I have posted Entry #222 to my weekly Valuation-Informed Indexing at the Value Walk site. It’s titled The Gruber Rule — You Must Deceive the Public for Its Own Good — Applies in the Investing Advice Field Too.
Juicy Excerpt: Jonathan Gruber believed that he was helping people when he crafted Obamacare provisions in such a way so that they could not understand what was really going on. The fellow who got me banned from the Bogleheads Forum believed that he was helping the members of that forum when he “protected” them from the calculator that shows them how much sooner they can achieve financial independence if they take price into consideration when buying stocks.
No one knows everything. Gruber doesn’t. I don’t. The fellow who wrote a book on Buy-and-Hold doesn’t.
It’s a mistake for any of us to become too convinced of the ultimate merit of our own beliefs. When we do, we cut off discussions that need to be held for both the promoters of ideas and the people hearing those promotions to develop a deep confidence in them.
And that, of course, is why we don’t see people (other than you) predicting 65% stock drops in short periods of time.
I think that everyone needs to hear predictions based on the peer-reviewed research, Anonymous.
We don’t know for certain that someone who smokes three packs of cigarettes per day is going to die an early death from lung cancer. But we know that his odds of doing so are much higher than the odds of someone who doesn’t smoke doing so. So we warn people that smoking too much leads to lung cancer.
I don’t know with 100 percent certainty that there is going to be another crash. I know that the last 34 years of peer-reviewed research shows that the odds that there will be one are very high, in excess of 90 percent. And I know that a 65 percent price drop will be devastating to millions of people who are counting on that money for retirement. So I tell them. I warn them of the dangers attached with going with a high stock allocation at a time when prices are at insanely dangerous levels.
You say with words that you don’t believe another crash is coming. But your actions tell a very different story. If you thought that you could make a case for Buy-and-Hold at a board that permitted honest posting on the last 34 years of peer-reviewed research, you would favor honest posting, confident that your position would prevail. You don’t have enough confidence in your position to permit honest posting. What does that tell us?
It tells us that your Get Rich Quick urge is strong enough for you to be taken by the Buy-and-Hold garbage pumped out by the Wall Street Con Men. And it tells us that on another level of consciousness you possess common sense and you are not able to develop confidence in the idea that stocks are the only thing on Planet Earth worth buying at any possible price. You won’t acknowledge it but there’s a part of you that accepts that Buy-and-Hold makes zero sense and that Valuation-Informed Indexing makes all the sense in the world.
Will you flip following the crash? I believe you will. First of all, Get Rich Quick will no longer be serving a purpose once prices are far below fair-value levels instead of far above them; to pretend to believe in Buy-and-Hold then will mean lowering your portfolio value instead of increasing it. Huh?
Secondly, you will be angry at the Wall Street Con Men who tricked you. Your emotion will flip. Today you like the people who tell you the lies that you so much want to believe. Tomorrow, you will be sick at the thought that you fell for those lies and will want to hang those who encouraged you to do so from a tree.
I don’t have a crystal ball. But that’s how I see things playing out. If it plays out that way, I will be the one with hundreds of thousands of posts in the record at hundreds of different boards and blogs in which I worked very, very hard to protect people from getting cancer from the Wall Street Con Men who for years earned a lot of quick, smelly bucks telling lies about what the last 34 years of peer-reviewed research in this field says. I would rather be hated on the internet for 13 years than spend that many years or more in prison because I betrayed the country I loved out of embarrassment that I had fallen for a heavily promoted and obviously dangerous con.
We will see.
I don’t wish you any ill. But I also care about the millions of middle-class people whose lives you are in the process of destroying. So I feel a need to follow a balanced approach in which I do all that I can to help you find your way out of the corner into which you have painted yourself while also doing what I can to get the information out to the millions of middle-class investors that they very much need to hear (and that they have been showing for 13 years now that they very, very much WANT to be able to hear).
As time continues to play out, we will find out together how it all comes down in the real world.
My best and warmest wishes to you and yours, Goon friend.
Rob
Wade is once again talking about the Trinity Study and it seems he is being pretty clear about the limitations of it: “it’s important to be clear that these success rates are based on U.S. history. It is faulty logic to think that these are the success rates applying to new retirees today. The particular situation today is that interest rates are so low relative to history, and this is a very important matter when assessing the viability of different withdrawal strategies. So while I know that the Trinity study is still quite popular in practice, I would suggest a lot of extra caution for anyone seeking to plan their retirements using these numbers.”
http://retirementresearcher.com/safe-withdrawal-rates-for-retirement-and-the-trinity-study/
Wade was the first big-name in this field to work up the courage to write to the authors of the Trintity study and ask that they correct the errors in their study before they destroyed more lives. That should make him a hero to millions of middle-class investors. I love the guy and I respect the guy and I intend to tell the story of all the good he has done at every trial and congressional hearing at which I am asked to testify.
