Set forth below is the text of a comment that I recently posted to another blog entry at this site:
So, you agree that Shiller has not said the words specifically that you can use his work for long term timing.
That’s a pretty darn good question, Anonymous. I like the way you phrased this one
Shiller (and all the others) is cagey and cautious about what he says.
His words show that he WANTS to help people out. He is TRYING to get good information out to people. He has a conscience.
But he knows that millions of people have been taken in by the smelly Buy-and-Hold garbage. He doesn’t want to find himself in the spot in which Rob Bennett finds himself, with people threatening to kill his loved ones and determined to destroy his career and all this sort of thing. So he puts forward all the information that anyone needs to figure out how stock investing really works while also being careful not to state things too clearly. That way, the people who want to know the truth have access to it and the people who want to continue to live in a fantasy world feel free to do so. He stops short of making clear and definitive statements that would make the fantasies go “pop!”.
I play it in very different way. Perhaps you’ve noticed!
Bogle plays it the same way Shiller does. Bogle and Shiller don’t have the same beliefs. I am certain that Bogle has far more confidence in Buy-and-Hold than Shiller and that Shiller has far more confidence than Bogle in Valuation-Informed Indexing. But they are pretty darn similar in their use of word games to avoid stating things in a clear way that would provide actionable investing advice to those reading their words.
There was a great illustration of this in the speech that Bogle gave to the annual meeting of the Vanguard Diehards in the Fall of 2006. Bogle gave a fantastic presentation on the dangers of investing in overpriced stocks. Most of the talk was pure gold. He went on for paragraph after paragraph of top-notch, research-based stuff. Then, in the last paragraph, he said something like: “So, in conclusion, just always remember to Stay the Course!” You Goons interpreted that as an endorsement of Buy-and-Hold, which is of course precisely how Bogle was hoping you would interpret it. So you all jumped up and down. “He’s assuring us once again that the last 33 years of peer-reviewed research is garbage, that the pure Get Rich Quick approach is sure to work for the first time in history. This guy is so smart!”
You obviously didn’t say those precise words anymore than Bogle said in the first 20 paragraphs of his talk that Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind. But that’s what I heard from Bogle and from you. And it wasn’t just me. John D. Craig heard the same thing. Both of us wrote e-mails to Bogle at the time congratulating him on the great speech and asking that he be even more clear in his warnings about the dangers of over-investing in stocks at those prices. Bogle did not respond to either of us.
Say that you bring in your car for its annual inspection. Say that the guy who looks at it sees nothing wrong with the car. He is pulled in two directions. The honest thing is to say “this car is fine.” The dishonest thing is to say that you need repairs. He makes more money if he says the car needs repairs. What stops him from doing the dishonest thing?
The biggest force pushing him to be honest is that he wants to have a good reputation. If he cheats too much, word will eventually get around and his short-term profits will be transformed into long-term losses. The other force is that, if he goes too far with the dishonesty, he will eventually cross legal lines and may end up in prison.
There IS dishonesty in car inspections. Bad stuff happens in the car inspection field. But as a general rule the bad stuff is limited. People don’t want to develop bad reputations and people don’t want to go to prison and the people who bring their cars in don’t want to get ripped off. So there are limits as to how far the bad stuff can go.
The problem we have in the investing advice field is that the dishonest stuff has gone so far during the Buy-and-Hold years that the field is today 100 percent corrupt. There’s a concept in the law of “Standard industry practice.” If you go outside of standard industry practice, that is used against you. In the investing advice field, the standard industry practice is to ignore the last 33 years of peer-reviwed research and to pretend that Buy-and-Hold can work. The standard industry practice is financial fraud! It’s those who post honestly who are accused of offering “dangerous” advice and who get kicked off of discussion boards because they make those pushing the Buy-and-Hold garbage look bad.
One reason why this has happened is that there is a power imbalance. The Wall Street Con Men have an awful lot of money and power and influence. So they get away with acts of dishonesty that no one in any other field could get away with.
Another factor is that the fraud does not become evident until a good number of years have passed. If car-repair fraud could not be discovered for 10 years or longer, there would be a lot more car-repar fraud!
Yet another factor is that most stock investors WANT to be conned. Most of us are worried about whether we will have enough to retire or not. The Buy-and-Holders exploit this fear by telling us that we have three times what we really have and then taking credit for the great results! Did you ever hear Taylor Larimore brag about how following Jack Bogle’s investing advice permitted him to live in “the house that Jack built”? Jack ain’t about to rebuild the house when Taylor loses it in the next price crash. But so long as the con remains unexposed, Taylor feels like Jack is his good friend. It’s the same thing Bernie Madoff did. The Get Rich Quick impulse is a powerful impulse. Con men are always going to be trying to exploit it.
