A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

“I Am Not Ashamed of My Behavior From May 13, 2002, Forward. I Am Proud of It. It Would Be Fair to Say That I Am Somewhat Ashamed of My Behavior Prior to May 13, 2002.”

by

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

Unbelievable. This is it? You have been lying about death threats all this time. You should be ashamed of your behavior.

I am not ashamed of my behavior from May 13, 2002, forward, Anonymous. I am proud of it.

It would be fair to say that I am somewhat ashamed of my behavior prior to May 13, 2002.

Not entirely so. Given what we have seen from May 13, 2002, forward, most reasonable people would conclude that my behavior prior to May 13, 2002, was completely understandable. Perhaps. But I am not so sure. I would like to expect better of myself.

I knew in May 1999, when I put my first post to the Motley Fool board, that the retirement study posted at John Greaney’s web site lacked an adjustment for the valuation level that applied on the day the retirement began. I lacked the courage to say so. That’s not good. All of the extenuating circumstances that applied and that influenced me were real. But still….

I would like to see us ALL expect better of ourselves. That’s what this thing is all about. The idea is to bring us all to a higher level and thereby to help us all live better lives in the future.

We’ll see.

Rob

“Wade Pfau Felt (Quite Understandably) That His Career Was at Risk If He Continued Down the Road That He Was Travelling When He Worked With Me, So He Got Off of That Road. He Was Proud of the Work That We Were Doing and He Admired My Work. He Said So Scores and Scores of Times. But He Did Not Want to See His Career Damaged and So He Chose a Different Course. I Think That He Made a Tragic Choice. I Don’t Think That Any Researcher Should Ever Have to Worry About Such Things. I See It As a Serious Imbalance in Our System That Needs to Be Corrected.”

by

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:

He is doing what he wants to do. Stop making things up.

I’m not making things up, Sammy.

I exchanged scores and scores of e-mails with Wade during the 16 months in which we were working together. I have posted the texts of most of them at my web site. He was like a kid in a candy store in the days when he was learning about Valuation-Informed Indexing and getting increasingly excited about it while he researched the subject deeper and deeper and found that it all checks out. And then he was threatened. And then he wrote to me that he was afraid of what would happen to his career if he continued down the road he was on and told me that he was going to pull back. And then he took down from his web site all of the articles that he has posted there about the work that we had done together.

That doesn’t just hurt me. It hurts every investor alive. We all need to know about the far-reaching implications of Shiller’s work. And the way we learn is by having researchers like Wade put their energies into helping us all out. If we threaten them into not doing that, we are only hurting ourselves in the end. We are better of learning the realities.

It is not only Wade that this has happened to. I have seen dozens of similar situations play out. Rob Arnott wrote to me to tell me that he knows of researchers who were doing work on his ideas who were taken aside and told that they would be doing harm to their careers to publish that research. That’s the same thing. Shiller says in his book that he was told by a television producer just before an interview went on the air that he had better be careful what he said or he could cause stock prices to fall. That’s not an effort to get him to say precisely what he believes about the subject, is it? It’s an effort to keep stock prices high, which is something very different.

This sort of thing is going on all the time to all sorts of people. Everyone cheers increases in stock prices and few cheer those who warn of the dangers of unjustified price increases. So the market cannot work in the way that markets are supposed to work. For the market to get the price right, there needs to be a battle between the side arguing for higher prices (the sellers) and the side arguing for lower prices (the buyers). The job of the market is to resolve the tensions between sellers and buyers and thereby to set the price properly. There is little such tension in the stock market. 90 percent of the population wants higher prices and those arguing that prices should be lower (those who believe that Shiller’s research is legitimate) are silenced. The price gets so far out of whack that eventually we see a price crash that hurts everybody.

I believe that we need to see more discussion of Shiller’s ideas. I believe that permitting more discussion of his ideas would provide more balance to the market and thereby benefit us all. But that obviously means criticizing Buy-and-Hold. Buy-and-Holders deny that there is ever a reason to lower one’s stock allocation They believe in complete price indifference. It is my view that that approach defies common sense (as well as 38 years of peer-reviewed research).

