Set forth below are the words of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:
Today, we see yet another example that you are living in a fantasy world when we see you make the following comment, Rob:
“I obviously would have earned far more than $500 million had you Goons not engaged in insanely abusive and criminal behavior and if big-name “experts” like Jack Bogle had not failed to act when informed of your behavior. I have offered to settle for $500 million because it makes sense for every single person involved for us to put the nasty stuff behind us and get about the business of spreading the word about the first true research-based strategy and thereby bringing on the greatest period of economic growth in our nation’s history.”
I stand by the statement, Sammy.
Wade Pfau holds a PhD in Economics from Princeton University. He should know pretty much all there is to know about stock investing. It should not be possible for Rob Bennett, some guy whose only claim to expertise in this field is that he figured out what buttons to push to have his words appear at investing boards and blogs, to teach Wade Pfau anything important in this subject area.
But I did.
Wade saw my writings on the internet and he contacted me and told me that he wanted to do research with me showing once and for all whether Valuation-Informed Indexing is the real deal or not. When he learned as a result of those 16 months of research that, yes, it all checks out, he was as excited as he has ever been excited about anything in his lifetime. He told me that he couldn’t sleep at night because of all of the implications of the findings of the research that we did together that he was thinking over. He told me that he had visions of winning a Nobel prize for the role he played in producing that research. That’s very, very, very cool stuff.
Wade is not the only one. I have seen that same general reaction from HUNDREDS of people. They all see how huge this is and they all want to direct their life energies to spreading the word about what we have learned during the first 34 years of the Shiller Revolution. We have seen big advances in the computer electronics revolution since 1981. But those advances pale in comparison to the advances that we have achieved intellectually in the investing advice realm as a result of the Shiller Revolution.
Lots of people became millionaires for playing a lead role in the computer electronics revolution. Their names have become household names. Bill Gates. Steve Jobs. Larry Page. And on and on and on and on. People naturally like the idea of becoming millionaires by helping their fellow humans in big ways. So the natural expectation is that every site on the internet would on a daly basis be producing materials helping us all to appreciate the breakthroughs we have achieved in the first 34 years since we learned that the Buy-and-Holders got it wrong and that in fact valuations affect long-term returns and that stock investing risk is thus not static but variable.
We haven’t seen that. Huh? What’s going on?
What’s going on is the result of a big difference between the computer electronics field and the investing advice field. There wasn’t much of a computer electronics field to speak of in 1981. So no one felt threatened by the huge advances that were achieved and those advances benefitted everyone living on the planet and made the pioneers who promoted them very rich men and women. In 1981, Buy-and-Hold was already in place. There were thousands of wealthy and powerful people whose careers depending on it remaining in place. So we have seen huge opposition to the idea of moving forward in the investing advice field.
We need to move forward. This is too big. Our economic system wont survive unless we do.
Given that we are going to move forward, the best thing is to move forward as quickly as possible. We hurt too many people by failing to do so.
People respond to incentives. The practical reality in today’s world is that there are few positive incentives for incorporating what we have learned from the last 34 years of peer-reviewed research into our investing advice and many negative incentives for doing so. So word has not spread. Millions continue to believe in Buy-and-Hold to this day
But that is going to change following the next price crash. That’s certainly what I believe in any event. When it happens, all the people who played the role of pioneers will be handsomely rewarded for helping us all to get to the other side of The Big Black Mountain. Why would they not be? Bill Gates was handsomely rewarded. Steve Jobs was handsomely rewarded. Larry Page was handsomely rewarded. That’s how things are done in our society. That’s why we are so rich a people — we reward people who put their necks on the line and thereby bring us all to a better place.
That’s my sincere belief re all this in any event. I haven’t been able to earn a dime for the past 13 years because of all the static generated by you Goons. But I expect to be earning millions and millions of dimes for the 13 years of work effort on the other side of the next price crash. I am not trying to keep anything to myself. I am thrilled when others join me and make their claim to millions of dollars of financial rewards to be delivered following the next price crash. I am in the unusual situation of wanting more competitors for the niche that I own because more competitors means the word spreads more quickly and that’s a very good thing for all of us.