People who offer investing advice pursue two goals at the same time. They want to tell the truth because they have consciences and they care about their clients and readers and all that sort of thing. But they also want to turn a buck! To help their readers, they need to promote Valuation-Informed Indexing. But to turn a buck they need to promote Buy-and-Hold. So they do both! They give speeches in which they reveal important truths in seven or eight paragraphs of prose. Then in the final paragraph they sum it all up by saying “now just be sure always to do the precise opposite of all that I have said in the first eight paragraphs. Buy-and-Hold rules!”
That makes all of their clients and readers who have become addicted to the Get Rich Quick garbage happy. They ignore the first eight paragraphs and focus on the conclusion. They say to themselves: “I KNEW that Buy-and-Hold was the answer! I knew the last 33 years of peer-reviewed research was garbage! Now I am sure. This salesman fellow just told me that stocks are worth buying at any possible price! How smart I was to sense that all along! I am really something! I love this salesman guy. I only wish that I had more money to invest in this asset class paying a negative long-term return! So long as I can lose money every year, I should be able to retire in no time! This Get Rich Quick stuff is AMAZING.”
Yeah, sure it is.
Shiller is under the gun. So is Bogle. So is EVERYONE who works in this field.
It won’t be a problem following the next price crash because you Goons will no longer be singing the praise of the Wall Street Con Men after you have lost most of your retirement money., At that point, it will become acceptable for the “experts” (experts in marketing!) in this field to tell the truth and those who don’t go to prison will be happy to do so. Once all the textbooks have been corrected, there is no reason to believe that anyone will ever fall for the Buy-and-Hold garbage again. This is the first ELECTIVE economic crisis we have experienced. This is the first one that has come AFTER the peer-reviewed research was published showing us what really works. So I presume that we will be moving on after the next crash.
For now, though, people like Shiller and Bogle are in a bind. Do they destroy their careers by telling the truth? Or do they save their careers by telling more lies while mixing in a lot of good, solid, true stuff as well? Shiller tells as much truth as he feels he can get away with. But, no, he does not tell the truth in as plain and clear and bold a way as he needs to if he wants to make Valuation-Informed Indexing the dominant model, as I do.
I want to bury Buy-and-Hold thirty feet in the ground, where it can do no further harm to humans and other living things. Shiller WANTS to do that too but not enough to be willing to say things in the way he would need to say them to get the job done and to thereby bring a pile of abuse down on his head from all the people who have been tricked into thinking Buy-and-Hold can work.
Here are two statements:
1) Timing never works; and
2) Short-term timing never works but long-term timing always works and is always 100 percent required.
The first statement is the lie that Buy-and-Hold advocates tell their readers.
The second statement is what the last 33 years of peer-reviewed research reveals as the reality.
Shiller has devoted his entire life to helping people understand that the second statement is the true one. But, yes, he has lied in many of his public statements because he doesn’t want his career destroyed for telling the truth about stock investing before it becomes fashionable to do so.
Sue the man, you know?
My job is to tell people why we are in an economic crisis and why millions of people are on their way to suffering failed retirements. I need to tell both sides of the story. Shiller is a giant, a good man and a smart man. And Shiller is afraid of what would be said about him by the Buy-and-Holders if he were to state the truth as clearly and plainly and firmly as I do.
That’s your fault. He WANTS to tell the truth. After the next price crash, he will. Then we will all pull together to rebuild our broken economy.
I hope that helps a bit.
Rob
shiller is a giant, he can say what he thinks no one could mess with him.
You would think.
But it’s not so, Laugh.
Read Irrational Exuberance. H goes on for hundreds of pages about theory. There’s about two paragraphs on what investors should do if these theories are the reality. That’s what people buy investing books to learn. Why doesn’t Shiller give the people buying his book what they want? He is afraid to do so. He knows from past experience what the reaction will be. And he is afraid to trigger that reaction.
The question of how to invest one’s money is one of great practical significance. Everyone wants to get that one right. That’s the problem. Considered in isolation, you would say that the fact that Shiller’s findings affect a matter of great practical significance would cause us all to want to explore those ideas in great depth. And, if Shiller published his “revolutionary” (his word) findings in 1964 rather than in 1981, that’s indeed what would have happened.
But Fama’s findings were not solely of academic interest. Fama’s findings were as revolutionary as Shiller’s in their time. 90 percent of the people who give investing advice for a living changed the way they go about doing that as a result of Fama’s publication of his finding that timing doesn’t work. That meant that when Shiller came along and showed that one form of timing always works and is always required, there was a mountain of resistance to the spread of that idea. People who give investing advice for a living don’t want their clients to see them as having made mistakes. They want to be perceived as competent, informed, trustworthy.
That’s it.
There is no controversy re the intellectual points. 100 percent of the evidence points in one direction and 0 percent of the evidence points in the other. The intellectual debate ended 34 years ago.