Your hostility to me and to Wade during the time that he was working with me is rooted in your hostility to Shiller’s ideas. Wade felt (quite understandably) that his career was at risk if he continued down the road that he was travelling when he worked with me, so he got off of that road. He was proud of the work that we were doing and he admired my work. He said so scores and scores of times. But he did not want to see his career damaged and so he chose a different course. I think that he made a tragic choice. I don’t think that any researcher should ever have to worry about such things. I see it as a serious imbalance in our system that needs to be corrected.

The research that Wade and I did is scary to Buy-and-Holders. I get that loud and clear. It is SUPPOSED to be scary to Buy-and-Holders. We didn’t publish that research to support Buy-and-Hold, we published it is show the dangers of Buy-and-Hold. As a Buy-and-Holder, that’s good for you. You need to know the weaknesses of your strategy. If you choose to stick with Buy-and-Hold despite what Wade and I said, that’s fine. But you should let each investor make that choice for himself or herself. It is only by seeing the research that people can make informed decisions.

It’s the things that you don’t know that hurt you as an investor, Sammy. You should want to know as much as you can possibly know. People who publish research that shakes you up are your friends, not your enemies.

I am your friend. I know that you do not see it that way. But it is 100 percent my intent to help you (as well as many others, to be sure) out.

Rob

“If You Read the Newspaper Reports, They Will Say Something Like “Stock Prices Have Been Going Up Because Investors Are More Confident That the Economy Will Be Doing Well.” That’s a Rational Explanation of the Price Change. You Never Read That “Stock Prices Went Up Because Investors Are Concerned That They Have Not Saved Enough and Thus Do Not Have Enough to Retire On.” That’s Irrational Exuberance at Work.”

by

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:

We have already looked at the numbers. It has been a disaster for you. Further, your retirement plan failed and you have admitted that you have to go back to work.

You’re not exactly an unbiased observer, Sammy.

I never retired in a complete sense. I saved enough money so that I would only need to earn a small amount doing work that was highly fulfilling and I would be fine. I have done that for 20 years now. The only part that didn’t work was that I was not able to earn money writing about the far-reaching implications of Shiller’s research findings. My work received a great reception from about 10 percent of the population. That’s been super. But there have been Buy-and-Holders like yourself who get so upset to see their strategy challenged that they become abusive and that has caused me to be banned at just about every investing site. So I have not been able to bring in an income. But that’s because of the emotional nature of the Buy-and-Hold strategy not because of any weaknesses in Shiller’s work. The problem is that Shiller’s work is so strong that it is perceived as a threat by many Buy-and-Holders.

You say that you have looked at the numbers. You have done so on numerous occasions. But every time you do it, you fail to account for valuations. Which is the entire point under discussion. If you account for valuations, you obviously come to very different conclusions. Stocks are currently priced at two times fair value. So, for the person who holds stocks today, you need to divide the number on their portfolio statement by two to know the true, lasting value of their holdings. You never do that. Buy-and-Holders don’t do that. Buy-and-Holders act as if the numbers on their portfolio statement were the word of God as to the value of their holdings. That’s the dispute. Is that number real or is it just the product of irrational exuberance?

Say that stock prices go up by 10 percent over the next three months. Would you count those gains as real? If you read the newspaper reports, they will say something like “stock prices have been going up because investors are more confident that the economy will be doing well.” That’s a rational explanation of the price change. You never read that “stock prices went up because investors are concerned that they have not saved enough and thus do not have enough to retire on.” That’s irrational exuberance at work. That’s what is really going on when prices are where they are today, according to Shiller’s research.

You say that the numbers don’t work for me because you calculate them according to the dictates of the Buy-and-Hold strategy, which has been discredited by the last 38 years of peer-reviewed research in this field. If you perform the calculations with an understanding that the numbers change when you account for the irrationality of many investor decisions, you obviously get different results.

This is what we need to be discussing at every investing site on the internet. If it is really true (I believe that it is) that every stock portfolio in the nation is worth only 50 percent of its stated value today, that’s a big deal. It’s a big deal for millions of investors and it’s a big deal for our entire economic system and for our entire political system. If trillions of dollars of spending power are going to disappear into thin air, that is going to put thousands of businesses into bankruptcy and millions of workers out of work. We need a national debate as to whether what Shiller said is right or not.

