everyone else) that the times P/Es have been low have been times of great economic stress, and when future corporate profits have been threatened. In some cases, (the great depression) it took decades to recover. And since the future is so uncertain, I have no idea how the next low P/E crisis will turn out over my time horizon.
Clearly, if you honestly believed what you wrote, you would have loaded up on stocks in 2008-09 and made a fortune. But you didn’t even move to a 10% allocation.
It is low stock prices that causes bad economic times, not bad economic times that cause low stock prices.
Fortunately, civilized society requires that if you make a wild causal claim like this, you must back it up with evidence. Can you point to any academic studies showing, or even trying to show this is true? Because merely claiming that there’s a pink elephant in my living room doesn’t mean one is actually there.
if you make a wild causal claim like this, you must back it up with evidence. Can you point to any academic studies showing, or even trying to show this is true?
There is no direct evidence one way or the other. We cannot ask the market to sit down on the coach and respond to our questions.
The Buy-and-Holders BELIEVE that bad economic news caused low stock prices. They do not KNOW this. There is no study that SHOWS this. They arrive at this conclusion by following the logic of their theory, which is exactly what I do. Different theories lead to different beliefs about all sorts of questions.
If the Buy-and-Hold theory were correct, price changes would be random. They are not. So I throw the ideas that follow from Buy-and-Hold out and go looking for ideas that make sense given what the last 33 years of research tells us.
The research shows that the primary cause of price changes is changes in investor emotion. If that’s so, the best time to buy stocks is when investor emotion can only move in an upward direction. That’s when prices are low. When prices are low, there is zero risk because there is only one direction in which emotion (and prices) can move.
Do you not agree that, when prices fall hard, trillions of dollars of spending power leave the economy? Is there some doubt about this point?
If trillions of dollars of spending power leave the economy, would you not expect the economy to collapse? What else could it possibly do?
The point that I am making here is self-evident, Anonymous.
It is not self-evident to someone who believes in Buy-and-Hold. Buy-and-Hold posits that it is economic developments that cause price changes. But to someone who has given up on that idea because the last 33 years of research discredits it, what I am saying here is self-evident.
It’s as clear as clear can be. We once thought that things worked one way. Now we know that we were wrong. We are in the process of determining how things REALLY work. All of the work that I do at this site is part of an effort to explore the IMPLICATIONS of Shiller’s revolutionary finding of 1981.
The amazing thing is that no one has done this work before I came on the scene. Is that my fault? I am trying to get more people involved. I think it would be fair to say that, if you Goons stopped the attack stuff, I would be more successful doing that. It is very, very important work. And once Buy-and-Hold falls, it is going to be very, very financially rewarding work. My personal thought is that anyone who possesses the qualifications to do the job and who holds off on taking advantage of the opportunity is a fool.
Anyway — I certainly have as much proof to offer in support of what I say as the Buy-and-Holders have to offer in support of what they say. Please show me the study showing that it is economic developments that cause stock prices to drop. You believe it. I can give you that one. But you cannot provide a URL for a study because no such study exists.
I face this problem in lots of different areas. Buy-and-Holders act as if they are 100 percent sure of everything they say. But rarely do they have any evidence to point to in support of what they say. They just argue that “Everyone agrees about this” or some such thing. If what everyone thought was right, you wouldn’t see “revolutionary” findings like what we saw in 1981 from Shiller and in 2012 from Bennett/Pfau.
Mark Twain said that it is not the things you don’t know that hurt you the most but the things that you know for certain that just ain’t so!
Rob
<i.There is no direct evidence one way or the other. We cannot ask the market to sit down on the coach and respond to our questions.
Sounds like a good reason not to argue points like these too dogmatically (especially regarding future events).
The Buy-and-Holders BELIEVE that bad economic news caused low stock prices.
Rob, anyone who’s followed these stock market for 10 minutes knows that a stock drops immediately after negative or positive news comes out about it, not before. There are thousands of examples per day of this.
The Chinese restaurant on the corner didn’t go out of business because its stock price was too high. It did so because the food and service was bad.
If the Buy-and-Hold theory were correct, price changes would be random.
Oh, not at all. The economy, and many market price changes (housing) moves in cycles, and there are hundreds of economic papers underpinning why. None of them point to stock valuations as a primary cause.