What we have is a turf battle. The people who popularize the Valuation-Informed Indexing concept are going to become billionaires. The lives of all the people living on this planet will be made better in very important ways as a result of the efforts of those people. But the people who promoted Buy-and-Hold will suffer a small amount of embarrassment. They will have to say the words “I” and “Was” and “Wrong” before moving on to promotion of a far better model, the first model that is truly rooted in peer-reviewed research.
That’s the entire story. It’s all turf battle. There is no legitimate intellectual dispute.
There’s an easy way to check this.
People like Jack Bogle were giving investing advice prior to 1981 and continue giving investing advice today. Shiller won a Nobel Prize for his “revolutionary” research. How did Bogle’s advice change as a result of Shiller’s research? It didn’t change at all. That easily checked reality tells the tale.
I’ve explored hundreds of implications of Shiller’s research. I am not God. I could be wrong about a few of them. But I can’t be wrong that Shiller’s research is important. A person doesn’t win a Nobel Prize for doing unimportant research. So there is zero chance that Shiller’s research had no significance. And Bogle (and thousands of others) is acting today as if Shller’s research had zero significance.
It’s not that the Old School SWR studies are a little off in their adjustment for the effect of the valuation level that applies on the day the retirement begins. It’s not that the data says that the SWR for a retirement beginning in 2000 was 1.6 percent and the Old School studies said that it was 1.7 percent or 1.5 percent. It’s that the studies did not contain any adjustment at all. That cannot possibly be right. The Old School SWR studies are built on an assumption that the market is efficient and that no adjustment is required. That assumption was discredited by the peer-reviewed research 34 years ago.
Shiller is afraid. Anyone who wants to know why he is afraid can read about what happened to Wade Pfau in the hundreds of articles I have posted about him at this site. Wade was THRILLED to be the researcher who brought to the world the peer-reviewed research showing the practical implications of Shiller’s work. It was only when it was made clear to him that the Buy-and-Hold Mafia would destroy his career if he continued doing honest work that Wade agreed to give up the most important project that any researcher could work on today in exchange for being able to make a buck in this dirty world. I told my friend Wade that he was “insane” to go down that dark path. It was you Goons who encouraged him to make that criminal choice.
It’s not only Wade who is afraid. Shiller is afraid. And lots and lots of others are afraid. John Walter Russell was afraid for a long time. Larry Evans is afraid. Mike Piper is afraid. Rob Arnott is afraid. The owners of the Morningstar site are afraid. Heck, I was afraid for a long time. With me, it’s just that I am more afraid of doing things that would likely get me sent to prison following the next crash. Given two choices that both frighten me, I figure that I am better off taking the one that lets me live with my conscience.
No one should ever be made afraid to say what he or she believes about stock investing precisely as he or she believes it. My work will be done when EVERYONE is saying precisely what he or she believes. I want Bogle saying what he believes. I want Piper saying what he believes. I want Shiller saying what he believes. I want Arnott saying what he believes. And I obviously want Bennett saying what he believes. And I will settle for nothing less than that. I will not even give two seconds of consideration to settling for anything less than that.
The fact that the Buy-and-Holders feel that their ideas cannot survive in the court of public opinion without the heavy use of intimidation tactics tells us everything we need to know about the merits of this “strategy.”
Buy-and-Hold is in the process of destroying the lives of millions of people. Those people have the right to bring civil lawsuits to recover their financial losses. And they have the right to demand prison terms. I will encourage them to do both. And this site of course provides them a wealth of compelling material to make their case. The shift from Buy-and-Hold to Valuation-Informed Indexing is the greatest advance in the history of personal finance, there is nothing else that even comes close. I am proud to be the lead figure arguing for quick completion of that advance. And I am proud to live in a country that was wise enough to enact laws protecting us from the Wall Street Con Men and their Internet Goon Squads before these “individuals” came to darken our collective doorstep.
Shiller will obviously be one of those testifying. We will see what he has to say about the intimidation tactics that have been directed at him for 34 years now when he speaks at your trial. That’s how our system works.
I hope that helps a bit, Laugh.
I naturally extend my best and warmest wishes to you and yours.
Rob
Shiller, Bogle, Pfau, Berstein, etc. are all respected people who have nothing to fear and can say whatever they want. There is nothing they have said that indicates otherwise.
You are right that they are all respected people, Reality. We are in 100 percent agreement re that one.
You are wrong that they are not all living in fear.
Mel Lindauer is one of the two most abusive posters in the history of the internet. Linduaer was using threats of physical violence to control what people said at “his” discussion board long before I ever even came on the scene. Bogle knows about this. He was present when some of the threats took place and friends of his (including me) have sent him e-mails letting him know about the Lindauer problem. Bogle to this day permits his name to appear at a site which permits Linduaer to post and which permits posters who post in “defense” of Linduaer to post.
