Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:
The plan did not work like a dream. We can all see the math. 17 years is not a short term. After 17 years of missing your target, the nest egg is spent down to a level that you can’t recover. You are trying to convince people that they should try to time the market with your VII strategy. Why should they when it failed for you?
I agree that 17 years is a long time.
If you include the value of the book that I could not have written had I not taken this path, then my nest egg value is off the charts. I have not converted that value to cash as of today. But I see the value there very, very, very clearly. So that’s what I have to go by.
If a fellow had discovered the cure for cancer and people who worked in cancer treatment centers harassed him for 17 years and kept him from earning an income, would you conclude that the value for the cure for cancer was zero? I would not. I would conclude that the people harassing him saw the great value in what he was putting forward or they would not be bothering with the harassment.
Everyone should be timing the market. Not because of anything that happened to me and not because of anything that I say. Everyone should be timing the market because there is 38 years of peer-reviewed research in this field showing that market timing is required for long-term investing success. If valuations affect long-term returns (Shiller was awarded a Nobel prize for showing this), then stock investing risk is not stable but variable (depending on valuations). Investors seeking to keep their risk profile roughly constant over time MUST engage in market timing. To fail to do so is to fail to practice price discipline, which is obviously not at all a good thing.
It will be interesting to see how things play out in the days following the next price crash, Sammy.
I do wish you all good things, in any event.
Well-Wishing Rob
“If you include the value of the book that I could not have written had I not taken this path, then my nest egg value is off the charts. I have not converted that value to cash as of today. But I see the value there very, very, very clearly. So that’s what I have to go by.”
It doesn’t matter how YOU see value, it is how OTHERS see the value. For example, I might think that my favorite shirt is worth $500 million because it is a lucky shirt. Are you willing to pay me $500 million for my shirt? Of course not………….but if you are willing to pay that, let me know!
What you are saying is half true and half untrue, Anonymous.
In making decisions about how I am going to employ the time given to me, I have go by what I see. I see no valuation adjustment in the retirement study posted at John Greaney’s web site. If what I am seeing is accurate, then the 18-year cover-up of that error is the biggest act of financial fraud in the history of the United States and there is nothing else in a close second place. So I have to have the courage to say that. So what I see is important even if no one else sees it.
Now —
If we as a society are going to survive the Buy-and-Hold Crisis, it is going to take more than just Rob Bennett seeing that Greaney’s study is in error. But of course we have more than that. John Walter Russell saw it. John was the most respected numbers guy in the history of the Retire Early movement. And he studied this matter n great depth. He devoted eight years of his life to researching my stuff even though he was never paid a dime for his work. He concluded that: “The Great Safe Withdrawal Rate is over — Rob has won.” Wade Pfau reached a similar conclusion after working with me for 16 months on the most important peer-reviewed research published in this field in 30 years. Wade’s words were: “Yes, Virginia, Valuation-Informed Indexing works!” Rob Arnott reached a similar conclusion when he declared the work presented at my web site as “solid” and noted that he has experienced similar behavior on the part of the Buy-and-Holders, such as when two researchers who were looking into his ideas re how stock investing works were taken aside by Buy-and-Holders and told that continuing to prepare that important research would be a career-limiting move. And of course there are the thousands of our fellow community members who have expressed a desire that honest posting re the last 38 years of peer-reviewed research in this field be permitted at every web site on the internet.
So others see the value. Lots of others. Thousands of others. Even you Goons see the value. If you didn’t see the value, you never would have engaged in a single criminal act to block millions of investors from learning what they need to know to invest effectively for the long run — that market timing is always 100 percent required, that those who fail to practice market timing when buying stocks are failing to practice price discipline when buying stocks (assuming that Shiller is right in his belief that valuations affect long-term returns and that the market is thus not efficient, as was believed at the time when the long-discredited Buy-and-Hold strategy was developed).
There’s one thing holding us back at this point. Shiller’s research is theory, we have not seen the horrible human suffering that has followed from the widespread promotion of the Buy-and-Hold “strategy” on every earlier occasion on which our Wall Street Con Men friends have pushed it relentlessly as a means of turning a quick buck. We will see the mountain of human misery that inevitably follows the widespread promotion of the Buy-and-Hold “strategy” in the wake of the next price crash, when we will see hundreds of thousands of businesses fail in a deepening of the economic crisis and millions of workers lose their jobs and millions of failed retirements. I think that that is going to be a turning point. I think that when we all see with our own eyes what persuading millions of people to go with a pure Get Rich Quick investment strategy does to us as a people, there will be some influential people who will work up the courage to stand up to you Goons, as I did on the morning of May 13, 2002, after three years of living in fear of what you Goons would do to me if I posted my sincere take.