The only way to keep prices from getting out of hand is to explain to investors how they hurt themselves when they permit prices to get too high. And the only way to do that is to show them what the research says about what happens in time-periods following those in which we see high CAPE values. But that of course upsets Buy-and-Holders, who ASSUME that the numbers on their portfolio statement are real and that no adjustments for irrational exuberance are required.

You are criticizing me because I do not follow the Buy-and-Hold way of doing things. But of course the entire point that I am trying to bring to the table is that the Buy-and-Hold way of doing things is outdated. We now have a better way available to us. And I think that we all should be learning everything we can about it. I think that Buy-and-Hold is the past and that Valuation-Informed Indexing is the future.

Do you see why it makes it hard for us to have a productive conversation when you judge me by the dictates of an investment strategy that I do not believe in, that I believe has been discredited by 38 years of peer-reviewed research? Would you want to be judged by the dictates of some strategy that you do not follow, that you believe has been discredited by decades of peer-reviewed research?

Rob

 

“There Are Two Burdens of Proof. One Is on the Substance Issue — Can Buy-and-Hold Work, Given the 38 Years of Peer-Reviewed Research Showing That Valuations Affect Long-Term Returns? The Burden of Proof Is on Me re That One. The Other Burden of Proof Is on the Question of Whether I Have a Right to Post Honestly and Whether People Who Are Interested in Hearing What I Have to Say Have a Right to Hear What I Have to Say Even Though You Goons Would Prefer It If People Could Not Hear the Minority Viewpoint Expressed. Re That One, the Burden of Proof Is on You Goons.”

by

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

After rereading these words, I feel the need to put forward an addendum to them.

Valuation-Informed Indexing is the new idea, Buy-and-Hold is the long-established strategy, the dominant model today for understanding how stock investing works. So, yes, I carry the burden of proof when it comes to persuasion. People who hear my words should be skeptical of them because they challenge conventional thinking, thinking held and advanced by millions of good and smart people. The burden of proof is on me when it comes to PERSUASION.

But the burden of proof is not on me when it comes to whether or not I should post my honest views. People who hold minority viewpoints are required in our society to post their honest beliefs. If I were to say that I believe that Greaney’s retirement study contains an adjustment for the valuation level that applies on the day the retirement begins, I would be guilty of financial fraud. I obviously do not believe that. There are thousands and thousands of posts in the record in which I state very forcefully that I do not believe that. I hold a minority viewpoint. I am required by the laws of the United States to express that minority viewpoint each time that I speak re these matters. That’s as clear as anything could be clear.

This difference in how the two burdens of proof are set up is critical to the proper working of our economic and political systems. It would be a bad idea if we all changed our views on important issues each time some fellow or gal came along and expressed a new idea. That would be a disaster. So we have a social norm that says that new ideas must be challenged, that the burden of proof must be placed on the person advancing the new idea. All of that is right and just and proper and life-affirming. So one of the two burdens of proof really us on me.

But the other burden of proof — the burden that must be met for you Goons to avoid prison time — is on you Goons. People should not be easily persuaded of what I have to say. But I don’t have to persuade anyone of anything to win the right to post honestly. That is established in our society’s social norms and indeed in our criminal code (which of course has its roots in our long-held social norms). I have an absolute right to post honestly, as does everyone else. Even if it turned out that you were right about Buy-and-Hold, you would still be guilty of crimes when you advanced death threats and when you threatened to get Wade Pfau fired from his job and so on. That stuff is completely over the line even though my viewpoints on how stock investing works are minority viewpoints.

Now — the practical reality is that you are not going to be prosecuted for your crimes unless as a society we come to have serious enough doubts about Buy-and-Hold for a significant number of people (more than 10 percent of the population!) to be concerned about the effects of your criminal acts on our entire society. Not every criminal transgression is prosecuted. Not every person who commits a crime lands in a prison cell.

If a significant percentage of the populations becomes concerned about what has happened to them after they lose 60 percent or more of their life savings, you will go to prison. If no one becomes concerned, or if only the 10 percent who currently are concerned are concerned at that time, you will in a practical sense be off the hook. I believe that we are going to see more people become concerned in the days following the next price crash. But we of course are going to have to wait to see how that one plays out.