Huh?
There’s a fellow who runs a barber shop here in Purcellville. If he found out that there were people saying that he associated with the sorts of individuals who have put up posts in “defense” of Mel Linduaer, he would be contacting lawyers to bring a case for defamation in 10 minutes. Why? Because he cares about his reputation. Reputable barbers don’t associate with the sorts of individuals who have put up posts in “defense” of Mel Linduaer. Not ever. Not once. No exceptions.
There are responsibilities that go with offering investing advice for a living. One of those responsibilities is that, when you see the sort of “individual” who has posted in “defense” of Mel Linduaer showing up at a discussion board, you let the site administrator know and demand that he take action. If the site administrator fails to take prompt action, you make a public statement that you will no longer be associated with that site. If the people trying to intimidate you into ignoring Lindauer’s behavior threaten you, you call the police.
Bogle has not done these things.
Bogle is guilty of financial fraud.
I love the guy. I acknowledge that he has offered many hugely positive contributions. I consider him a friend.
But I do not want to be associated in any way, shape or form with this massive act of financial fraud.
If Bogle were an angel, he would have said the words “I” and “Was” and “Wrong” shortly after Shiller published his “revolutionary” research. Bogle dropped the ball in a big way back in 1981. We cannot go back in a time machine and do it over. So we are all going to have to work up the courage to demand that he come clean in 2015, 34 years late.
I called on my good friend Jack Bogle to come clean many years ago. I will continue to do so. I will never let my good friend down by suggesting that it is okay for him to commit financial fraud just this one time on just this one issue. His jury will decide the length of his prison sentence, not me. I will testify honestly to his jury. That’s as far as this thing goes for me.
If there is ever a time when you want my help getting your prison sentence shortened a bit, I am here for you, Reality. I am not interested in going to prison myself. Re that one, you are going to have to try to find someone else.
My best and warmest wishes to you.
Rob
So to summarize this post (and pretty much all your posts):
“Everyone is afraid, except me. Everyone is insane, except me. Everyone is going to prison, except me.”
I’m afraid too. I knew that Greaney got the numbers wrong in his study when I first posted to the Motley Fool board in May 1999 and I didn’t work up the courage to post honestly until the morning of May 13, 2002.
So I am not so different from all the others. And I of course have sympathy for all the others. And I will always say so and explain why.
Someone had to be the first to draw a line and to be 100 percent unwilling to cross it. That turned out to be me. I didn’t ask for the job. I was placed in circumstances in which I couldn’t live with myself if I didn’t draw a line. And so I did that.
I built the Motley Fool’s Retire Early board into the #1 board at the site. The thousands of wonderful people who posted there became my friends. Greaney’s lies destroyed the lives of many of those people. They thought he was telling the truth. They thought there really was some data somewhere suggesting that the safe withdrawal rate might always be 4 percent. I stood up for my friends when Greaney threatened to kill family members of anyone who posted honestly re SWRs. No apologies. None whatsoever.
Bogle is afraid today and I am not (or at least I am not so afraid that I don’t post honestly re Mel Linduaer and John Greaney). I am 100 percent happy to praise Bogle to the skies for all of his genuine accomplishments. But it was no accomplishment of his to fail to speak up about Linduaer. That was a crime. I want no part of it and I want no part of encouraging my friend Jack Bogle to walk down that dark path.
I understand why Bogle is afraid. He made a mistake. Then he felt embarrassed when the mistake was uncovered. So he went into cover-up mode. Now it’s a 34-year cover-up. He looks thousands of times worse coming clean today than he would have looked had he come clean back in 1981. I didn’t do that to him. He did that to himself. And all of Bogle’s friends who lacked the courage to call him out on his b.s. did that to him.
Someone had to be the first one to say “no more, too many lives have already been destroyed.” I was that one. No apologies whatsoever.
What you are going to find out following the next price crash is that all the ones who live in fear today are going to feel good to speak honestly about what the peer-reviewed research of the past 34 years says. It is the fact that this cover-up has destroyed so many lives that makes it so hard for people to come clean about their role in it But following the next crash people are going to see that they have no choice but to come clean. Once a few do, everyone will do so. Because that’s out system. We enacted the laws against financial fraud for good reasons.
At that point you Goons are 100 percent cooked.
Not because of anything I will do. Because of what people like Jack Bogle will do.
I can’t change any of that. I can offer a helping hand. That’s as far as it goes. I ain’t going to prison. I am not willing to even think about committing felonies. No way, no how.
Bogle will come around. And you Goons will go down.
If I am wrong, I am wrong. But I sure am not ever going to give two seconds consideration to playing it the other way.
We will find out together who is right and who is wrong following the next price crash.
I wish you all good things.
Rob