I believe that the deepening of the economic crisis will change everything, I believe that the suffering that we will see in that stage of the Buy-and-Hold Crisis will be an unbearable thing to watch. But I also think that it will be a turning point in the history of this nation. From that point forward, life for all of us will get better and better and better and better. I have a funny feeling that there will not be one person living in the United States who will ever look back fondly at the Buy-and-Hold Era once we all have won our freedom to post honestly re what the last 39 years of peer-reviewed research teaches us about how stock investing works in the real world.
We’ll see, you know?
I know with 100 percent certainty that I don’t feel comfortable engaging in financial fraud myself. I am open to saying lots of positive things re you Goons. If I ever can help you out in any way, please just let me know and I will be there for you. I think of you as friends. But I will not be saying that I believe that Greaney included a valuation adjustment in his retirement study. Prison life is not for me. I love my country. I believe that someone who loves his country should be willing to follow the laws of his country. So, when I do not see a valuation adjustment in the study, that does indeed mean something re how I am going to post in the future, regardless of whether there are some others willing to engage in criminal acts to intimidate me into joining them in their acts of fraud and a much larger group of others lacking the courage to stand up to these viciously abusive “individuals.” That sort of thing is not my particular cup of tea, you know? It’s not a terribly close call either.
My best and warmest wishes to you and yous, my dear Goon friend.
Lucky-Shirt-Wearing Rob (Who Feels Like Not Just a Million Bucks But Like 500 Million Bucks Because of His Having Worked Up the Courage o Finally Post Honestly re the Error in the Greaney Retirement Study on the Morning of May 13, 2002)
“ So others see the value. Lots of others. Thousands of others.”
I disagree. Talk is cheap. As you have even said, people will just say things, but not mean it. Actions are what proves things. You can only place a value on something based on what someone else is willing to pay you for it.
The dispute is over whether people are entirely rational when they place a value on stocks or at times highly emotional. If they are rational, then Buy-and-Hold is the ideal strategy. I certainly do not say different. If they are sometimes highly emotional, then we need to open every discussion board and blog on the internet to honest posting re the last 39 years of peer-reviewed research in this field so that we can all work together to learn how this stock investing stuff works in the real world.
That’s my sincere take re these terribly important matters, in any event.
I naturally wish you all the best that this life has to offer a person, dear friend.
Honest Posting Advocate Rob
No, the dispute is on value.
90 percent of the population does not today see much value in Valuation-Informed Indexing. That much is fair to say.
But 10 percent sees value. And there’s every reason to believe that that percentage would grow if honest posting was permitted on every discussion board and blog on the internet.
Every new idea begins with the support of only a small percentage of the population. And then it grows as advocates of the new idea talk things over with advocates of the old and established idea. That’s why we have adopted laws against extortion and against financial fraud and against threats of physical. We understand that brutally abusive behavior can be used to stop new ideas from growing and that our economic system depends on growth to remain successful and respected. Take away the possibility of new ideas growing in popularity over time and you take away the possibility of our nation’s economic and political system retaining the support of our people. Our laws against extortion and financial fraud and threats of physical violence are necessary and important laws.
I love my country, Anonymous. I will continue to post honestly re the horrible error that John Greaney made in the retirement study posted to his web site. I was friends with a good number of the people whose lives he destroyed with his dishonest and abusive behavior. I consider Greaney a friend. I think that it would be fair to say that he wouldn’t be in the spot he is in today if more of his friends called him out on his b.s. back in May of 2002, as I did.
My best wishes to you.
True Greaney Friend Rob
“ But 10 percent sees value. ”
There is no basis of fact behind that statement.
I have a slider at the top of every page of my site that says different. The members of your jury will be presented that list of statements and a number of the people who made the statements will be called to testify at your trial. Here’s Wade Pfau’s take:
A) Academic Researcher Wade Pfau’s Statements Showing Interest In and Confidence in Rob Bennett’s Work
1) “I do cite you and John Walter Russell in my paper as the earliest and strongest advocates of this approach [New School safe-withdrawal-rate research].
2) “Are you aware of Shiller offering asset allocation advice based on PE10? …. If you read Rob Bennett’s stuff carefully, I think he did provide an important contribution in terms of describing a way for PE10 to guide asset allocation for long-term conservative investors. I also think he was right on the issue of safe withdrawal rates.” — Posted at the Bogleheads Forum discussion board.
3) “I am also extremely grateful to Rob Bennett for motivating this topic and contributing his experience and encouragement.” — Written in Acknowledgments section of Wade’s breakthrough research paper.