Do you not agree that, when prices fall hard, trillions of dollars of spending power leave the economy? Is there some doubt about this point?
There is indeed a “wealth effect” as people may spend less when they feel poorer, which may contribute to an economic slump once it happens. But this hardly proves valuations are the primary driver of recessions/depressions.
For example, the primary cause of the last recession is well known – the subprime crisis, leading to freezes and failures in financial markets. I know – I watched it happen.
If you give specifics as to what it is you don’t want me to say, I can let you know whether in good conscience I can avoid saying those things.
And yet, everyone else can be naturally civil without have to be informed of “specifics” by others. How do those civilized folks do it? They sure do wind up having more fun on the playground.
How do those civilized folks do it?
Most people look for social signals and comply with the limits imposed on them.
Every now and again there comes a time when there is a pressing need to CHANGE the social signals. Doing that requires NON-COMPLIANCE.
Rosa Parks picked up lots of social signals telling her to get her bottom on down to the back of the bus. It wasn’t just whites who told her that. Blacks told her that. Her neighbors told her that. Her friends told her that. Her entire SOCIETY told her that.
Rosa said “no.” She said it sweetly but she said it all the same. Rosa engaged in non-compliance.
Good for her.
And good for me.
When the social signals tell us that we may not explore the implications of the last 33 years of peer-reviewed research in the investing field, the social signals need to be changed.
Good for me for seeing that and for taking action on it.
No apologies whatsoever.
I will NOT move my bottom on to the back of the bus.
I will sit anywhere on the bus where I find an empty seat.
Get used to it, my good friend. The times they are a changin’.
Rob
Sounds like a good reason not to argue points like these too dogmatically (especially regarding future events).
And of course I don’t.
I say that I believe that it was the promotion of Buy-and-Hold strategies that was the primary cause of the economic crisis. I say that I believe this strongly. If I said anything less, I would be telling a lie.
But I also say that I am one of the flawed humans and capable of making a mistake. I say that I have made many important mistakes over the course of my lifetime and that it could be that it is happening again. I note that, if it were happening again, I would probably be the last to know.
That ain’t dogmatism. That’s honestly combined with dogmatism.
There’s a discussion board at which I participate that is operated behind a paywall. I wrote a post on the idea that it was the promotion of Buy-and-Hold strategies that caused the economic crisis a few weeks ago. A fellow there was effusive in his praise of the post. He said: “That’s brilliant! I’ve never heard that before! Wow!”
That fellow has a right to hear about that idea. And there are of course millions of others like him. They ALL have a right to hear about that idea.
EVEN IF I AM WRONG.
Free speech is not about protecting the rights of majorities. Majorities can take care of themselves.
Free speech is about protecting the rights of minorities.
People need to hear about that idea and to decide for THEMSELVES whether there is merit to it or not.
The fact that there are lots of powerful and wealthy and well-connected people who very much do not want people to be able to hear the ideas makes it all the more imperative that the right that millions of people have to hear the ideas be given full recognition at every investing board and blog on the internet.
There are issues here bigger than the millions of failed retirements caused by the 12-year cover-up of the errors in the Old School SWR studies. The Buy-and-Hold Crisis caused millions of people to lose their jobs. Those people need to know that they lost their jobs because a group of powerful and wealthy and well-connected people elected not to correct a mistake they made about how stock investing works for 33 years after that mistake was uncovered by the peer-reviewed research in the field and that the cover-up made use of death threats and unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs.
Yes, that’s a crime.
It’s not any old act of financial fraud. It is the biggest act of financial fraud yet seen in the history of the United States.
It is an act of financial fraud so big as to cause lots of people on both the left (The Occupy Wall Street Movement) and the right (the Tea Party Movement) to begin to lose confidence that our system of government can still work to protect the people who need to be protected from these powerful, wealthy, well-connected people. And there will of course be millions more joining them following the next price crash.
The lies that people tell in “defense” of Buy-and-Hold are not just investing lies. They are economic lies. And they are political lies.
And they are going to be exposed.
I am going to see to it.
I am telling.
Rob
Rob, anyone who’s followed these stock market for 10 minutes knows that a stock drops immediately after negative or positive news comes out about it, not before.