I think we have a tiger by the tale here. I think that Shiller’s finding that the Buy-and-Holders got it wrong in a fundamental way is the most important peer-reviewed finding in the history of investing analysis. I think the man started a Revolution.
That’s my sincere take. I could be wrong. I’ve been wrong before and, if it were happening again, I would probably be the last to know. But that is definitely my sincere take.
I guess we will just have to exercise a little patience and see how it all plays out before us as time goes on. That works for me. I hope it works for you too, my longtime Goon friend.
Rob
Your thoughts, Rob?
Ackman comments are fairly lengthy and wide-ranging for a hedge fund manager, even going as far as claiming that the indexing movement is turning the U.S. into Japan.
“At current rates of asset inflows, it will not be long before index funds effectively control Corporate America and the corporations of many foreign countries,” Ackman writes. “The Japanese system of cross corporate ownership, the keiretsu, has been blamed for decades of Japanese corporate underperformance and economic malaise. Large passive ownership of Corporate America by index funds risks a similar outcome without the counterbalancing force of large active investors and improvements in the governance oversight implemented by passive index fund managers.”
Ackman’s main argument – and it’s a common knock on standard-issue market-weighted index funds – is that a purchaser is buying inherently overvalued stocks.
http://www.barrons.com/articles/are-index-funds-a-trap-for-the-passive-minded-1454024586?mod=BOL_GoogleNews&google_editors_picks=true
I love indexing. Indexing is the answer for millions of middle-class people who need the returns that are provided by stocks to be able to finance their retirements but who lack either the ability or the desire to do the research needed to pick stocks effectively.
I obviously think it is critical that investors pay attention to valuations. It certainly is true that most indexers do not pay attention to valuations. So I suppose that there is a sense in which you could say that indexing contributes to the ovevaluation problem.
But it’s not as if we did not have huge problems with overvaluation before index funds became widely available. We had huge overvaluation in the early years of the 20th Century. Overvaluation caused the Great Depression. Overvaluations caused the stagflation of the 1970s. You can’t blame indexing for those three big cases of overvaluation.
The problem with overvaluation is that we did not know prior to 1981 how stock investing works. We knew some things. But we were missing an important piece of the puzzle. I believe that Shiller’s 1981 findings truly were “revolutionary” just as he claims. If valuations affect long-term returns, stock investing risk is not constant but variable. That changes everything.
It is indexing that is going to permit us to solve the overvaluation problem.
Long-term timing only works with indexes. Long-term timing is the biggest advance we have ever seen. It permits investors to reduce risk by 70 percent. Millions of middle-class people are looking for a way to reduce risk. So, once we are able to share what we know freely and widely, millions of people are going to turn to long-term timing t(price discipline) o finance their retirements.
Once they do that, we will never see an insane level of overvaluation again. Until now, there has never been a brake against overvaluation. It is investors who set the price of stocks. Investors have an obvious inclination to set prices as high as possible so long as they believe that the numbers on their portfolio statements accurately reflect their accumulated wealth. So the natural situation is that the stock market is fated to become insanely overvalued over time. There has not been anything that could stop this from happening until 1981.
Now we have a brake on overvaluation. We know that the value proposition of stocks diminishes as prices rise. Investors naturally want to act in their self-interest. All we have to do is to explain to them that it is in their self-interest to lower their stock allocations when prices rise too high and they will sell stocks in response to big price increases. The sales will bring price back down to reasonable levels. Once the implications of Shiller’s findings have been widely explored and discussed, there will be a brake on overpricing that will remain in place for the remainder of time.
