Set forth below is the text of a comment that I recently posted to another blog entry at this site:
Super post, Canuck. I relate to everything you say here.
Shiller published his research showing that valuations affect long-term returns in 1981. If valuations affect long-term returns, the risk of stock investing increases each time valuations increase. Buy-and-Holders recommend staying at the same stock allocation at all times. That means that your risk profile is usually wrong. You are in most circumstances taking on either more risk or less risk than is appropriate for an investor in your circumstances. Getting your risk profile wrong is ALWAYS going to hurt you. It can NEVER be a plus.
Say that a 60 percent stock allocation is right for you when valuations are at moderate levels. If you stay at 60 percent stocks when valuations are high, you are hurting yourself — your stock allocation is wildly off the mark. Your stock allocation is also wildly off the mark when valuations are low — again you are hurting yourself.
The stock allocation you choose is the most important factor determining whether you will be successful in the long term. If you are willing to adjust your stock allocation as conditions change, it’s pretty easy to insure good long-term results. But if you refuse to change your stock allocation (that is, if you practice Buy-and-Hold), you insure that your stock allocation will be wrong two-thirds of the time.
If you choose a stock allocation that is right for you when prices are moderate, you have the wrong allocation two thirds of the time (when prices are low or high). If you choose a stock allocation that is right for you when prices are high, you have the wrong allocation when prices are low or moderate. If you choose a stock allocation that is right for you when prices are low, you have the wrong allocation when prices are moderate or high.
It is IMPOSSIBLE to get your allocation right if you follow a Buy-and-Hold strategy. Because the last 33 years of peer-reviewed research shows that risk is VARIABLE. If risk is variable, you MUST change your allocation in response to big changes in valuations.
Here is the research paper that I prepared with Wade Pfau:
http://arichlife.passionsaving.com/wp-content/uploads/MPRA_paper_35006.pdf
Please look at Table 1 on Page 18.
Look at the Maximum Drawdown section. The Maximum Drawdown is a good measure of risk. It is the greatest loss you ever could suffer following the strategy you employ. The Maximum Drawdown for Buy-and-Holders is 61 percent. For Valuation-Informed Indexers, it is 21 percent. That’s a reduction of about two-thirds. That’s huge! I am not saying this to brag and there are of course hundreds of good and smart people who played a role in helping me and Wade to produce this study, but that is the most important finding in the history of personal finance.
We now know how to reduce investing risk by close to 70 percent. That’s like learning how to cure cancer.
I had several long-time Buy-and-Holders tell me when that study came out that they were so impressed with that finding that they were considering changing strategies for the first time in their lives.
The response of the Buy-and-Hold Mafia was to threaten to send defamatory e-mails to Wade’s employer in an effort to get him fired from his job. Wade is financially responsible for two small children. He agreed to stop doing honest research if the Goons would let him keep his job.
Jack Bogle knows about this. He is okay with what the Goons did. Bill Bernstein knows. He is okay with what the Goons did. Larry Swedroe knows. He is okay with what the Goons did. Rick Ferri knows. He is okay with what the Goons did. The Buy-and-Hold Mafia cannot afford to see this research written up on the front page of the New York Times. The day that it is will be the day Buy-and-Hold dies in a practical sense (Buy-and-Hold died intellectually in 1981, when Shiller publisher his research showing that valuations affect long-term returns).
I wrote to the 30,000 names at the Social Science Research Network site to let them know about this. A good number wrote me back saying that they agree that this is corruption but that they do not feel that they can do anything about it given the brutally abusive practices of the Wall Street Con Men and their Internet Goon Squads. None of us can effectively stand up to the Buy-and-Hold Mafia on our own; we need to unite and insist on enforcement of the U.S. laws against financial fraud to have any chance at bringing these powerful and wealthy and corrupt individuals to justice. If this isn’t the greatest act of financial fraud in the history of the United States, I’d hate to know what is. I think it would be fair to say that this is 500 times worse than anything that Bernie Madoff ever did and Bernie Madoff lives in a prison cell today. I think it would be fair to say that Bernie Madoff is Mother Teresa compared to some of the “individuals” we have seen put up posts in “defense” of Mel Linduaer and John Greaney (and my good friend Jack Bogle).