There are two burdens of proof. One is on the substance issue — Can Buy-and-Hold work, given the 38 years of peer-reviewed research showing that valuations affect long-term returns? The burden of proof is on me re that one. The other burden of proof is on the question of whether I have a right to post honestly and whether people who are interested in hearing what I have to say have a right to hear what I have to say even though you Goons would prefer it if people could not hear the minority viewpoint expressed on every discussion board and blog on the internet. Re that one, the burden of proof is on you Goons.

We have as a society adopted laws protecting the expression of minority viewpoints. We believe as a society that it is important that new ideas be entertained. Even though most new ideas are not going to pan out, it is important that death threats and threats to get academic researchers fired from their jobs not be permitted because in a small number of cases new ideas will prove to have great value and, unless we protect those ideas from criminal acts of the people who profit in some way from the continued promotion of the old ideas, we will never hear the new ideas that are the lifeblood of our system. It is new ideas that make our economy so productive that our stock market has been able to generate an average annual return of 6.5 percent real for many, many years. Cut off the possibility of new ideas ever again being heard because established interests prefer to see people continuing to believe in the old ideas and we are all a far poorer people than we have ever been at earlier times in the history of the United States.

I am 100 percent confident that I can meet the burden of proof that will rightly be imposed on me to show that Valuation-Informed Indexing is superior to Buy-and-Hold so long as the burden of proof is imposed on those who have elected to engage in criminal behavior to block people from hearing the case for the new model. I will be interesting to see how things play out in the days following the next price crash.

My best wishes to you, Goon friend.

New-Ideas-Guy Rob

“The Shift from Buy-and-Hold to Valuation-Informed Indexing Is the Personal Finance Equivalent for the Cure for Cancer. We Have the Cure in Our Hands. We Have Tested It and 100 Percent of the Evidence Available to Us Tells Us That the Cure Works. But the People Who Make Money in Cancer Treatment Centers Don’t Want Millions of People to Learn About the Cure and Have Engaged in Criminal Acts to Keep Knowledge From Advancing.”

by

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

I have seen a long list of people that have investigated your claims of death threats. Not one person could find any proof. The burden of proof falls on you as you are the only one making the claim.

Will my ability to meet the burden of proof change in the days following the next price crash? That’s the question on the table today.

There are people who don’t like it that there have been death threats but who are afraid to speak out today because they have seen what happens to people who speak honestly re these matters. I understand where those people are coming from because I was essentially one of them myself from May 1999 (when I put my first post to the Motley Fool board) until May 2002 (when I finally worked up the courage to say publicly that I did not believe that Greaney’s retirement study contains an adjustment for the valuation level that applies on the day the retirement begins).

The thing that caused me to work up the courage to cross the line was the smear campaign that Greaney led against Wanderer when Wanderer said that he thought that there were circumstances in which it could be a good idea to invest in real estate. Wanderer was our best poster and I loved that board community. So I could no longer live with myself if I didn’t do something. So things had reached a point where the cost of remaining quiet was greater than the cost of posting honestly. So I crossed the line.

We need to see that happen with lots of other people. Most people don’t even know who Wanderer is. So the smear campaign that Greaney launched against Wanderer is not going to bring other people around in the way that it brought me around. But losing 50 percent or more of their retirement savings may do it. That will mean that people’s hopes for their financial future will be crushed. People will be reading about how tens of thousands of businesses have failed. They will be reading about how millions of workers have lost their jobs. They will be seeing political frictions get worse and worse. I believe that all that may bring people around. I believe that in the days following the next price crash we may be seeing millions of people experience the sort of conversion experience that I experienced in the days following Greaney’s smear campaign against Wanderer in February 2002.

We are not going to see millions flip overnight. But within a few months we might see enough flip that we get the percentage of the population that believes that Shiller’s research tells us something important about how stock investing works move from 10 percent to 20 percent. That could prove to be a very big change. There are things that the Buy-and-Holders are able to get away with today when the percentage is only 10 percent that they will not be able to get away with when the percentage has increased to 20 percent. So the nature of the discussions will change significantly. As the discussions become more balanced, people will be able to hear both sides of the story. When people are able to hear both sides of the story, conditions will be right for the percentage to go even higher, to 30 percent, and then to 40 percent, and then to 50 percent, and then higher.