The overvaluation problem has been solved intellectually. The next step is to give Shiller’s huge advance practical application by opening every discussion board and blog on the internet to honest posting re the last 34 years of peer-reviewed research. I see indexing as the solution to the overvaluation problem rather than the cause of it.
I do believe that we need to have some investors picking individual stocks by researching the fundamentals. We can’t have only indexers. Indexers really do enjoy a free ride on the research efforts of those who pick stocks. But I don’t see any reason to believe that there will come a time when no one will want to pick stocks. The small number of stock pickers who do enough research to gain an edge over indexers are compensated handsomely for the effort they put into the task. So they are not going to stop engaging in it.
Some indexers overstate the case for indexing by claiming that no one can pick stocks effectively. I think that some people really can pick stocks effectively. But I think that most who try to do so would be better off in index funds. It is a small number of investors who are good enough at picking stocks to be able to earn sufficiently higher returns to justify the risk that goes with stock picking over indexing.
I don”t agree that indexers are buying inherently overvalued assets. An index fund can be undervalued as well as overvalued. The P/E10 value in 1982 was 8. A broad U.S. index fund was selling at HALF of its fair value in 1982. That’s an INSANE level of undervaluation. I don’t see any evidence whatsoever that index funds are necessarily overvalued. They can be overvalued or undervalued.
Mis-pricing is caused by investor emotion, not by the form in which stocks are purchased. Individual stocks are often insanely overpriced for the same general reasons that index funds can become overpriced. The difference is that it is possible for the average investor to exploit the mis-pricing of index funds while it is not possible to exploit the mis-pricing of individual stocks in nearly as effective a way. So index funds offer opportunities to avoid the dangers of mis-pricing that are not available to those purchasing individual stocks.
This is all just my take. I don’t claim any great expertise re these matters.
Rob
“It is indexing that is going to permit us to solve the overvaluation problem.”
But Rob, this guy is like the ultimate trueVII investor — he claims to have gone the extra mile that you did not, to look deep enough into the root causes to determine that it is indexing itself that fundamentally keeps an investor from being ABLE to determine a proper valuation, and that’s on top of the disincentive to even try to do so when indexing! I just can’t understand your position: because if every investor needs to establish the price of things to make a proper assessment as to buy, hold, sell; then how could a person just walk up on a completely loaded shopping cart, with a panoply of items already in it, many that he cannot even see without careful study, and instantly determine what a fair price for the lot of goods in toto wold be? Wouldn’t it be fundamentally required, as a point of LOGIC and common sense to price each item individually, if your basic argument held water? That cart might contain a ton of cheap, low value generic dry good items on it’s inside, versus a different cart that happened to hold a load of prime rib and steaks buried in there, that can’t be easily seen on casual inspection. In other words, if you live by the valuation sword, don’t you have to die by the valuation sword? Indexing itself is evil to a TRUE Lucky Seven man.
Uh oh, Rob. It looks like someone is stealing your investment strategy. They are going to be stealing your $500 million windfall:
http://www.caniretireyet.com/the-next-bear-market-how-bad-could-it-get/
I just can’t understand your position: because if every investor needs to establish the price of things to make a proper assessment as to buy, hold, sell; then how could a person just walk up on a completely loaded shopping cart, with a panoply of items already in it, many that he cannot even see without careful study, and instantly determine what a fair price for the lot of goods in toto wold be? Wouldn’t it be fundamentally required, as a point of LOGIC and common sense to price each item individually, if your basic argument held water?
The value of the market as a whole has been increasing by 6.5 percent real per year for 145 years running, Anonymous. Some companies do better than that. Some companies do worse than that. It doesn’t matter to the investor who purchases a broad index fund. If he purchases at fair-value prices, he gets the 6.5 percent real. If prices are high, he gets less. If prices are low, he gets more.
It has always worked that way. It always will. The key today is getting the word out. We all need to join together to put those posting in “defense” of Mel Lindauer and John Greaney and Jack Bogle in prison. Then we all enjoy a Second Independence Day, after which millions of us will know about the 34 years of peer-reviewed research that permits us all to reduce the risk of stock investing by 70 percent while earning returns big enough to retire five to ten years sooner.
