Set forth below is an exchange about Valuation-Informed Indexing that took place on the Monevator blog:
Phil: Hi, a little bit related to this thread, I’ve been reading a bit up on Rob Bennett’s “Passion Saving” site and blog and what he calls “Valuation-Informed Indexing”. While there seems to be a little confusion over people using the term passive and what exactly it entails and to what extent, I’m trying to work out if his approach is similar to your passive approach or is against it!?
For example are his “stock allocation” changes really just the same as Monevator “rebalancing” the portfolio every year or 2 or a different more active strategy?
When he suggests share reallocation depending on the P/E ratio as an indicator of the markets over/under valuation does he really mean reducing/increasing exposure to the stock market as a % of your entire asset portfolio (I guess to be held in cash or bonds instead?) or just rebalancing your funds ( in a selling high, buying low balancing of funds as is recommended on this site)?
I’m sure you may have covered this before but any thoughts/ opions you have on his strategy would be great.
Owner of the Monevator Blog: @Phil — No, the strategies are not the same. Our rebalancing is a mechanical process whereby you return after some period or level of fluctuation to your original asset allocations. So if you were 40/60 bonds/equities, say, and changes in asset prices changed your allocation to 30/70 after one year, say, then you’d sell equities to top up bonds.
Rob Bennett’s approach is one of varying your allocation based on the perceived valuation of the market. It sounds quite seductive and I don’t think it will actually do too much harm provided you use it to tweak (not set!) your stock market exposure. i.e. If you used valuation — he uses CAPE, or PE/10 from memory — to determine whether you were 40/60 or 50/50 or 60/40 in shares — then it might have some utility over the long-term. I say that because valuation methods have a very poor short term prediction record, and even over 10 years CAPE only explains about 40% of stock market moves. That’s better than anything else, but hardly a slam dunk.
The big risk of anything more — i.e. using it for extreme market timing moves — is it could keep you out of the market for long periods of time. If PE10 really does work it’d even out eventually, perhaps (though you’d have to remember you’ve forgone dividends, too, when doing your calculations) but very often you’ll find the windows where you can buy are extremely small. From memory it gave no buy signal in 2009, for instance.
Rob Bennett used to comment on this site a lot until I got fed up with his “strident” approach and warned him I’d start delete his posts. He carried on (IMHO) so I started deleting them. To his credit he finally took the hint and stopped commenting, which saved us all some time. If you Google “Rob Bennett” in the Search box in the sidebar you’ll see some of his side of the story. Any particular contribution is usually fine to read, but it was the relentlessness of it that took its toll. He’s met a similar fate across a great many sites across the Web, which is a shame as it doesn’t help his message at all, which is perfectly coherent, albeit not one I am fully on board with.
Personally I think most passive investors will do best with the mechanical rebalancing strategy (adjusting allocations as you age) but I can’t tell the future, and so can’t guarantee it. 
Phil: Thanks for the reply, I did search his name in your posts and just wow, that’s some pretty long and epic comments he had! Needless to say just the style and magnitude of his replies have greatly reduced any merit I thought they may hold! I applaude you for being as patient as you were! He just didn’t seem to to get the point
Anyway many thanks for your help and your ongoing blogging, it really is very useful for the uninitiated. I have just started up a lifestrategy 80% fund with drip feeding monthly and will see how it goes! In time once I have built up my account and contributions (to perhaps 10/15k mark) and increased my understanding I may become a bit more active and control my own portfolio of index funds rather than soley through Vanguard lifestrategy one stop!
More proof that you were banned for your poor behavior. Any normal person would have learned their lesson by now.
More conformation that people do not like Rob’s behavior.
Yes and no, Anonymous.
There are many people who do not like the “behavior.” That much is certainly so.
But the seemingly problematic “behavior” is just to present the lessons taught by the last 33 years of peer-reviewed research in precisely the same manner as the Buy-and-Holders present the lessons taught by the pre-1981 peer-reviewed research.