It’s an astounding reality that we are only at 10 percent after the publication of 38 years of peer-reviewed research showing that valuations affect long-term returns. That is an amazing reality. There are huge amounts of money to be made offering honest, research-based investment advice. So you would think that there would be many smart and good people rushing in to mine Shiller gold. But we obviously have not seen that. We have seen some rush in. Rob Arnott. Wade Pfau. John Walter Russell. Microlepsis. John Craig. Me. There are others. But that group has just not been large enough to get the job done. We don’t have enough people to turn to for help when we are attacked. And so we self-censor ourselves just so that we can avoid being silenced altogether. And that means that statements put forward by Buy-and-Holders remain unchallenged and as a people we remain in our general ignorance about foundational principles re how stock investing works.

We need to get that percentage up to make significant forward movement. And, once we get it up, that forward movement can come very quickly. Lots of groundwork has been laid over the past 38 years by that vanguard 10 percent. We’ve got the research that we need to make our case effectively. We’ve got responses to every challenge that could possibly be directed at us. We’ve got calculators. We’ve got podcasts. We’ve got graphics. We’ve got everything. We’ve got everything today but the courage to post honestly in the face of the hurricane of abuse that is directed at anyone who dares to speak in a clear and honest way about what Shiller’s research teaches us all about how stock investing works in the real world.

Most people are not terribly interested in theory. Most people are interested only in real-world, practical stuff. Buy-and-Hold failed the intellectual, theoretical test back in 1981. That’s a long time ago. But never in those 38 years have we seen millions of people lose a large portion of their life savings because of Buy-and-Hold. We have not once since 1981 seen a bull/bear cycle come to an end. It is when a bull/bear cycle comes to an end that Buy-and-Hold delivers its most horrible pain. We can point to how Buy-and-Hold has done this in the past, in the Great Depression, in the stagflation of the 1970s, in the near depression that we experienced in the early years of the 20th Century. But there are very few people still alive who personally experienced the Great Depression. There are people who experienced the stagflation of the 1970s but that third Buy-and-Hold Crisis was the least horrible of the four crises that were caused by this theory.

So most people are not alarmed by the mistake at the core of the Buy-and-Hold concept, So even people that go to the trouble to understand that arguments of the Valuation-Informed Indexers are not concerned enough about the mistakes at the core of the Buy-and-Hold concept to take action to get them fixed. The downside of Buy-and-Hold is not clear to people living today because as of this moment in time Buy-and-Hold is telling us that our stock portfolios are worth two times what they really are worth and that seems like a good thing. And the price of speaking out is very high, as my personal experience testifies very strongly. So most people conclude that the prudent thing is to keep it zipped. And as a nation we remain locked in our ignorance of the realities.

Does a 60 percent price crash change that? That question is the entire ball of wax at this point, Anonymous.

I think that a 60 percent price crash that remains in place for a good bit of time is going to change things. I could be wrong. I thought that Greaney’s smear campaign against me would be brought to an end by the site administrator at Motley Fool within two or three days. So I do not have a perfect record when it comes to speculating how things are going to play our re this matter. If you want to say that I am wrong and that a 60 percent price crash will have no effect, you can say that.

But that’s not what I believe. I believe that a 60 percent price crash will cause lots of people to stop and think. And I believe that we only need to get the percentage who have doubts about Buy-and-Hold up from 10 percent to 20 percent to bring about an amazing leap forward in our nation’s understanding of how stock investing works. I think that we are standing on the threshold of one of the most exciting learning experiences that we have ever enjoyed.

I think that the shift from Buy-and-Hold to Valuation-Informed Indexing is the personal finance equivalent for the cure for cancer. We have the cure in our hands. We have tested it and 100 percent of the evidence available to us tells us that the cure works. But the people who make money in cancer treatment centers don’t want millions of people to learn about the cure and have engaged in criminal acts to keep knowledge from advancing. All that we need to advance is a little more courage but we cannot get to first base in our efforts to educate every investor on the planet to the true realities of stock investing until as a people we work up a bit more courage to take on your Goons.