Economic developments INFORM the emotions of investors, Anonymous.
Emotions SOMETIMES are rational.
Hearing negative economic news can indeed cause investors to develop negative emotions about a stock and thereby INDIRECTLY cause the price of a stock to fall. But showing that economic developments sometimes play a role does not show that economic developments are the dominant cause of price changes. Shiller’s research shows that it is what investors FEEL about the economic developments that is the primary influence.
If a rational assessment of economic developments were controlling, stock prices would fall in a random walk both in the short term and in the long term.
They do not.
So the idea that it is economic developments alone that cause price changes must be thrown out the window. That idea does not conform to the data or the research.
Economic developments obviously play a role, as your comment indicates. But there has to be something else going on. If there were nothing else going on, the theory behind Buy-and-Hold would be in accord with the data and the research.
The something else is investor emotion.
Economic developments influence investor emotion. But it is what investor emotion does with them that determines what happens to stock prices. Positive economic developments can cause price drops if investor emotions are running in a negative direction. Negative economic developments can cause price increases if investor emotions are running in a positive direction. Economic developments play a role. But investors do not always apply the news contained in economic developments in a rational way. Everything is filtered through investor emotions, which are not always governed by rational impulses.
Again —
If it were economic developments that governed stock prices, prices would play out in a random walk both in the short term and in the long term.
The Big Mistake came about because Fama only tested short-term price changes and jumped hastily to a false conclusion (that neither short-term timing nor long-term timing is required). Shiller was the first researcher to test long-term price changes. He confirmed Fama’s finding on short-term timing and discredited Fama’s too-hasty conclusion on long-term timing. Shiller showed that long-term timing (price discipline) ALWAYS works and is ALWAYS 100 percent required for those seeking to have some realistic hope of long-term success.
Shiller advanced the ball. Shiller built on what Fama did. Shiller made Fama’s huge insight (that short-term timing never works and should be avoided) workable in the real world by adding the even more important insight that long-term timing (price discipline) is always 100 percent required. Investors need to know about BOTH insights for the market to function well.
Investors do sometimes act rationally just as the emotional humans (of which they are a subset) sometimes act rationally. But they do not always act rationally and it is critical for investors to know what portion of the stock price that applies at a given time is the product of rational considerations and what portion of it is the product of emotional factors. The P/E10 value tells us this. The P/E10 value is the price tag of stocks. It tells us how much return-producing goodness we are getting for our investing dollar and how much of our investing dollar is going to the purchase of cotton-candy nothingness fated to be blown away in the wind over the course of the next 10 years. It is not possible to invest rationally without taking P/E10 into account when making purchases because P/E10 tells you what portion of your purchase is the product of rationality and what portion of your purchase is the product of investor emotion.
Engineers should want to know how much the value propositions of their stock purchases are being undermined by gooey investor emotion. We all should.
Rob
They sure do wind up having more fun on the playground.
And they end up jumping out of windows when the realities are revealed to them in a way that cannot be ignored.
I don’t like the thought of seeing my many Buy-and-Hold friends jumping out of windows, Anonymous.
I care about them. Call me madcap.
Rob
The Chinese restaurant on the corner didn’t go out of business because its stock price was too high. It did so because the food and service was bad.
Then why is it that every time in the 140 years for which we have historical return data available to us we have seen hundreds of thousands of Chinese restaurants go out of business all at the same time in the time-periods shortly after the P/E10 value reached 25?
And why is it that this never happens at any other time?
A strange coincidence?
Rob
Oh, not at all. The economy, and many market price changes (housing) moves in cycles, and there are hundreds of economic papers underpinning why. None of them point to stock valuations as a primary cause.
You need to read up on the work of one of two fellows who won the Nobel Prize in Economics last year, Anonymous.
You need to reflect on whether it is reasonable to believe that he won that award because people think he is a swell fellow who has a way about him.
The Nobel Prize is kind of a big deal. They give it to people who have brought us “revolutionary” findings. Shiller CHANGED what we know about economics.
We have not as a society come to RECOGNIZE the many far-reaching implications of Shiller’s work. That certainly is so. That has been our entire problem for 12 years now.
But how the heck do you think we are ever going to get there without first agreeing that it is permissible to TALK about the implications of Shiller’s findings? That’s the very first step in the process.