The Buy-and-Holders don’t limit themselves to one post per day or one post per week or whatever limit it is that the Buy-and-Holders want me to impose on myself.
The Buy-and-Holders do not hold back from using phrases like “this is wrong” or “this is dangerous” or “this is not consistent with the peer-reviewed research.”
The Buy-and-Holders don’t remind their readers with every comment that they post that they are human and they could be making a mistake. I don’t do this in every comment. But I do it often. That’s more than I can say for most of my Buy-and-Hold friends. A good number of my Buy-and-Hold friends don’t EVER note that it could be that they have gotten everything terribly wrong and that all of those reading their words need to be sure to check out the other point of view.
I’ve “learned the lesson” that the Buy-and-Holders are very, very, very insecure re their investing views and would prefer not to be presented with serious challenges to those views. I REJECT the idea that those of us who believe that we see something good in the last 33 years of peer-reviewed research should be holding back from saying what we believe JUST AS STRONGLY AS WE BELIEVE IT because of the intimidation tactics employed by our Buy-and-Hold friends to discourage us from doing so.
When any of us give in to the intimidation tactics, we hurt everyone. We hurt the millions of middle-class investors who need to hear both sides of the story to make good decisions. We also hurt the Wall Street Con Men, who got into this field because they want to help people plan their financial futures effectively, not because the want to cause economic crises. We also hurt the Internet Goon Squads, who end up serving prison sentences rather than engaging in fun back-and-forth conversations with their Valuation-Informed Indexing friends.
I don’t submit to intimidation tactics.
I love my Buy-and-Hold friends. But I don’t submit to intimidation tactics. In fact, that’s partly WHY I don’t submit to intimidation tactics. Intimidation tactics are for losers. I don’t like to think of my Buy-and-Hold friends as losers. So I want them to knock off the funny business. I certainly am not going to persuade them to knock off the funny business by submitting to their intimidation tactics.
I would be grateful if you would spread the word all over the internet that Rob Bennett is the fellow who REFUSED to submit to the intimidation tactics of the Wall Street Con Men and their Internet Goon Squads. I have hopes as time passes of becoming even more famous for this than I am today.
I hope that helps a bit, Anonymous.
Rob
Even if you did not violate specific rules of these boards you made them so absolutely unbearable the mods had to ban you or else everyone else would simply stop coming to the board.
You just respond to other peoples question by rambling off topic about what YOU want to talk about. I would love to be a fly on a way and see you interact in real life with someone. I would be curious to see if you are as socially inept even when discussing things other than finance.
How can you seriously claim their is a Buy and Hold Mafia preventing open discussion when you were allowed to speak at FINCON. You spoke, people listened, and everyone thought you were an idiot. What’s hard to understand about that?
I didn’t violate any rules. Not once. That’s a stone cold fact. Even a number of Buy-and-Holders have acknowledged this.
It is true that the moderators have been put in a tough spot. It is true that many community members have told site owners that they would leave their sites if I was not removed. That’s ALSO a stone cold fact. And I DO have sympathy for those site owners (even though I do NOT believe that they are right to ban honest posting).
I NEVER go off topic. That claim is false.
I have zero problems interacting with all kinds of people in real life. And I of course had zero problem on the internet until the morning of May 13, 2002, when I put up my famous post pointing out the errors in the Old School SWR studies. I was the most popular poster at the Motley Fool site on May 12, 2002. By September 27, 2002, there were 200 of my fellow community members endorsing a post containing threats to kill my wife and children if I continued to post honestly re the numbers that people use to plan their retirements. It’s the investing issue that is the problem here.
Not one person at FinCon said that they thought I was a idiot. Not one. I received loud applause when people heard the title of my talk (“How to Become the Most Hated Blogger on the Internet”). A number of people came up to me afterwards and told me how impressed they were. We sat around and talked and ate for several hours. It was all friendliness, no friction. A woman who I was planning to hire to help me with marketing efforts told me that she asked people sitting near her what they thought and they told her I sounded “bitter.” She told me that she would be thrilled to work with me once you Goons were no longer in the picture. She does not want to have organized groups attacking here site and destroying her business.