I think that a 60 percent price crash is going to do the trick. But we are just going to have to wait a bit to find out for sure. I naturally wish you the best of luck in all your future endeavors regardless of which way things go.

I am the one putting forward a new idea and so I am the one carrying the burden of proof. In ordinary circumstances, 38 years of peer-reviewed research would be enough to get the job done. These are not ordinary circumstances. Getting stock investing right is so important and this is so lucrative a field that we have powerful forces working against us as a nation as we try to consider these matters. We are going to need a shock to the system to change the conditions on which discussions are held enough for us all to make the trip from the horrible place where we reside today to the wonderful place where deep in our hearts we all want to be tomorrow. I believe that a 60 percent price crash will break down that wall of ignorance and set us free from the Buy-and-Hold Idea that price discipline is not required when buying stocks for ever and ever. But we are just going to have to wait a bit to find out for sure.

I hope that works for you, dear Goon friend.

Burden-of-Proof-Carrying Rob

“Before He Died, I Was telling Bogle That He Should Update Buy-and-Hold to Reflect Shiller’s Research Findings. Had Bogle Done That, Buy-and-Hold Would Work. I Have a Funny Feeling That His Intention Starting Out Was to Develop an Investment Strategy That Worked.”

by

Set forth below is the text of a comment that I recently put to the discussion thread for one of my columns at the Value Walk site:

Spare us the flowery words about John Bogle. Upon the announcement of his passing, you still referred to him as the biggest con-man. There is no one, including you that has had a successful track record, based on outcomes, using market timing. Your own predictions of market crashes, including those made on this website have failed. If anyone would have followed your advice, they would have had a miserable financial outcome. When are you going to take responsibility for your own advice versus pointing fingers at others?

I love John Bogle. I’m sorry if that sounds “flowery” to you. But that’s the way it is. I view myself as the biggest supporter that Bogle has ever had. Before he died, I was telling him that he should update Buy-and-Hold to reflect Shiller’s research findings. Had Bogle done that, Buy-and-Hold would work. I have a funny feeling that his intention starting out was to develop an investment strategy that worked. So I definitely feel that I was trying to help the guy out in a way that lots of people who call themselves his friend were not. Anyway, Bogle’s stuff is the tops. But he was wrong in his many suggestions that it is not necessary for investors to practice price discipline when buying stocks, in this fellow’s sincere view.

Was Bogle a con man? In an important sense, he was. I wouldn’t say that he was a con man in every sense of the word. I think that, if you had given Bogle a lie detector test and asked him if he thought that Buy-and-Hold was a good strategy, he would have answered “yes” and he would have passed the test. I think that he sincerely believed in Buy-and-Hod. But I think that he was conning himself into sticking with that belief for decades after Shiller published his research showing that valuations affect long-term returns. If valuations affect long-term returns, then stock investing risk is not stable but variable and investors seeking to keep their risk profile stable over time MUST lower their stock allocations when prices go to insanely high levels. Bogle didn’t want to think about that because he had a personal pride interest in not acknowledging that he was wrong in thinking that long-term timing is not required. So I think that he was conning himself and that his unwillingness to speak plainly about these matters hurt lots of people.

I love the guy. I think he was the best. But it is true that I think of him as one of those darned flawed humans. He made many huge positive contributions. But he didn’t get them all right. And we insult him when we act as if his ideas are beyond criticism. That’s my sincere take, in any event.

Bogle came close to endorsing Valuation-Informed Indexing before he died. He said that it made sense for investors to lower their stock allocations three times in the course of an investing lifetime because of valuations and to increase them three times in the course of an investing lifetime. That’s the concept. That made me very happy. I think that the only reason why he did not come out an make a full endorsement is that this issue has become so “controversial” that he felt that it would be too embarrassing to do so. I put much of the blame for that on the people who act as if Bogle is beyond ever making a mistake. We all make mistakes from time to time. When we suggest that Bogle is not human. we set him up for a big fall down the line. We end up hurting him. I find that very sad.