Here’s a list of comments that Wade made about me and about Valuation-Informed Indexing during the 16 months that we were working together:
http://arichlife.passionsaving.com/2014/02/20/what-a-difference-a-threat-to-get-the-father-of-two-small-children-fired-from-his-job-has-on-an-investing-discussion-eh-long-live-buy-and-hold-its-science-with-a-marketing-twist/
There is zero chance that Buy-and-Hold can ever work for a single investor because it is built on a false premise. Prior to 1981, people believed that stock investing risk was STABLE. If stock investing risk was stable, Buy-and-Hold would be the ideal strategy.
What happened is that many powerful people built careers pushing the Buy-and-Hold concept BEFORE we learned from the research that it can never work. Then, when we learned this in 1981, they were embarrassed. They didn’t want to acknowledge the error. They felt that it would hurt their careers. So they ignored Shiller’s findings. And they put pressure on lots of others to not say anything about Shiler’s findings either.
Now we are 33 years down the road and the penalty of ignoring Shiller’s findings has become clear — millions of failed retirements and an economic crisis that may well eventually become the Second Great Depression. The people who didn’t want people to learn these realities back in 1981 really, really, really don’t want them to learn these realities today.
Most of them would like to come clean. There is tons of evidence that they have consciences and would love to find some way to get the word out. But how the heck do you get the word out without lots of people being sent to prison for the greatest act of financial fraud in U.S. history? The Goons don’t like it when I talk about the prison sentences. But my aim is to REDUCE the prison sentences. We can only reduce them by getting the word out and by bringing the economic crisis to an end. Each day that the cover-up continues, we cause more financial ruin and thereby INCREASE the length of the prison sentences of those who have participated in this massive act of financial fraud.
It’s a mess!
But the core reality here is very, very, very positive. We now know how to reduce the risk of stock investing by 70 percent. This is the biggest advance in the history of personal finance. My aim is to get all the nasty stuff behind us and then just concentrate on all the wonderful insights that we have mined over the past 33 years and have not been able to benefit from because we have had to keep it zipped to keep from hurting the feelings of the Buy-and-Holders.
Thank for asking. That was a super question.
Rob
What do you mean by “defense”. Does that mean that people who agree that you are too disruptive that you should be banned?
I guess that would be one way to put it, Anonymous.
Valuation-Informed Indexing is the model rooted in the research of Robert Shiller. Prior to Shiller’s “revolutionary” (his word) findings, Buy-and-Hold had become the dominant model for understanding how stock investing works. Yes, the new model DISRUPTED everything in this field. REVOLUTIONARY advances do that.
It is a WONDERFUL disruption. The peer-reviewed research that I co-authord with Wade Pfau shows that by permitting this DISRUPTION we can reduce the risk of stock investing by 70 percent overnight. That’s some AMAZING disruption!
You OPPOSE the wonderful disruption. You DEFEND Buy-and-Hold.
I SUPPORT the amazing disruption. I OPPOSE Buy-and-Hold.
A core principle of our nation is that positive disruptions are to be permitted and supported and encouraged. The continued promotion of Buy-and-Hold by the Wall Street Con Men is destroying our country. I LOVE my country. So I DEFEND my country from these attacks.
I OPPOSE the Buy-and-Hold strategies that you DEFEND.
I say — Let’s Disrupt!
Rob
Putting Bernie Madoff in prison DISRUPTED his act of financial fraud.
GOOD!
Rob
If as a nation we did not favor the DISRUPTION of massive acts of financial fraud, we would not have enacted laws making financial fraud a felony.
Your prison sentenced will in all likelihood DISRUPT your enjoyment of the ability to live a free life.
Rob
My honest post of the morning of May 13, 2002, DISRUPTED John Greaney’s ability to con our fellow community members about what the peer-reviewed research in this field shows us about safe withdrawal rates.
What a meanie I have become!
How could anyone ever become so mean?
Rob
The purpose of legitimate investing advice is to DISRUPT the fantasies that we need to believe in to be able to follow Get Rich Quick investing strategies.
Holy DISRUPTION, Batman!
Rob
How DISRUPTIVE of me to shoot back five responses in a row!
Rob
Oops! Six!
Seven!
Rob
I’m joking around a little bit, Anonymous.
We’ll see what happens following the next price crash.
Hang in there, man.
Rob
Get over your butt hurt. Your prison fantasy will remain a fantasy. Grow up.
Occam’s Razor, no one supports VII because it sucks not because of some grand conspiracy.