It’s cool stuff. The last 34 years of peer-reviwed research gets us where we always wanted to be. We are blessed to be the first generation of stock investors able to put all the pieces of the puzzle together.
My best wishes to you.
Rob
It looks like someone is stealing your investment strategy.
I don’t have to worry about competition, Anonymous.
The only reason why every investor in the nation does not today follow a Valuation-Informed Indexing strategy is that they have heard so many Wall Street Con Men pushing their smelly Buy-and-Hold garbage and they have fallen for their claims that they are “experts” when the only expertise they possess is in the field of marketing. Each time someone tells the truth about the last 34 years of peer-reviewed research, the con men are further exposed and the entire nation moves in the direction of a better place. Which is what I want!
It is a big job teaching millions of people how they have been conned. There are HUNDREDS of insights that we need to teach people. The Buy-and-Holders didn’t just get the safe withdrawal rate numbers wrong. Everything they say about asset allocation is wrong. Everything they say about risk management is wrong. Everything they say about retirement planning is wrong. And on and on and on and on.
I have enough high-paying/high-fulfillment work ahead of me to last me 20 lifetimes. And the only thing blocking me is a massive 34-year cover-up that is undermined each time someone works up the courage to post honestly re what the research in this field really says.
I have a funny feeling that I and thousands of other Valuation-Informed Indexers will be doing just fine once your prison sentence is announced. And I have another funny feeling that we will be hearing that the announcement of that prison sentence is not too far off in the future anymore.
Do you see?
I naturally wish you all the best that this life has to offer a person.
Rob
“It has always worked that way. It always will.”
Those are the dumbest words anyone can utter about the stock market. If the stock market worked anywhere near the way you thought it worked, you wouldn’t have sat out the last 20 years. Has Japan’s market returned anywhere near 6.5% real since the 1980s? Uh, not even close. Not even close to zero. But of course, what happened there has never happened here, so obviously it can’t and never will.
The Japanese economy is not the U.S. economy. So only a Goon would ever say that the Japanese economy must perform the same as the U.S. economy.
But the U.S. economy IS the U.S. economy. So, yes, the U.S. economy in all likelihood will continue to perform the same as the U.S. economy.
Stock markets have been working in the same way since the first market was formed. 100 percent of the historical data available to us shows that research-based strategies have been beating Get Rich Quick strategies for as long as there have been Wall Street Con Men devoting massive amounts of marketing dollars to con millions of “suckers.”
The good thing for the people of the United States is that laws against financial fraud have been helping us put the sorts of individuals who post in “defense” of the Wall Street Con Men in prison for a long time too.
But we will see how it all works out following the next price crash in any event.
I am betting on the people of the United States to do the right thing re you Goons. But I have been wrong before. It could be that it is happening again. We will all need to exercise some patience to see how things play out in the real world.
I naturally wish you the best of luck in all your future life endeavors.
Rob
I know your trying to keep the positive thinking in place, but these guys have intruded into your territory and now there is nothing unique left for you to leverage as an income stream. I am worried that your dream of millions is slipping away as people have moved in on your business. There won’t be any $$$ left over to take over the Bogleheads forums or any of your other dreams and these people will take all the credit, just
Ike Wade Pfau did.
I prefer to focus on the mountain of good stuff that Wade has done rather than the bad stuff, which is significant but small in relative terms. I am grateful for Wade’s help and for his good work. I believe that he has helped me and that he has helped millions of middle-class workers and that that will continue to be the case as time goes on.
I love the guy. I don’t expect to ever see that change. He’s a good guy and a smart guy and a hard-working guy. And the days when he was doing honest work re the Valuation-Informed Indexing concept were the happiest days of his life.