4)”You deserve much of the credit as the whole idea of Valuation-Informed Indexing belongs to you.”
5) “I definitely need to cite some of your work as the founder of Valuation-Informed Indexing, as I have not found anyone else who can lay claim to that. Shiller pointed out the predictive power of PE10 but never discussed how to incorporate it into asset allocation, as far as I know.”
B) Academic Researcher Wade Pfau’s Statements on the Superiority of Valuation-Informed Indexing Over Buy-and-Hold
1) “What you see in the top part of the graph for each year is the amount of wealth accumulated after 30 years for someone following Buy-and-Hold against someone following Valuation-Informed Indexing….Valuation-Informed Indexing provides more wealth for 102 of the 110 rolling 30-year periods, while Buy-and-Hold did better in 8 of the periods.”
2) “I will take steps in my final paper to test a wide variety of assumptions about asset allocation, valuation-based decision rules, whether the period is 10, 20, 30, or 40 years, lump-sum vs. dollar-cost averaging, and so on, and to show that the results are quite robust to changes in any of these assumptions.”
3) “Any data mining that I am doing is in favor of buy-and-hold, not in favor of market timing.”
4) “The findings for “market timing” are so robust anyway, that it hardly matters how we do it.”
5) “The maximum drawdown from market timing is much less. That is how far the portfolio drops from past highs to current lows. The Buy-and-Holder once experienced a 60.96% drop, whereas the worst drop for market timing was 24.16%.”
6) “Market timing provides signficantly higher returns at a comparable level of risk.”
7) “The market timer enjoys a far less risky strategy.”
8) “On a risk-adjusted basis, market-timing strategies provide comparable returns as a 100 percent stocks Buy-and-Hold strategy but with substantially less risk. Meanwhile, market timing provides comparable risks and the same average asset allocation as a 50/50 fixed allocation strategy, but with much higher returns.”
9) “If everyone increased exposure after a market fall and vice versa, then this would dampen out the big swings in the market aggregates, and we might get shallower boom/bust cycles.”
10) ““‘I’m excited about this, as depending on what you have already done, I think I can design a study using the Shiller data to provide historical simulations of Valuation-Informed Indexing strategies against fixed Buy-and-Hold strategies and also lifecycle strategies (declining allocation to stocks as one ages). If Valuation-Informed Indexing consistently outperforms fixed and lifecycle strategies, then the proof is in the pudding so to speak. Given how well valuations help to explain withdrawal rates, I think there is a lot of potential for this topic.”
11) “Yes, Virginia, Valuation-Informed Indexing Works!”
12) “It makes complete sense to have an equity allocation that is in some way flexible. Having a completely inelastic demand for equities is a bit bonkers; no-one acts that way with life’s other important commodities.”
13) “I wrote up the programs to test your Valuation-Informed Indexing strategies against Buy-and-Hold, and I must say that the results look very promising…. I am quite excited about the findings so far. As you say in the podcast, Valuation-Informed Indexing should beat Buy-and-Hold about 90 percent of the time, and I am getting results that support this for various strategies.”
14) “I have been toying with the idea of sending the paper to the Journal of Finance, which is the most prestigious journal in academic finance.”
15) “Now that I am accounting for risk, I am even more amazed by how well Valuation-Informed Indexing works.”
16) You shouldn’t be too excited with great wealth accumulations if they happened due to unusually high valuations, and low wealth accumulations shouldn’t be as scary if valuations are also quite low.”
17) “My idea is to show many different tables with results over the whole period for returns and risks. Valuation-Informed Indexing always provides more returns for often less risk.”
18) “No matter what I try, Valuation-Informed Indexing will still perform better in 85-95% of cases for 30 years.”
19) “I have a new figure for showing this as well. And a nice figure showing the outperformance percentages across rolling periods of lengths between 1 and 40 years. I think it is all quite persuasive.”
20) “You haven’t seen anything yet! This was just the secondary study. I’m still working on the main one!”
C) Academic Researcher Wade Pfau’s Statements of Incredulity That He Was the First Academic Researcher to Examine the Valuation-Informed Indexing Strategy
1) ” I know that there is an extensive literature about the predictability of long-term stock returns dating back to Campbell and Shiller’s work in the mid-1990s. I also know that there is an extensive literature about short-term market timing strategies…. But my question is about LONG-TERM market timing strategies. In other words, using market timing over periods of at least 10 years to obtain better returns than a Buy-and-Hold strategy. The literature seems slim.”
2) “Let me just explain a bit more why I posted about this here. Valuation-Informed Indexing has had critics for years, but until Norbert did it in 2008, nobody seemed to have provided a serious investigation of it. I just couldn’t understand why. And that bothered me.”