I agree with your point that the Buy-and-Hold Mafia does not possess absolute power. It’s not just that I talked at FinCon. Shiller published his book and it was reviewed in major publications and it was a best-seller. He even won a Nobel prize. And people like Todd Tresidder have sites where they openly discuss implications of Shiller’s finding that valuations affect long-term returns. So word IS getting out. But far too slowly. We very much need to pick up the pace here.
The core problem is that there are two academic models that explain how the stock market works. Most of the experts in this field have led people to believe that there is only one. That is simply false. There is Buy-and-Hold, the model rooted in a belief in Fama’s research. And there is Valuation-Informed Indexing, the model rooted in Shiller’s research. Both Fama and Shiller have been awarded Nobel prizes. Every community member’s right to post honestly re his or her belief in EITHER model must be respected at every discussion board and blog on the internet. There can never be a single exception.
All of the trouble that has come about is because of decisions that were made long before I came on the scene. Bogle should have given a speech within one week of the day that Shiller published his “revolutionary” (Shiller’s word) research. He should have told people that there was now research that threw doubt on the Buy-and-Hold Model. If he still personally believed in Buy-and-Hold (I believe that he did), he should have said that too. But he should have let all his followers know that there were now reasonable grounds for doubt.
Had he done that, no one would have been shocked when I questioned the Greaney study. Had Bogle given that speech back in 1981, every study published after that date would have contained language indicating what model it followed and directing people to literature providing background on the alternative model. Then there would have been no grounds for charges of fraud. Everything would have been done out in the open. We all would be friends. We all would converse with each other in an environment of mutual respect and affection, We all would have for 33 years now have been enjoying a wonderful learning experience together.
It didn’t play out that way. Humans are not angels. We made some mistakes and things got on the wrong track. Now we have millions of people whose retirements are riding on the validity of the Buy-and-Hold Model. It makes those people sick to think that they have been following a strategy that may not work out in the long run. I am not wrong to tell them that. It is our society as a whole that has failed them by keeping the truth from them for so many years.
People need to hear both sides, Anonymous. There are no grounds for legitimate controversies here. People MUST hear both sides to be able to make informed decisions as to how to invest their retirement money. I am 100 percent happy to work with any responsible parties to figure out how to get us from the horrible place where we are today to the wonderful place where we all long to be tomorrow.
Are you willing to lend a hand, Anonymous? Do you want to work with me to take this matter in a constructive and positive and life-affirming direction?
If you are, please let me know and we can get to work right away.
Rob
People are polite to your face, but you should hear what they say when you are not there to hear it.
What does that say about Buy-and-Hold, Anonymous?
And what do you think those people are going to say about those who posted in “defense” of Mel Lindauer and John Greaney when they learn that it was all a lie?
It seems to me that your prison sentence will turn out being a good bit shorter if you come clean prior to the next crash.
That’s my sincere take re all this in any event.
My best wishes to you and yours.
Rob
“I have zero problems interacting with all kinds of people in real life.”
Mike Piper, Lady Boss, and likely a whole lot of others would likely disagree.
Mike and I had a long conversation re all this at one of the FinCon meetings.
He told me that “there is nothing that I would like better” than to open up his blog to honest posting re the last 33 years of peer-reviewed research. He said that he hasn’t done it because he is “afraid” of what Mel Linduaer would do to him. He said that everyone he knows views Lindauer as “a massive jerk.”
What does it say about Jack Bogle that he permits his name to be used at a board at which Linduaer terrorizes the entire community?
Rob
and likely a whole lot of others would likely disagree.
The Lindauerheads hate me with a burning hate.
The Greaney Goons too.
A good sign, no?