Wade would be in a very different place today had you Goons not threatened to destroy his career and had Bogle not backed you up. My prediction is that Wade will be coming back from the dark side soon after your prison sentence is announced.
But we will have to wait and see how it all plays out. I could be wrong. It’s been known to happen.
Don’t let the bad guys get you down, man.
Rob
But I thought Wade was going to prison as well, right? Any money he has will be needed for his massive legal bills or are you saying that you will be using some of your millions to help him out?
I’ll be saying lots of good things about Wade, that’s for sure. I will do anything in my power to help him out.
I will not lie for him. I love my country and I do not feel comfortable breaking its laws. I believe in the old saying — If you don’t want to do the time, don’d do the crime. So that sort of thing is out.
But Wade has made a huge contribution. He was the first expert in this field to work up the courage to write to the authors of the Trinity study and to ask them to correct their retirement study. That’s no small thing.
And I think that my story will show people how much pressure Wade (and lots of others!) was under. That will help too.
Time will tell the tale, Anonymous.
Hang in there.
Rob
If Wade worked with you, does that mean you will be sharing the millions with him?
He’s entitled to bring lawsuits of his own, Anonymous. I certainly am not going to do anything to stop him.
My guess is that Congress is going to pass a partial amnesty bill, which may or may not include financial awards to a number of parties. Those awards may be in addition to settlements reached privately or instead of them. I don’t think anyone can say at this time.
I can imagine Wade receiving some big financial rewards. I can also imagine him being sent to prison for a time. It’s a mixed-up situation, to be sure! I am certainly rooting for him and hoping for the best for him.
We’ll have to wait to see how it all plays out. Patience, Grasshopper!
We live in a great country. We will figure out a way to work it out together that will benefit every single person involved.
I am sure.
Rob
Are you going to shar some of that cash with the goons? After all, if it wasn’t for the goons, you wouldn’t get those big settlement bucks.
I love you guys (and witches). But — No.
I could see having you over for a few beers to laugh about old times. That’s a live possibility. But I have better ideas re how to spend the $500 million.
I do intend to spend 5 percent to promote this site and another 5 percent to finance lots of startups of blogs that will explore the Valuation-Informed Indexing concept in great depth. If one of you Goons wanted to start a blog that would focus on the downside of VII, I could see financing that.
Something like that would serve a very good purpose. I wouldn’t be giving you money just for being a Goon but you would be taking advantage of your Goon inclinations to help people and that would be a cool and life-affirming thing.
The short answer is: “no.” The slightly longer answer is: “There are often ways to turn lemons into lemonade if you look for them. If one of you Goons takes things in that direction, I would want to do what I could to encourage you.”
Please take good care.
Rob
But the US market is not working like it always has. The CAPE has been trending up for a hundred years but somehow you missed that things slowly change.
Things can slowly change.
And you can incorporate that into your return predictions, Laugh. There’s nothing in the world stopping you.
But things are never going to change so much that we can see a 30 percent gain in a single year. That’s fantasy land stuff.
Buy-and-Holders encourage people to treat 30 percent gains as real. That’s fraud. There’s 34 years of peer-reviewed research showing that those sorts of gains are cotton-candy nothingness fated to be blown away in the wind in the long term.
We now have millions of people on the road to suffering failed retirements as a result of this massive con. Suffering a failed retirements is a serious life setback. We need to open every investing discussion board and blog on the internet to honest posting re the last 34 years of peer-reviewed research.
That’s my sincere take re this terribly important matter, in any event.
I naturally wish you all the best that this life has to offer a person.
Rob
You just made a great case on buy and hold. We cannot predict the rise and falls.
We cannot predict the rises and falls in stock prices because they are caused by investor emotion. They aren’t real.
The real rise is 6.5 percent per year.
People need to know how much of their stock returns are real and how much are phony Buy-and-Hold garbage. We need to open up every investing discussion board and blog on the internet to honest posting re the last 34 years of peer-reviewed research in this field.
My take.
Rob