You are saying that we don’t know stuff. But the only reason why we don’t know it is that people like you will not let us TALK about it. I want to know as much as it is possible to know. I want to see the discussions we need to experience to learn important new economic realities PROCEED. I want to stop engaging in a Debate About Having a Debate and get down to the far more fun business of having the actual debate that we all deep in our hearts know that sooner or later we are going to have to have.
Rob
There is indeed a “wealth effect” as people may spend less when they feel poorer, which may contribute to an economic slump once it happens. But this hardly proves valuations are the primary driver of recessions/depressions.
It is the numbers that prove it.
I have a RobCast titled “Bogle and Valuations.” It comments on an article that Bogle wrote pointing out that at the time the article was published we had lost close to $10 trillion in the 2008 crash. Bogle argued that it was silly to believe that our economy had lost $10 trillion worth of value in that short amount of time.
That is OBVIOUSLY so.
The economy could not possibly have lost that amount of money in that amount of time. The loss was an ARTIFICIAL one.
But it was REAL to the millions of investors who were counting on the money reported to be in their portfolio accounts. The $10 trillion DISAPPEARED from their accounts.
Losing $10 trillion is no small thing. It’s a HUGE thing.
And it ALWAYS happens once stocks become insanely overpriced. It is not even possible for the rational human mind to imagine circumstances in which this would not happen once stocks become insanely overpriced. It always happens because it always must happen. Mispricing must be corrected or the market could not continue to function.
Rob
For example, the primary cause of the last recession is well known – the subprime crisis, leading to freezes and failures in financial markets.
This is just politicians taking advantage of a situation to score political points.
The numbers aren’t there. The numbers that apply re the subprime lending matter are TINY compared to the numbers relating to the losses suffered in the global economic crisis.
Big events require explanations that involved big numbers.
The promotion of Buy-and-Hold strategies caused a $12 trillion loss in consumer spending power. That’s the kind of loss you need to see to explain a global economic crisis.
Politicians sometimes tell tales, Anonymous. I hate to be the one to break this to you. But I am pretty darn sure that I am on the right track with it. You can’t believe every last word they utter in your general direction. Politicians often have an agenda when they say things.
Rob
Actually no, the numbers are not tiny. Especially when you consider that the banks had all insured each other against subprime defaults, leveraged themselves 30-50x, and had almost no capital reserves to meet their obligations when defaults began to rise.
Your argument that the risk is less during economic stress has an underlying assumption that the US economic system will not suffer an irreversible collapse (or a collapse which temporarily disrupts institutions leading to a reset of markets) and that it will always have a steady state long term mean return. I don’t believe either.
And of course I don’t [argue my points dogmatically]
From today’s post by you on this exact topic, which you agree can’t be proven one way or the other:
Buy-and-Hold ALWAYS causes an economic collapse. It is a logical impossibility that persuading millions of investors to fail to exercise price discipline could produce any other result.
Uh Oh.
I say that I believe that it was the promotion of Buy-and-Hold strategies that was the primary cause of the economic crisis. I say that I believe this strongly.
Ok, that’s reasonable. But that’s very different from:
Buy-and-Hold ALWAYS causes an economic collapse. It is a logical impossibility that persuading millions of investors to fail to exercise price discipline could produce any other result.
But I also say that I am one of the flawed humans and capable of making a mistake. I say that I have made many important mistakes over the course of my lifetime and that it could be that it is happening again. I note that, if it were happening again, I would probably be the last to know.
That sounds reasonable. Did the same person also write:
Buy-and-Hold ALWAYS causes an economic collapse. It is a logical impossibility that persuading millions of investors to fail to exercise price discipline could produce any other result.
It’s not any old act of financial fraud. It is the biggest act of financial fraud yet seen in the history of the United States.
Just to be clear, this is your belief, and you could be wrong. It’s also something no one else in the world believes.
If a rational assessment of economic developments were controlling, stock prices would fall in a random walk both in the short term and in the long term.
They do not.
Again, this simply isn’t true, most economic phenomena, from housing and stock prices to the economy itself, move in not-perfectly-random cycles. There are a number of reasons for this, including, as you note, investor sentiment (emotions). But that’s a long way from pinning stock prices alone on every single negative economic event.