Wade Pfau and I spent 16 months co-authoring research showing that Valuation-Informed Indexing has been FAR superior to Buy-and-Hold for as far back as we have good record of stock prices (that’s 150 years). It’s not only that market timing sometimes works. Market timing ALWAYS works. You just have to be sure that it is long-term timing that you are engaging in and not short-term timing (which really does not work — Thanks, John Bogle!).

And that’s just what you would expect to find, is it not? Long-term market timing is price discipline. Is there any market in which price discipline does not always work? I sure cannot think of any. So why would anyone think that price discipline (long-term market timing!) would not work when buying stocks? It always works. We should be telling people that. It is the most important thing to know about stock investing. When we all feel free to spread the word of what the last 38 years of peer-reviewed research in this field tells us about how stock investing really works, we will all be a richer (in every sense of the word) people.

Or so Rob Bennett sincerely believes, in any event, you know?

My best wishes to you, Sammy.

Rob

“If Large Numbers of Investors Fail to Practice Price Discipline When Buying Stocks, the Market Eventually Crashes Because There Is No Other Way to Get Prices Down (It Is the Market’s Core Function to Get Prices Right) Than to Crash Them.”

by

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:

Shiller is not a failure, Rob. He told people to not use CAPE to time the market. No, Rob, don’t tell us he just didn’t talk about long term versus short term timing. He said don’t do it at all. End of story. The real truth is that if people followed your advice on VII, the would have had a miserable outcome versus buy and hold. Stop lying about it. You think if you just repeat the lie long enough, people will believe it. Stop misquoting Wade Pfau as well. Wade also grew tired of your lies and won’t speak to you either.

It would be nice if you allowed people to post honestly like this at your website, but of course you don’t.

The only change we have seen is that you have finally admitted your retirement plan failed and that you will have to go back to work. Maybe you could write an article about that as I am sure your readers could learn from you if you actually wrote about honest things in your life instead of the fairytales.

Shiller has said both things. In 1996, he said that investors who failed to lower their stock allocations given the high valuation level that applied then would live to regret it within 10 years. He was advocating long-term market timing, as I do. And, following the 2008 crash, he said that investors should not get back into stocks until the CAPE level dropped below 10, Again, that’s market timing.

You are correct, though, that he made a statement more recently suggesting that he does not think that it is a good idea to use CAPE values to time the market. I don’t agree even a tiny bit re that one. I think he said it because he is embarrassed that his earlier predictions about where stock prices were headed did not play out well.

But I think it is absolutely essential that investors engage in long-term market timing. Long-term market timing is price discipline. If large numbers of investors fail to practice price discipline when buying stocks, the market eventually crashes because there is no other way to get prices down (it is the market’s core function to get prices right) than to crash them. Crashes cause trillions of dollars of spending power to leave the economic and bring on recessions or in rare cases even depressions. We all suffer in that event.

It would be better for us all to just practice price discipline all along. We would not see the bull markets that we see when Buy-and-Hold is widely promoted. But we would still get that steady 6.5 percent real return each year that is the product of economic gains and not just irrational exuberance. I think that annual gains of 6.5 percent real are just fine. And I would love to live in a world in which we did not see these horrible price crashes and the horrible economic crises that follow from them. Call me madcap,

I naturally wish you all good things, Sammy.

Rob

“Price Discipline Is the Key to Making Markets Work.”

by

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:

Imagine being a market timer. That is really taxing. Look at Rob Bennett, the author of this article. He has been peddling his VII concept for years. You can search out his failed retirement plan by doing a quick internet search. When it fell apart, he came up with a crazy story about these mysterious goons and how Jack Bogle was the biggest con-man to come along. He then said that John Bogle would help him collect $500 million in settlement payments (based on some delusions). Of course, Jack passed away not to long ago. Rob won’t admit the failure yet, but has now mentioned on his website that he will return to work at the end of this year or beginning of next year. Given that Rob has not worked for a regular paycheck since sometime in 2000 (about 19 years ago) and is now over the age of 60, it will not be an easy task.

I love Bogle. I rank him as the second most important investment analyst in history (second only to Robert Shiller).