3) “Two papers by Fisher and Statman are still all I can find that provide evidence against long-term market timing.”
4) “I’m so confused by why Fisher and Statman didn’t consider risk in their idiot switching tests. Valuation-Informed Indexing is much less risky by pretty much any standard I consider. I must wonder… did I make a mistake somewhere? Why haven’t academics already published research about this?”
D) Academic Researcher Wade Pfau’s Statements on the Dangers of the Conventional Retirement Planning Advice
1) “The traditional approach to retirement planning (as described on pages 10 and 11 of The Bogleheads’ Guide to Retirement Planning, for example) is counterproductive and possibly damaging.”
2) “Retirees now frequently base their retirement decisions on the portfolio success rates found in research such as the Trinity study…. This is not the information that current and prospective retirees need for making their withdrawal rate decisions.”
3) “This article provides favorable evidence based on the historical record for long-term conservative investors to obtain improved retirement planning outcomes (lower savings rates, higher withdrawal rates) using valuation-based asset allocation strategies.”
4) Wade sent me a link to an article in Business Week that was published more than eight years after my post pointing out the errors in the Old School retirement studies and which he characterized as “quite sympathetic to the point you were trying to make all along”.
5) “Though I was only trying to do an Old School safe-withdrawal-rate study, all that I ended up doing was showing in a different way what you had been saying all along: the safe withdrawal rate changes with valuations.”
6) “Valuations are the driving factor. ”
7) “This is similar to your drunk driving analogy, which I agree with.” The discredited but uncorrected retirement studies find that in most circumstances a 4 percent withdrawal rate provides a huge cushion for the retiree using it. However, in each of the three cases in history when stocks reached insanely high price levels, retirements using a 4 percent withdrawal came within a whisker of failing. To say that this shows that a 4 percent withdrawal is “100 percent safe” (these words are used in the Greaney study) for a retirement beginning at a time of insanely high price levels is like saying that driving drunk is “100 percent safe” because 97 sober drivers drove their cars 20 miles without incident while 3 drunk drivers were paralyzed for life in car accidents but did not die. The fact that 4 percent only worked by a whisker in the cases in which valuations were high at the beginning of the retirement shows that a 4 percent withdrawal is high-risk at times of high valuations, not that it is “100 percent safe.”
8) ” Actually, this issue shouldn’t really even be all that controversial. It’s just common sense that the probabilities from the Trinity study shouldn’t be interpreted as forward-looking probabilities for new retirees.”
9) Naturally, I am finding that Valuation-Informed Indexing can allow you to reach a wealth target with a lower savings rate, use a higher withdrawal rate, and also have a lower “safe” savings rate, than a fixed allocation.
E) Academic Researcher Wade Pfau’s Statements Showing His Concerns that Continuing to Report Honestly on the Investing Realities in the Face of the “Hostile Environment” for Doing So Created by Buy-and-Holders Would Harm His Career
1) “I was trying to pay tribute to your accomplishments in what I knew would be a hostile environment.”
2) “Valuations and long-term investors is a somewhat controversial topic.” Wade posted these words to his blog in October 2011 as his explanation of why he was abandoning his plan of doing further research on the superiority of Valuation-Informed Indexing strategies over Buy-and-Hold strategies. He had told me in earlier days that “You ain’t see nothing yet!” when I praised his breakthrough research in this area. After his flip to the dark side, Wade removed the page containing this blog entry from his site.
3) “We have both read and met to discuss your paper. Unfortunately, we did not find the paper’s incremental contribution to the academic finance literature, assuming the analysis proved to be correct, rose to the level that we are seeking for papers in the JFR. Thus sending the paper to a reviewer would be inefficient.” These words are from an academic journal’s “desk reject” of Wade’s breakthrough research.
4) ) ““ I was discouraged when I first received the “desk reject” by the editors of the same journal that published the Fisher and Statman paper. I realized that I didn’t have a chance with one of the top journals.”
5) “I think I should stay publicly quiet for a while, as I really don’t want anyone sending messages about any topics to officials at my university.”
6) I don’t want them [the Goons] working behind the scenes to derail me.”
7) “I did warn the editor of the Journal of Financial Planning that they may receive some ‘hate mail‘ after I mentioned your name in the safe savings rate paper.”
Those are selected comments without full context and doesn’t quantify your 10% claim.
I am 100 percent comfortable with the prospect of presenting those comments to a jury and awaiting their decision.
If you feel the same, then I think it would be fair to say that all that our only way forward at this point is to await the next price crash and to see if the losses suffered cause a big enough change in public opinion to create pressure on prosecutors to file charges.
Yes?
Civic-Minded Rob