Get over your butt hurt. Your prison fantasy will remain a fantasy. Grow up.
Seeing you go to prison is only a secondary fantasy for me, Anonymous.
My primary fantasy is to help millions of middle-class people to invest more effectively.
The announcement of your prison sentence eliminates the one obstacle still standing in our way. That’s obviously a very good thing. But seeing you go to prison is not in itself the primary goal. That’s why I am happy to help you get your prison sentence reduced a bit if doing so brings the economic crisis to a close a bit sooner.
My best wishes.
Rob
Occam’s Razor, no one supports VII because it sucks not because of some grand conspiracy.
Occam’s Razor. If Buy-and-Hold were a legitimate strategy, we would not have seen one of its advocates behave in the manner in which we have seen ALL of its advocates behave for 13 years now.
It cuts two ways, Anonymous.
Which way do you think it is likely to cut following the next price crash?
Why do all these questions have to be so darn hard?
Rob
I’ve never seen any buy and holder act as boorish as you the sole VII supporter.
I know what will happen after the next price crash, buy and hold will still be viewed as the best strategy given the uncertainty in the market just as was the case with the last crash and the one before that and the one before that….
No amount of crying and stomping your feet will change that Rob.
You think people are going to prison because you were banned at some chat boards? Are you serious? That is the silliest thing I have ever heard.
I know what will happen after the next price crash, buy and hold will still be viewed as the best strategy given the uncertainty in the market just as was the case with the last crash and the one before that and the one before that….
We didn’t have 34 years of peer-reviewed research showing how the market really works following the first three Buy-and-Hold crashes, Anonymous. That’s what makes this one different.
People ignore the research findings so long as prices are high because it is painful to acknowledge what they say. People are counting on the Pretend Money to finance their retirements and it hurts to accept that they are counting on something that is not real. But I don’t see how that would be so after the Pretend Money is gone. It would seem to me that they would then become angry at the people who tricked them into believing that the Pretend Money is real and give up their anger at the people who tried for years to tell them the truth about what the research says.
But I do not claim to be infallible, you know?
This will be the first time in history when this situation will apply. Prior to 1981, we never possessed the piece of the puzzle that we gained when Shiller published his “revolutionary” (his word) research in 1981. Since 1981, we have been living through the most out-of-control bull market in U.S. history. It reached its peak in 2000 and the numbers have not been good for Buy-and-Holders since then. But it was only for a few months in early 2009 that the numbers got bad enough for Buy-and-Holders that a significant number of Buy-and-Holders started flipping. That was when we saw people for the first time working up the courage to call out Taylor Larimore on his lies. Then we pushed prices back up and that sort of thing stopped.
I think people will start calling out the Buy-and-Hold Lies at a furious pace after they see that most their retirement money is gone and is not coming back. I think that is going to change everything. I think people are going to be coming after the individuals who have put up posts in “defense” of Mel Linduaer and Joh Greaney and Jack Bogle with the intent of hanging them from a tree. I expect that I am going to in those days be trying to get your prison sentence reduced. My intent is to do all that I can to help you out. I have lots of materials at this site that I can use to make a case that a lot of what you are doing is the result of emotion and social pressures and I intent to make use of those materials to help you Goons out.
Are my efforts going to succeed?
My belief is that they are not going to make much difference. People are going to be too angry then t listen to any of the arguments that I put forward just as they are today too worried about losing the Pretend Money to take action to put you in prison to change things so that we don’t suffer such a horrible crash in the first place.
But I do not know. We have never been in such circumstances before. There is no precedent. All earlier Buy-and-Hold crises were treated like Acts of God. We did not have the peer-reviewed research that we needed t avoid them. So they were just things that happened to us that we had to endure. That changed 34 years ago. This is the first time in history that we suffered such a horrible catastrophe solely because the most abusive poster in the history of the internet got an important number wrong in a retirement study published at his web site and really, really, really, really, really, really, really wasn’t man enough to acknowledge the error and move on.
Here’s what I control, Anonymous. I control whether I try to help you Goons out or not. When people ask me following the next crash whether I tried to help you out or not, I want there to be hundreds of posts in my file showing that I tried and tried and tried and tried. Those posts are now in the file. Good for me. I am covered either way it goes.
That’s it, you know? The rest is out of my hands. I did the best I could do to keep your prison sentence as short as it could possibly be, given the circumstances that apply. I could do no more and I could do no less, and I did it.
