Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“Review the site.”
I’ve seen enough. There’s nothing good here.
“I put a post forward on the morning of May 13, 2002, saying that the retirement study posted at John Greaney’s site lacks a valuation adjustment. That’s huge.”
No. That’s also, quite literally, nothing. It’s of less significance than the dust mites in your bed.
“And the positive feelings are 50 times stronger”
So to summarize, the bad stuff is everything that is factual and documented. The good stuff is your “positive feelings.” In other words, your feelings are 50 times more real to you than actual reality. Which means we have no common frame of reference for continuing this discussion. Sound familiar?
I agree with you when you say “we have no common frame for continuing this discussion.”
We are starting from opposite premises.
If the market is efficient, Buy-and-Hold is the ideal strategy. If the market is efficient, stock price changes are determined by economic realities and investors can count on the numbers on their portfolio statement to reflect something of real and lasting significance. If the market is efficient, stock investing risk is a constant and the safe withdrawal rate is always the same number — 4 percent.
If valuations affect long-term returns, stock investing risk is variable (it depends on the valuation level that applies at a particular point in time) and the safe withdrawal rate drops as low as 1.6 percent at times of high valuations and rises to as high as 9.0 percent at times of low valuations. If valuations affect long-term returns, stock price changes are determined primarily by shifts in investor emotions and the numbers on portfolio statements reflect only a temporary emotional reality and it is only by adjusting for the effect of overvaluation or undervaluation that investors can know the true and lasting value of their stock portfolios and engage in effective financial planning. If valuations affect long-term returns, Buy-and-Hold is the purest and most dangerous Get Rich Quick investment strategy ever concocted by the human mind. It will cause an economic crisis every time it becomes popular because the market’s primary job is to get prices right and, once large numbers of investors come to believe in Buy-and-Hold, there is no means by which the market can get prices right again but to crash them.
Are we enemies?
We believe in different things. In your eyes, that makes me an enemy. So be it, you know? I don’t see you as an enemy. I certainly accept that you follow an investment strategy rooted in a different premise than the one that I follow. But I also accept that I could be wrong and thus it is important that I listen to people with other views and learn from them. Even if I am right about the core point, there are things that I can learn from people with other views — perhaps they have thoughts on some non-core point that will make my understanding of the realities firmer and clearer and more complete. So I think of you as a friend.
Shiller’s work is not rooted in feelings. That is of course silly. The man was awarded a Nobel prize for good reasons. He is saying the opposite of what Bogle is saying. The two could not be further apart in their views as to how stock investing works. But Shiller’s work is 100 percent solid. It has passed every test to which it has been put. Bogle’s work once appeared to be solid. Before Shiller came along, most informed people thought that the market was efficient. Shiller discredited that idea. Buy-and-Holders still outnumber Valuation-Informed Indexers 10 to 1. So there are still many good and smart people who believe that Buy-and-Hold is a real thing. But the intellectual work needed to discredit it has been around for 37 years. The idea that the market is efficient was disproven 37 years ago. If valuations affect long-term returns, there aint no way in God’s green earth that the market is efficient. If the market were efficient, returns would play out in the form of a random walk both in the short term and in the long term.
If you don’t think that there’s anything good at the site, don’t read it, Anonymous. There is certainly no law that says that you have to come here. There ARE laws limiting the sorts of tactics that you may engage in to block people who have an interest in hearing the message from hearing it. It is your violations of those laws that are going to get you sent to prison in the days following the next price crash. I will do what I can to help you out, you know? I have said that about 500 times. I will do what I can to explain your behavior in a way that might make people who have lost most of their retirement savings as a result of your actions less angry with you. I am not going to say that the Greaney study contains a valuation adjustment. I am not going to join you on the wrong side of the felony line. But I will do what I can.
