“If Shiller Is Right, Then the Real Value of Every Stock Portfolio Is About Half of its Nominal Value. People Hate Hearing That. They Hate It, Hate It, Hate It, Hate It, Hate It. Everybody Hates It. Not Just Goons, Not Just Buy-and-Holders, Not Even Just Investors. EVERYBODY Hates It. Nothing That I Say Is Even the Tiniest Bit Advanced in an Intellectual Sense. I Am Different in That I Am the First Person Stupid Enough to Just Say This Stuff Out Loud and Thereby Get People Who Once Loved Me to Hate Me With a Burning Hate.”

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

Was Jaime really sitting next to millionaires? If they are not following VII, then their money is all cotton candy, right Rob?

This is a 100 percent on-point observation, in my assessment, Anonymous.

In most cases, a large portion of the money they are counting on to finance their retirements is cotton candy. Absolutely. And that explains the behavior.

You often ask me “Is this all a massive conspiracy?” It is. But not in the way you suggest when you ask that. I call it a “Conspiracy of Ignorance.”

None of us understood how stock investing worked prior to 1981. Many possessed clues, to be sure. But no one had ever put the entire puzzle together. Then the Buy-and-Holders pushed the idea of using peer-reviewed research to develop a systematic way of developing knowledge of how investing works and generated a mass of hugely important insights, swinging and missing on the biggest issue of all, the importance of always including adjustments for valuations in one’s calculations. And then Shiller fixed the big mistake that caused Buy-and-Hold to go so wildly off the mark by showing in 1981 that valuations affect long-term returns and that therefore stock investing risk is variable rather than fixed. That of course changes everything.

So now we have it all. Now we’re set.

Except for this darn conspiracy that “defends” and even promotes Buy-and-Hold to this day. Huh? What the h? What’s that about?

It’s partly that there is so much darn money to be made with the promotion of Get Rich Quick schemes and the uncorrected version of Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind (unintentionally, to be sure — but still). Part of this is a money thing, a financial fraud thing. That’s real. And that’s a big problem.

But that is not the entire story. Not by a long shot.

There are millions of people whose lives are in the process of being destroyed by the continued promotion of Buy-and-Hold. The Buy-and-Hold Crisis is a huge economic issue and even a huge political issue. It is simply not possible that a bunch of Wall Street Con Men could pull something like this off by themselves. We live in a free country. There are lots and lots of smart people who love this country and who will step up to the plate and speak up against the Wall Street Con Men and their Internet Goon Squads when they see their country under attack. And yet they have not done so in this case. To understand this story, we have to come to terms with this important reality. This is not solely a money thing. How do we explain this additional aspect of the story?

I was on that stage when that speech was being delivered. I heard the reaction not only to my own speech but to all the other speeches. The reaction to my first slide, the one that contained the title of the speech [“How to Become the Most Hated Blogger on the Internet”] was the strongest positive reaction of the night. It wasn’t a close call. People LOVED the title. The crowd was eating out of my hand at that point.

The reaction to the second slide was also positive, but a bit less so. I would say that the intensity of the positive reaction was cut in about half with the second slide. Then it dropped off a cliff. The mood became cold for the remainder of the speech. There was no booing. But there was no further positive reaction. Perhaps a small smattering of applause here and there. I don’t recall there being much more laughter, again perhaps a small amount here and there.

Things got cold enough that I was worried that people would not cheer at the end of the talk. That would be very embarrassing because they cheered at the end of every other talk. I was very aware of how cold things had gotten and I just soldiered on, a bit concerned. They did applaud, no more and no less than for the other speakers. So I would say that most were not outright angry at me. But the crowd was certainly not eating out of my hand at the end like they were at the beginning. By the end of the talk, people were either neutral or probably in some cases borderline hostile.

There were four or five people who came running up at the end of the talk offering the most effusive praise imaginable. That small group loved me. We sat around and had beers for about two hours. But I don’t at all think that that group was representative of the group as a whole.

So I found Jaime’s comment very helpful. I need to understand why people react as they do. It is AMAZING that people told her that I seemed bitter. I 100 percent believe that she is telling the truth. Her comment is 100 percent consistent with other things I have been told or that I have seen with my own eyes. People think I am bitter. It’s not just you Goons who see it this way. You Goons are more vocal about it and more blunt about it. Most people are too polite to say out loud that they think I am bitter. But most people don’t think you Goons are nuts when you say it. They think you are a bit rude. But they get where you are coming from.

They generally do NOT get where I am coming from. They are fine with me saying to pay attention to valuations. They have heard that thousands of times and consider it a reasonable point. So they have no distaste for the expression of that general point. They don’t relate when I say that returns are highly predictable or that Buy-and-Hold caused the economic crisis or that retirement studies get the numbers wildly wrong or that financial fraud is being practiced or that people will be going to prison. That sort of language is a big turn-off to most people. I am sure. I have lots of experience with this. I know whereof I speak re these matters.