He also betrayed his friends and his family and his profession and his country when he permitted the threats of career destruction advanced by you Goons and by your Wall Street Con Men pals to influence him. I will tell that part of the story too. Not because I enjoy doing so. Because the millions of middle-class investors who are in the process of seeing their lives destroyed need to come to terms with what has been done to them and they need to hear the entire story to do so.
Wade’s jury will determine his prison sentence, not me. That’s how our system works.
I will be thrilled to resume working with him when his prison sentence comes to an end. I count the 16 months that I spent working with him on the most important piece of peer-reviewed research published in the past three decades as one of the most exciting times of my life. I view the research that we co-authored as my greatest achievement. Prison sentences come to an end. Wade has a lot more to contribute to this world and I am looking forward to seeing what he comes up with after he returns to the law-abiding side of this divide.
Rob
I find it amusing that you capitalize “Goon” .
It’s a show of respect.
I also capitalize “Wall Street Con Men” and “Old School Safe-Withdrawal-Rate Study.”
The Old School SWR studies were a big step forward from what we had before.
I learned lots of important stuff from the many powerful insights put forward by the Wall Street Con Men.
And lots of you Goons were friends of mine in the days before I worked up the courage to point out the errors in John Greaney’s retirement study.
And I capitalize “Buy-and-Hold.” It’s smelly garbage. But it’s respectable smelly garbage, you know?
Rob
Is there anyone that is no longer immune from your dreaded prison sentence destiny?
We’ve all played a part in the massive act of financial fraud that brought on the economic crisis, Anonymous.
Journalists should all along have been grilling Bogle about the contradictions between what he said the peer-reviewed research says and what Shiller said the peer-reviewed research says. They failed to do that and that hurt us all.
Academic researchers should all along have been doing the sort of research that I co-authored with Wade Pfau. The findings of that study are being suppressed today because it looks so bad for the Buy-and-Holders that the cover-up has been going on for 34 years. The researchers who were too afraid to take on the Buy-and-Holders played a big role in this. It’s their job to advance knowledge, not just to turn a quick buck.
Policymakers have behaved poorly. Shiller predicted that we would have an economic crisis by the end of the first decade of the new Century of we kept promoting the Buy-and-Hold garbage. Then, when we saw the crisis destroy millions of lives, policymakers failed to talk in clear and honest terms about what obviously caused it. They let us all down.
Don’t forget me. I knew that Greaney got the numbers wrong in his study when I first posted at Motley Fool in May 1999. I didn’t share with my fellow community members what I knew until May 2002. Huh?
What do you want me to say? It’s a mess. It would have been easy to come clean when the mistake was first discovered. The longer the cover-up continues, the harder it becomes to come clean. Every day it gets harder.
Shiller’s finding is the biggest advance in the history of personal finance. The good news here is 50 times more good than the bad news here is bad. So it is impossible for me to give up believing that we are as a society going to figure out some way to make it to the other side of The Big Black Mountain. But we are obviously not there today.
What do you want from me?
Rob
I guess everyone is going to prison.
We’re all living in a prison of ignorance today, Anonymous. I think that much is certainly fair to say.
All signs are that we are as a people close to working up the courage to walk out of that prison and into the sunshine.
In days to come, we will all be learning from a Robert Shiller who posts his true beliefs in an entirely open and free and clear way. We will also be learning from a Jack Bogle who posts his true beliefs in an entirely open and free and clear way. We are the luckiest generation of investors who ever walked Planet Earth. And we are on the one-yard line. So things are looking pretty darn good.
We all were in a prison of ignorance re keeping warm until we worked up the courage to let those who had learned how to use fire to post honestly.
We all were in a prison of ignorance re polio until we worked up the courage to let those who had learned how to cure polio to post honestly.
We all were in a prison of ignorance re music until we worked up the courage to let those who had heard about the Beatles post honestly.
We were born in ignorance re every subject. We have liberated ourselves re thousands of subjects over the millions of years that we have resided on this planet. Stock investing is the next subject on the list. I am totally psyched!
My best and warmest wishes to you and yours, Goon friend.
Rob