The crash is going to hurt people. It breaks my heart that it is going to take another price crash to get these ideas out before millions of people, to help us all to advance in our understanding of how stock investing works in a big way. But whachagonnado, you know? I did everything that a human being can do to help us all avoid that pain. I did my part and then I did some more on top of that and then I did some more on top of that. I am not Superman. At some point I have to accept that we live in communities and we are going to need a few more community members (perhaps 10?) to work up the courage to stand up to you Goons if we are going to make good things happen here. I think we will find them. I think we are going to have John Freakin’ Bogle himself working on the side of the American people in the days following the crash. So I think we have good things to look forward to.
What do we do when we see the crash that Shiller has predicted, Anonymous? Do we throw our hands up in the air and give up? Is that the end?
I don’t think it is the end. I think we rebuild. I am grateful that we have 37 years of peer-reviewed research showing us how this stock investing thing works in the real world to help us with that rebuilding process. I am going to do what I can. I can do no more and I can do no less. I hope that you will be working with Bogle and me and Shiller and all the others when we make it to the other side of The Big Black Mountain. I think you will be. You’ll say “no, it could never happen.” But losing 50 percent of your life savings and seeing the suffering of millions of people may bring on a change of heart. It has been known to happen, my dear Goon friend.
We don’t have a common frame of reference re the investing stuff. We certainly believe in very different things in that realm. But I suspect that deep down we possess a common frame of reference re something even more important. In the United States, we have means of working out such differences. We talk them over. We don’t make use of death threats or demands for unjustified board bannings or thousands of acts of defamation or threats to get academic researchers fired from their jobs. Those sorts of things are not accepted behavior in any field of human endeavor outside of the investing advice field.
You can point to all the bad stuff we have seen during the first 16 years and argue that it is hopeless. I can point to the laws against financial fraud and show that the people of the United States are on my side on the ultimate question. We do not as a people approve of your tactics. So you are fighting a losing battle. Once people see the financial pain that is associated with permitting relentless promotion of a Get Rich Quick investing strategy and prohibiting discussion of the first true research-based strategy, those who engaged in the financial fraud stuff will be going to prison. That’s going to make a pretty darn big statement, you know? That’s going to get written up in the newspapers. That’s going to go viral.
The stuff that is on the wrong side of the felony line is not for me, Anonymous. If anything, I am trying to get you to move away from that stuff. I certainly do not feel any inclination to join you. We are making progress. We’ve got 37 years of peer-reviewed research showing us what works. We have seen a Nobel prize awarded to the economist who showed that Buy-and-Hold is a big pile of smelly garbage. We have had thousands of our fellow community members express a desire that honest posting be permitted at our boards. We have had scores of big-name experts make efforts to go honest on various points. We have seen you Goons go completely nuts, showing that even the most ardent advocates of Buy-and-Hold no longer believe that it can be defended in civil and reasoned debate. What does that tell you?
It tells me that we are close. Very, very close. A death threat is a Hail Mary pass. It is a desperate act. I don’t even think about throwing Hail Mary passes. I don’t have to. I have 37 years of peer-reviewed research on my side. That counts for something in this country. Ultimately, it is going to be the peer-reviewed research that wins the day. I wish it would have happened sooner. Very, very, very much. But I can’t say that I feel even the tiniest inclination to jump from the winning side just in time to line up a prison sentence for myself. Um — thanks but no thanks.
I hope that you have all the happiness that you are seeking in life.
If you have questions re Valuation-Informed Indexing, please let me know and I will offer you whatever help I am able to deliver. If you see no merit in it, please feel free to mosey on down the line knowing that you have my best wishes every step of the way.
I am going to continue posting honestly on safe withdrawal rates and on scores of other critically important investment-related topics. If I ever see any evidence that the Greaney study contained a valuation adjustment, you will see me reporting on it here within 24 hours of the time that I learn about it. If I never see any such evidence (I have developed a funny feeling over the years that I never will), I will just have to make the best of the circumstances in which I have been placed. I will post honestly. I will tell anyone giving thought to using that study to plan a retirement that it is in error. I will encourage all investing sites to warn people about the study so that we don’t see even more failed retirements than have already been set in motion by the errors in it.
Does all of that not make perfect sense? It sure seems to me that it does.
I do wish you all good things, my dear Goon pal.
No-Good-Site-Maker Rob
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