Investors need to know about BOTH insights for the market to function well.
And they do, Rob. Shiller just won a Nobel prize. He’s all over the papers. He’s discussed constantly on internet forums. People know.
I don’t like the thought of seeing my many Buy-and-Hold friends jumping out of windows, Anonymous.
As you’ve been shown repeatedly Rob, actual, indisputable buy and hold returns over the past few decades show conclusively that they’re doing quite well.
Then why is it that every time in the 140 years for which we have historical return data available to us we have seen hundreds of thousands of Chinese restaurants go out of business all at the same time in the time-periods shortly after the P/E10 value reached 25?
What we’ve seen is valuations explaining 38% of the variability in future stock returns. Sometimes it works, sometimes it doesn’t. Since the future is a very random place, I’d hold out that either possibility could occur. I wouldn’t dogmatically make a claim either way.
You need to read up on the work of one of two fellows who won the Nobel Prize in Economics last year, Anonymous.
You need to reflect on whether it is reasonable to believe that he won that award because people think he is a swell fellow who has a way about him.
The Nobel Prize is kind of a big deal.
Indeed, I respect him greatly. So when he tells me he’s 50% stocks at the moment, and can’t be sure what will happen with stock prices going forward, I take note.
Swell guys like that know when not to be dogmatic.
And it ALWAYS happens once stocks become insanely overpriced.
Crazed dogmatism turning unknowns into certainties.
Uh oh.
This is just politicians taking advantage of a situation to score political points.
Lived through it. Worked in the industry through it. Know what caused it. Subprime was the triggering event that caused a freeze and almost collapse of our financial system. Doesn’t take a huge change in the economy for stock prices to drop by half. You just need corporate profits to be 5% not 10% going forward.
I’m fortunate I was able to increase my stock allocation at the time, since I was gainfully employed and young enough to take the risk.
Actually no, the numbers are not tiny.
Compared to the $12 trillion in losses that Buy-and-Hold cost us ($12 trillion is the amount of the direct losses — combine direct and indirect losses and the total is in excess of $20 trillion), the numbers are tiny.
You don’t want to look at the losses caused by Buy-and-Hold because you played a part in causing them. It’s easy to point fingers at others. It’s harder to own up to one’s own mistakes.
But it is by owning up to our mistakes that achieve great advances.
Rob
Your argument that the risk is less during economic stress has an underlying assumption that the US economic system will not suffer an irreversible collapse
If there is an economic collapse, it doesn’t matter where you invest your money. So that’s not an issue that the person deciding where to invest his money needs to take into consideration.
The investing risk is as low as it can be when valuations are insanely low. In that scenario, there is only one direction in which prices can move — upward. All possible scenarios (except for economic collapse, which is the end of the game for everyone) are good for those investing in stocks in those circumstances.
and that it will always have a steady state long term mean return.
The long-term return has been 6.5 percent real for 140 years. It could change. But it is not likely to change dramatically. When you count returns of 20 percent and 30 percent as real (as the Buy-and-Holders did in the late 1990s), you are living in a fantasyland. The investor who assumes a 6.5 percent long-term return might end up being a little bit off. But he is sure to be a lot closer to reality than the investor living in a fantasyland. The only people helped by those pushing the Buy-and-Hold Lies are those selling stocks for a living and even they would be better off in the long run if we permitted honest posting on the last 33 years of peer-reviewed research at every board and blog on the internet.
Rob
From today’s post by you on this exact topic, which you agree can’t be proven one way or the other:
I am telling you what I believe, Anonymous. I stand by those words. If I said anything different, I would be telling you a lie.
I am not able to imagine any circumstance in which the promotion of Buy-and-Hold strategies would not cause an economic crisis. Once you tell people that there is no need to exercise price discipline, you have taken the brakes off the car and you are going to end up with a crash. Are you able to imagine a scenario in which you can drive a car without brakes to a happy conclusion?
I will acknowledge that these views are extreme if you go by the continuum of viewpoints held today. I have not heard anyone else saying what I say here. It’s fair to point that out
But it is not right for me not to express my sincere views. It may be that there are many people out there today who share this view and are afraid to express it because they feel that they will be attacked for being too extreme. If the idea is going to be explored, we need to have people giving voice to it.