Even my wife feels this way. I read my Value Walk column at the lunch table each Tuesday so that my boys get to know what their dad does with his life. Every now and again, my wife will offer a sort of bitter (!) side comment. She will say something like: “You make good points in that column. I can’t help but notice that you didn’t call anyone a Goon in that one. Hmmm…” So this is an almost universal phenomenon.

My FinCon talk was NOT bitter!

I was very aware when I was preparing it that there was a risk that it would be perceived that way. So I went to a good bit of trouble to remove any hint of bitterness from the presentation. Every slide was humorous. There was one of a boy standing in a corner with a dunce cap on. That’s a humorous way of making a point, not a bitter way of making a point. Another was of a baby crying. Again, that’s a humorous way of making a point, not a bitter way of making a point. They were all like that.

People find the CONTENT of my message bitter. That’s what is killing me.

If Shiller is right (I obviously believe that he is), then the real value of every stock portfolio is about half of its nominal value. People hate hearing that. They hate it, hate it, hate it, hate it, hate it. Everybody hates it. Not just Goons, not just Buy-and-Holders, not even just investors. EVERYBODY hates it.

Journalists hate it because they did not speak up when the bull market was getting out of control. Policymakers hate it because they permitted forces to be unleashed that have costs millions of people their jobs. Economists hate it because it shows that their Rational Man assumption is bogus. Even Behavioral Finance advocates hate it because it puts them on the spot — they want to push new ideas but they don’t want to have to embarrass their friends in the process of doing it. Even Valuation-Informed Indexers hate it. John Walter Russell used to say that you Goons would hold up a red flag and that I would charge every time. He tried to doctor the numbers in the Retirement Risk Evaluator because he didn’t want to offend people by reporting the numbers accurately and honestly.

Nothing that I say is even the tiniest bit advanced in an intellectual sense, Anonymous. Everything I say is pretty much two plus two equals four if you believe that Shiller’s research is legitimate. But people don’t like hearing it. So people who are able to add two and two and get four avoid saying it. Except for me. I am different in that I am the first person stupid enough to just say this stuff out loud and thereby get people who once loved me to hate me with a burning hate. You don’t talk honestly about the damage that a society does to itself by permitting a bull market to get out of hand. It violates a Social Taboo to do what I have done. It is just not something that civilized people do.

I think that we all need to start discussing in an honest way what the last 35 years of peer-reviewed research shows. That’s what I truly believe. I don’t want to violate any Social Taboos. I don’t want to start any controversies. I don’t want to upset people. I don’t want to make people hate me. But I very, very much want to post honestly re safe withdrawal rates and scores of other critically important investment-related topics. I can’t even imagine playing it any other way. So I soldier on. I do the best that I can do given the cards that have been dealt me.

A good portion of the money that the people sitting next to Jaime have accumulated over the course of their lives is today invested in cotton-candy nothingness. That’s what Shiller showed with his research. It’s a big deal. People need to know the true size of their portfolios if they are to plan effectively for the future. These are smart people we are talking about; you don’t get to be a millionaire without possessing some smarts. And yet they ignore common sense when they invest their retirement money. That’s not smart at all. When I point that out to them, it makes them hate me. That’s the story here.

I think this will change following the next price crash. I think their anger will be redirected following the next price crash. I saw that happen with Bernie Madoff. The people invested in his fund LOVED him so long as his con worked its magic on them. Once they saw through the con, they hated the man. That’s what I think is going to happen with Bogle and with those who have posted in “defense” of him following the next price crash.

I am not God. I could be wrong. I have obviously been wrong about things in the past. It could be that it is happening again. I don’t have a time machine. I cannot take you into the future and prove this to you. I am just stating my sincere opinion.

That’s it, you know?

If you saw things from my perspective, you wouldn’t give two seconds of consideration to the idea of agreeing to post dishonestly to appease you Goons.

I suppose that, if I saw things from your perspective, perhaps I wouldn’t give two seconds of consideration to the idea of coming clean by the close of business today. That’s speculation. I am not able to see things from your perspective. So I cannot be entirely sure. I say that because it seems like something that perhaps I should say given what I said about how you would behave if you could see things from my perspective.

I cannot do other than what I am doing. So my intent and expectation is that I will just continue doing it.

I love you guys (and witches). I wish you all good things. I don’t see any benefit that follows from being nasty about any of this. So I make an effort to avoid taking that dark path.

I wish you all good things. But I intend to soldier on all the same. I believe that the reaction that we will see following the next price crash will tell the tale.

I believe that I will be friends with most of Jaime’s millionaire friends following the next price crash. And I believe that I will be friends with Bogle then. And I believe that I will be friends with you Goons then.

But this is all just one fellow’s opinion, you know? Nothing more and nothing less.

I hope that helps a tiny bit.

Rob