However, it is true that I believe that Bogle made a terrible mistake. Short-term timing really doesn’t work. The research backs Bogle up on that one. But long-term timing is price discipline. Price discipline is the key to making markets work. When Bogle discouraged investors from practicing long-term timing (price discipline), he hurt them in very serous ways. The error that Bogle made does not take away from his many hugely important contributions. But it is an error that needs to be acknowledged and corrected.

I believe that we need to work together as a society to launch a national debate on the question of whether investors should be practicing price discipline (long-term market timing!) when buying stocks. It is my belief that this is 100 percent essential. If Shiller is right that valuations affect long-term returns, investors who fail to engage in long-term timing see their risk profile change dramatically when stock prices rise to the levels where they reside today.

I naturally wish you all the best that this life has to offer a person, Sammy.

Rob

Valuation-Informed Indexing #461: The Purpose of Investment Research Is to Learn Things About the Subject That Are Not Intuitive

by

I’ve posted Entry #461 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Purpose of Investment Research Is to Learn Things About the Subject That Are Not Intuitive.

Juicy Excerpt: I of course do not believe that that’s the deal. I think that Shiller is on to something important. The portfolio statement says what it says because as a society we have made a collective decision to count irrational exuberance as real. We don’t even permit the implications of Shiller’s ideas to be discussed in an in-depth way at most internet sites. We want to believe that the numbers on our portfolio statements reflect reality. So we tune out challenges to those numbers and thereby keep our confidence up.

But the purpose of research is not to tell us what we want to hear. Marketing people can do that. The purpose of research is to dig deep and discover things about how stock investing works that are not intuitive, that are not widely known, that perhaps are even more than a little difficult to accept. That’s Shiller. That’s what he did with the 38 years of “revolutionary” (his word) peer-reviewed research that caused him to be awarded that Nobel prize. Shiller questioned our most fundamental beliefs about how stock investing works. And he backed up what he said with data. That’s an amazing trick.

“Will the Market Recover From its Losses Eventually? It Will. But It Could Take Investors Who Suffer a 60 Percent Price Drop in the Next Crash Years or Even Decades to Make Up for That Loss. We All Only Get So Many Years to Fund Our Retirement Account. To Lose Years or Decades of Compounding Is a Very Big Deal.”

by

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

“When millions of people see 50 percent of their retirement savings disappear into thin air for no good reason, I have a funny feeling that they are going to know that SOMEONE is lying about how this stock investing stuff works. I have a further funny feeling that they are going to be able to figure out that it isn’t me.”

You just made the case again for buy and hold. How so? Well, if people followed your advice in 2009 and onwards, by staying out of the market, they would have lost out on one of the largest bull markets we make seen in our lifetime. We cannot predict when we will see the ups and the downs in order to time the market. Look at you, for example. One of the worst track records we have seen. Yet, what we do know is that the market will continue to cover from any downturn and will set new heights if we hold versus sell (which would be timing).

I don’t advise people to stay out of the market at ANY time. I say that risk is greater when the CAPE value is higher. And so, to keep their risk profile constant, I say they MUST be willing to adjust their stock allocation downward. I recommend a stock allocation of about 30 percent when the CAPE value is where it has been from 2009 forward.

We cannot predict PRECISELY when we will see ups and downs. But we know with certainty that we always see more downs when the CAPE value is high and more ups when the CAPE value is low. Yes, the market is up from where it was in 2009. But most of those “gains” are the product of irrational exuberance. So they will not be lasting in the event that stocks continue to perform as they always have in the past. Having a temporary gain and then watching it disappear is not a plus. The peer-reviewed research that I co-authored with Wade Pfau shows that Valuation-Informed Indexing ALWAYS beats Buy-and-Hold on a risk-adjusted basis in the long term. There has not yet been one exception in the 150 years for which we have good records of stock prices

Will the market recover from its losses eventually? It will. But it could take investors who suffer a 60 percent price drop in the next crash years or even decades to make up for that loss. We all only get so many years to fund our retirement account. To lose years or decades of compounding is a very big deal. Investors should be aiming to keep their risk profile roughly constant over time. That REQUIRES market timing. Market timing is price discipline. If you are not engaging in market timing, you are investing irrationally. Obviously you want to go with the form of market timing that always works — long-term timing — and avoid the form that never works — short-term timing.

My sincere take.

Market Timing Rob