If everyone who holds this view says to himself “I’ll keep it zipped until lots of others are saying this,” the view will never be publicly expressed. I have a duty to say what I truly believe at every board and blog at which I post. Someone has to be the first to say these sorts of things. I wish it could be someone other than me. But. if no one else steps up to the plate, it becomes my job to do so. Someone has to get the ball rolling here. Shiller didn’t publish his research last week. It has been 33 years.
But I do NOT express this view or any other view in a dogmatic way.
I hold my views strongly but I do not hold them arrogantly. I often acknowledge that there are million of smart and good people who hold very different views. I often acknowledge that the Buy-and-Holders should be heroes to all of us and that we should feel respect and affection for them and be grateful for the important insights they have generated for our benefit. I often acknowledge that I have been wrong many times in my life and that it may be that I am wrong again. Those are not arrogant words, Anonymous.
I believe what I said. I believe it strongly. I have a right and duty to say precisely what I believe. A board community cannot achieve its potential unless every community member shares his sincere views. It is the interaction among a wide range of differing views (some on the extremes of the continuum and some in the middle of it) that creates a solid learning experience for all.
So there is nothing even a tiny bit wrong with me stating that opinion. If the opinion is foolish, it will be exposed as such. If the opinion has merit, that will become evident through the ongoing discussions. But the opinion that is sincerely held must be expressed accurately and in full strength for all the magic to happen. It would be wrong of me to state a view other than the one that I actually hold.
Dogmatism hurts us. I would be wrong to say “no one else may express a different opinion because it is so clear that I am right.” That crosses the line. I should respond to those who express other points of view with respect and warmth.
But I should of course NOT respond to those who engage in deception or intimidation tactics with respect and warmth. Those who post abusively hurt all of us. We all should be united in speaking out strongly against that sort of stuff.
I respect you for holding a different viewpoint. I do NOT respect you for posting abusively. When you post abusively, you degrade yourself. As your friend, I am compelled to urge you to stop doing that.
Rob
Ok, that’s reasonable. But that’s very different from:
I don’t see the big difference between Form A and Form B.
I do not feel bound in conscience to use Form B.
If the Buy-and-Holders were to tell me that they prefer that I use Form A to make this point, I would be happy to give up Form B.
I have suggested elsewhere that someone offer particulars of things that I say that Buy-and-Holders find objectionable. I would happy to let them know whether I can go along with the suggested phrasing or not.
In the case at issue here, I would have no problem going along with the suggested phrasing.
If it were suggested that I say “the Old School SWR studies are analytically valid,” I could not go along.
But even in that case, there are lots of things that I would be okay with saying. I am happy to say that the Old School SWR studies constituted a big advance from what we had before they came along. I am happy to say that the people who prepared the Old School studies possessed a sincere desire to help people. I am happy to say that the Old School SWR studies accurately report the Historical Surviving Withdrawal Rate (HSWR). I am happy to say that there is always a chance that a 4 percent withdrawal will work and that, except when valuations are very high, the odds that 4 percent will work are very high. I am happy to say that none of this is pure science and that we are still at a stage where we are learning lots of new things and that thus all of us should try to avoid dogmatism. I am happy to say that the authors of the Old School SWR studies are good and smart people.
There’s one scenario in which I could even see myself saying that it is okay for an Old School SWR study to remain up at a site in Old School form. If the author of the study included language in the study explaining that there is a New School of thought that maintains that an adjustment for the valuation level that applies on the day the retirement begins must be included in the calculations and linked to places where more background on that school of thought could be obtained, that would show good faith and put the readers of the Old School study on notice that there are good and smart people who have issues with the way the retirement study they are reading was set up.
In that case, I think it could be argued that the burden has been moved to the reader to decide whether a valuation adjustment is required or not. In those circumstances, I think it could be argued that the author of the Old School SWR study has placed himself on the right side of the ethical divide.
I acknowledge the sensitivity of these discussions. If there are things that can be done to reduce the friction, I am all for us working together to see that those things are done. The words above suggest that in this particular case, an acceptable change in wording would help. In those sorts of circumstances, I am of course happy to agree to state things in the acceptable way.
Rob
That sounds reasonable. Did the same person also write:
Yes, the same person wrote both things.