Rob
—
He told me that “there is nothing that I would like better” than to open up his blog to honest posting re the last 33 years of peer-reviewed research. He said that he hasn’t done it because he is “afraid” of what Mel Linduaer would do to him. He said that everyone he knows views Lindauer as “a massive jerk.”
—
Why the partial quotes? I suspect that the rest of the quotes would give a different impression from the on you are trying to give.
There are a lot of blog entries here dealing with Mike Piper.
He always hated being dishonest. But he feels that he has no choice. He feels that his blog will be destroyed if he permits honest posting.
That’s how lots of people feel. It’s very similar to the situation with Wade Pfau. He loved doing honest research. Be he didn’t want to see his career destroyed.
I think that a good case can be made that it’s the same basic story with Jack Bogle. Jack is the one who provided the honest information in his book that helped me come to understand that the Old School SWR studies were in error. He put that language in the book because he has a conscience. Yet he is the lead promotor of Buy-and-Hold. Beat that!
The impression that I am trying to create is that Mike Piper feels trapped by the lies that he and many others have told in the past. And that the same is so with Wade Pfau and Jack Bogle and thousands of others.
Now —
How do we all work ourselves out of the trap we have created for ourselves?
Do you have any constructive ideas, Evidence?
Rob
The Lindauerheads hate me with a burning hate.
No, they ignore you with a yawning indifference. You just add in the drama to justify whatever it is you think you are doing. And boy is there a lot of drama: “hate”, “love”, “fear”, “lies”, “intimidation”, “conspiracy”, “trapped”, “prison”, “terrorizing”, “threats”, etc.
There’s drama because there is money involved. Having more money lets people achieve their life goals. I want to see that. But acknowledging that for years you have pushed strategies that have caused people to NOT be able to achieve their life goals brings on feelings of shame and embarrassment and humiliation.
I did not CAUSE those feelings for the Buy-and-Holders. But they feel that, if the cover-up could continue, they could go another day, another week, another month without having to come to terms with those feelings. I call b.s. on continuation of the cover-up. All they are doing is extending and worsening their bad feelings by causing financial ruin for more people with each passing day. Yuck! It is better for every single person involved that we put the ugly dramas behind us and move on to the exciting and liberating and fulfilling and life-affirming dramas that follow from getting the word out about how to reduce the risk of stock investing by 70 percent (AVOID Buy-and-Hold strategies!).
And, no, the Linduaerheads are not capable of ignoring anyone who posts honestly on the last 33 years of peer-reviewed research. If they could ignore me, there would be no problem. A large number of community members said that they loved, loved, loved my stuff. If the Lindaurheads could have held back from putting forward 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, everyone would have been happy.
But the Linduaerheads hate honest reports of what the peer-reviewed research says with a burning hate. Because the peer-reviewed research says the OPPOSITE of what the Linduaerheads have been saying it says for the past 33 years. The research says that investors must always, always, always be certain to exercise price discipline to prevent their risk profile from getting wildly out of whack. The Linduaerheads say that there is some mystical, magical research (for which they are not able to provide a URL) that is going to cause all the rules of stock investing to be stood on their heads and permit a Buy-and-Hold strategy finally to work for one or two long-term investors.
Yeah, sure there is.
You Goons are so confident in what you say that there probably is a small chance that it will all turn out somewhat as you say.
I believe you.
No — Really.
Take good care, man.
Rob
More stock drama. It’s as tiresome as the five year old drama princess proclaiming to the world that she’s dying. Except less cute.
The “Lindauerheads”, like the Monevator blogger and others, simply found your repetitive walls of text to be irritating enough to remove. People swat mosquitos. They don’t hate the mosquito. The mosquito isn’t significant enough to hate. This epic struggle for world domination is taking place only in your mind.
You’ve devoted 12 years of your life to swatting the mosquitos when you could have just followed the published rules of the sites to which you posted and permitted the people who wanted to hear a viewpoint other than your own to hear it. And you want me to believe that it’s no biggie to you.
I’m not buying, X.
And it’s not a close call.
Rob