And I wished you well after I had done so.
My best and warmest wishes to you and yours!
Rob
You think people are going to prison because you were banned at some chat boards? Are you serious? That is the silliest thing I have ever heard.
Here’s an article that I read yesterday about two individuals who went to prison because of things they said on the internet:
http://www.buzzfeed.com/patricksmith/isabella-sorley-john-nimmo-interview
One of the things on my list for today is to send an e-mail to the author of that article letting him know about you Goons and how your internet trickery has hurt not one person, but millions.
If he writes the article, he writes the article. If he doesn’t, he doesn’t. Either way, I will go to bed tonight knowing that I acted in the manner of a person who loves his country and is not afraid to stand up to protect it when it is under attack.
If he doesn’t get to work on the article today, I think there is a darn good chance that he will recall the e-mail following the next price crash and get to work on it then.
If it happens to slip his mind, I will send him a reminder.
I will also send reminders to the hundreds of bloggers that I have spoken to at the FinCon events.
I will also send reminders to all of the site owners who banned me and sent me apologies for doing so.
I will also send reminders to the 30,000 academic researchers whom I contacted when you Goons threatened to destroy Wade Pdau’s career if he continued to publish honest research on these matters.
I will also send reminders to lots and lots and lots and lots of others. Check the Post Archives if you want to know all the names.
And we’ll see, you know?
I can do no more and I can do no less. I love my country. So I will do everything in my power to see that you Goons and those who have posted in “defense” of you or who have permitted your posts to appear at their sites are sent to prison. That’s me. That’s my life. That’s what I do. It’s the most important work being done in the United States today. So I intend to keep doing every day of my life so that I can continue being able to live with myself and go to sleep each night when my working day is done.
You Goons have to win every day just to stay out of prison.
I only need to win once to collect a check for $500 million.
It would seem to me that 13 years of devotion to this project had placed me far, far, far ahead of you and your amazingly advanced intellects. It’s funny how that sort of thing can happen in a country that has the laws and traditions that we have in this country, isn’t it?
I took a sneak peek at the last page of our little sage before I advanced the famous post of the morning of May 13, 2002, Anonymous. I solider on. I win. You lose. The millions of middle-class investors win BIG TIME.
I thought you might want to know as you continue your deliberations as to where to turn to get yourself out of the corner into which you have painted yourself.
Take care, man.
Rob
I went to the buzzfeed article and need to let you know:
1) The things described there were not ‘trolling’; they were direct illegal potentially credible threats of rape and killing. Those can and should be prosecuted REGARDLESS of the medium used to invoke such threats — in person, on tape, in print, via computer whatever. The means are irrelevant. The ACTS are what are illegal and of course improper. It’s vile, disgusting, and law enforcement needs to do MORE enforcement, not less. Perhaps that’s one thing you and I can finally agree on.
2) “Trolling,” however is completely separate and apart. To ‘troll’ someone is to attempt to provoke a response. Period. It is something that annoys the crap out of me, but is not and should not be made illegal. Rob, you are a daily and constant ‘troll,’ yourself! You make purposely provocative and ridiculous statements merely to get a response. That seems to be your principal reason for being, in fact. When trolling is done as often seen on the internet, and certainly it your case, it seems to be an indicator of a type of mental illness. An attention-seeking behavior. Of course, trolling might include threats. Those are illegal. Trolls might make threats. Those are illegal. But attempting to provoke a response, even if done in a mean-spirited frame of mind, even if done as a ‘game’ or in order to infuriate someone regarding a political or social position, or for WHATEVER reason, is simply speech. Plain old protected speech. The fact you purposefully conflate trolling with illegal threats illustrates the very weakness of your own position. It is, in fact, a kind of threat itself, like your threats that people who disagree with you are going to prison. Rob, it would not surprise me to find that any threat ever made to you (not that there is evidence of a single one to date) would likely be made by yourself; to yourself, as part of that continuum of attention-seeking behavior. So, get help Rob. Please. IMHO, you really are sick, Scout’s Honor. And I think you know it.
The way in which our system works is that you get to present your case to your jury and the state gets to present its case and then the jury decides on the length of your prison sentence.
I wish you the best of luck with it regardless of what investing strategies you elect to pursue, Anonymous.
Hang in there, man.
Rob