I have spent a lot of time thinking about these things and I have strongly held views. But I am a flawed human. I get things wrong from time to time. There are millions of good and smart people who do not agree with me. Everyone who hears my words needs to know that. I DO believe what I say. I AM sincere. But I am also FLAWED. I could be wrong.
I’ll give a silly example of me being wrong and realizing it at a later time of life.
When the Beatles single “Hey, Jude” b/w “Revolution” came out, I thought that “Revolution” was amazing. I did not care for “Hey, Jude.” It made me crazy that “Hey, Jude” was picked for the A side. I kept saying: “Why is Hey, Jude” the A side? What were they thinking?”
Today I rank “Hey, Jude” as my favorite Beatles song. I either was wrong in my first reaction or I am wrong today. There was something in “Hey, Jude” that I just didn’t see when it first came out. So I obviously am capable of developing a wrong take on things.
I am NOT perfect. I do not say that I am.
But say that I am right in what I think about investing?
If I am right, I have an obligation to share what I believe with my friends, do I not?
Would I not be an awful person if I believed these things and just kept them to myself? I would be letting you ruin yourself and not even trying to warn you beforehand. Wouldn’t that be pretty darn low behavior?
I care, Anonymous.
I care about you and I care about the experts and I care about the boards and blogs and I care about my country. That is the driver here. I care. If you care, you cannot say something other than what you believe about so important a matter.
I don’t ever say anything to hurt people’s feelings. Not once have I done that. I know that things I say DO hurt people’s feelings. I have seen that happen many times. But I can take an oath that that has never once been the intention.
Rob
Just to be clear, this is your belief, and you could be wrong. It’s also something no one else in the world believes.
Every word that I put forward is my belief and could be wrong.
But given that this belief of mine is a sincerely held belief, do you think that it would be right for me to keep it to myself? Do you not think that I should try to help out my friends before events take place that make it too late to help them?
And I don’t think that it is so clear that no one else in the world believes what I say re this point.
No one else publicly says what I say re this point. I give you that one.
But we do not know what people believe in their hearts. There is too much intimidation going on for people to feel safe saying openly what they truly believe.
My guess is that there are others who feel concerns along the lines of those I have expressed. My further guess is that the others do not feel as strongly as I do. My experience is that humans have a hard time coming to hold views that are not socially acceptable. So the people who hold somewhat similar views probably hold them only in watered-down form. I have come to hold them more strongly because I have held these views for some time and because I think about them a lot and because I write about them here at the blog. Those experiences cause me to hold the views more strongly as time passes. So my guess is that no one else holds these views as strongly as I do today. But I believe that some may hold similar concerns while being afraid to give public voice to them.
One big issue here is that investor views CHANGE with changes in portfolio values. Say that no one else holds these views today. But say that a large percentage of the population comes to hold them following a future price crash. What then? We all need to keep in mind that the views that people hold today are not necessarily the views that they will hold tomorrow. Investing is an emotional endeavor. We forget that at out peril.
How did we let things reach this point, Anonymous?
That’s the question that we all should be reflecting on.
Why place ourselves in circumstances in which such things even need to be discussed?
We don’t want to be where we are today.
If you are expressing in your posts today a hint of a desire to take things to a better place, I am 100 percent on board.
I don’t want to see anyone hurt in any way, shape or form. That’s not what I am about.
Rob
Again, this simply isn’t true, most economic phenomena, from housing and stock prices to the economy itself, move in not-perfectly-random cycles.
Is it possible that our understanding of how economics works could advance over time, Anonymous?
Is it possible that a fellow who won a Nobel Prize in Economics could be responsible for that advance?
I believe that that is what is happening here.
The advance is not yet complete. So it is not written up in detail in all of the textbooks yet. That’s in the PROCESS of happening.
Part of the process is communication and exploration of the ideas.
We are today stuck at the stage just before communication and exploration of the ideas. I am trying to push things into the communication and exploration stage of the process. That’s my aim here.
If you know a better way to do it, please tell me about it.
My feeble human brain tells me that the best way to push things to the communication and exploration stage is to just start talking.
Rob
As you’ve been shown repeatedly Rob, actual, indisputable buy and hold returns over the past few decades show conclusively that they’re doing quite well.
If you go to the history books, you will see people saying the same sorts of things in the Summer of 1929.
Rob
What we’ve seen is valuations explaining 38% of the variability in future stock returns.
I haven’t seen the study you are relying on when you cite this 38 percent number. But it sounds to me like the study looks at the effect of valuations at one particular point in time, ten years out or five years out or 20 years out or whatever.
Valuations explain 100 percent of the variability of future stock returns if you don’t impose that limitation on the analysis.
The long-term return is 6.5 percent real. Changes in valuations push the number above that and below that. But the number always returns to 6.5 percent real.
What reason is there to be believe that there is any factor other than valuations causing the short-term return to move above or below 6.5 percent real if the long-term return is always 6.5 percent real?
The productivity of the U.S. economy is responsible for the 6.5 percent number. So, if productivity increases or decreases, that number could change a bit.
But I am not aware of any reason to believe that variations from the 6.5 percent number that we have seen historically were caused by any factor other than valuations. Every time the return went higher, the P/E10 value increased. And every time the return went lower, the P/E10 value decreased. Is that not so?
The very word “overvalued” suggest a mispricing. If stocks are mispriced for a time, you should expect the market to pull the price down to get the price right. Isn’t that what markets do — establish proper prices?
Rob
Crazed dogmatism turning unknowns into certainties.
How is what I say there any more “crazed” or “dogmatic” than Bogle saying that there is no need to lower your stock allocation by more than 15 percent when the most likely annualized 10-year return goes from a positive 15 percent real to a negative 1 percent real?
He is working from a different set of premises than I am. His beliefs are rooted in Fama’s research and my beliefs are rooted in Shiller’s research. That’s the only difference. The two wildly different starting points lead to two wildly different sets of strategic recommendations.
If I am crazed, my good friend Jack Bogle is crazed too. I am in good company. I can live with being just as crazed as my good friend Jack Bogle.
Rob
Lived through it. Worked in the industry through it. Know what caused it.
And yet you have managed to remain non-dogmatic about it!
Truly outstanding!
Rob
Indeed, I respect him greatly. So when he tells me he’s 50% stocks at the moment, and can’t be sure what will happen with stock prices going forward, I take note.
I take note of those things too. But I draw different conclusions.
Shiller’s 50 percent stock allocation conflicts with his own recommendation in 2009 that investors not get back into stocks until the P/E10 level goes below 10. Contradictory positions do not inspire confidence in me. A second conflict is that Shiller ha predicted a price crash for this year. So the 50 percent allocation makes no sense according to the man’s own expectations. He said in the same interview that he has a set of personal indicators that he looks at. That sounds like short-term timing to me. I don’t believe that short-term timing works.
Shiller is one of my heroes (I rank him up there with Bogle). But he is as human as the rest of us.
As for the stuff about not being sure what will happen with stocks going forward, not being sure does not excuse not telling people what the last 33 years of peer-reviewed research says. The research says that stocks are far too dangerous today for the typical middle-class investor to be going with a stock allocation of much greater than 30 percent. Shiller may be able to handle a higher allocation — he knows more about this subject than millions of middle-class investors. But if he excuses not speaking straight about the dangers of a price crash which he has himself predicted, I think it would be fair to say that he is not covering himself in glory by doing so.
It’s fine to say “I am not sure.” It is not so fine to say “50 percent” when the proper percentage is “30 percent” and then to excuse doing so by adding “I’m not sure.” None of us are sure. But we all should be saying what we say with the aim of helping the investors who hear our words. Those who say “50 percent” earn more popularity points for themselves than those who say “30 percent.” But in the event that stocks continue to perform in the future at least somewhat as they always have in the past, they hurt a lot of people by doing so.
Not this boy.
Swell guys like that know when not to be dogmatic.
You are now mixing up the words “dogmatic” and “honest.”
I make no apologies for striving to be honest in all the comments I post, Anonymous. There was a time (pre-May 13, 2002) when I was less than honest because I too craved those popularity points. I apologize for my lack of courage in those days. I don’t even a tiny bit apologize for working up the courage to be fully honest for the first time on the morning of May 13, 2002. A lot of wonderful things have followed from that act of honesty. I never want to return to those dark pre-May 13, 2002, days.
My best wishes to you and yours.
Rob