A Rich Life

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

“70% of the Problem With Investment Advice Today Is Just Ignorance. Another 20% Is Cognitive Dissonance. Fraud is 10 Percent of the Problem. We Can Dispel the Ignorance and Cognitive Dissonance. But We Cannot Get to First Base Until We Come Together As a People and Adopt a 100% Firm Position re the Financial Fraud Garbage.”

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

I am not really following. Are you comparing yourself to women who were assaulted by bill cosby?

And are you saying that they were correct to not come forward?

Yes, I am making the comparison. Cosby committed terrible crimes. He deserves to be in prison.

I wish that the women would have come forward immediately after the crimes were committed just as I wish that every single person who witnessed the crimes that you Goons have committed would have come forward immediately. I certainly understand why the women did not come forward. Cosby was a powerful person and there is often a big price to be paid for coming forward about crimes committed by powerful people. We saw the same phenomenon play out when Wade Pfau became afraid of what would be done to him if he sought to have your threats against him prosecuted. Would Bogle have helped? Or would Bogle have kept his mouth shut in support of you Goons? We know which way Wade moved. So we know he had doubts about how much he could count on Bogle’s help.

The financial fraud thing is a very big deal. I would say that 70 percent of the problem with investment advice today is just ignorance. I mean no dig by that. Humankind is born in ignorance. Shiller provided us a big piece of the puzzle in 1981 and his research could have been put to use dispelling lots of ignorance. But that doesn’t mean that the people who remain in ignorance today are to blame for their condition. We all learn by talking things over. And you Goons have been working hard for a long time to make sure that the price for dispelling ignorance in this field is very high. So millions of people know less than they want to know and less than they need to know.

Another 20 percent of the problem is cognitive dissonance. The experts cannot plead ignorance. They are paid to know about stuff like Shiller’s research. So they possess at least a surface understanding of it. But cognitive dissonance makes it hard for them to develop a fuller understanding. Cognitive dissonance is a very real thing. I think it is a terrible mistake to attribute mistakes that the experts make to fraud when there is a chance that it may instead by attributable to cognitive dissonance. The charitable thing to do is to attribute it to cognitive dissonance if there is any possibility whatsoever that that is the real cause. I don’t call something “fraud” until I see clear evidence of bad intent — death threats or demands for unjustified board bannings or thousands of acts of defamation or threats to get academic researchers fired from their jobs. Even in those cases, cognitive dissonance is usually the cause of the mistaken position. But in those cases you clearly have fraud at work too in regard to the cover-up of the mistake.

I would say that outright fraud is 10 percent of the problem. It’s a relatively small percentage. But it is a small percentage that causes a huge amount of human misery. Ignorance is an unfortunate reality but it is just one of those things. The full reality is that we all should be jumping for joy that Shiller provided us the means to overcome our ignorance 38 years ago. We are all on the road to becoming far more effective investors. It’s a shame that the vast majority of us remain stuck in a pre-1981 understanding of how stock investing works. But the trend line is looking very positive.

Cognitive dissonance is hurting us more than ignorance. If it were not for the cognitive dissonance, we could clear up the ignorance in no time. It certainly would not take 38 years to get the word out re how stock investing works in the real world! But cognitive dissonance is a real thing and I think we just have to accept that, however long it takes for the experts in this field to overcome their cognitive dissonance, that’s how long it takes. We need to do what we can to keep things moving forward. But we should not make harsh judgments in cases in which they are not 100 percent justified and required.

The fraud stuff is different. It is the fraud stuff that permits both the ignorance and the cognitive dissonance to do us so much harm. We can dispel the ignorance and we can dispel the cognitive dissonance. And it should not take all that much time to make the good stuff happen. But we cannot get to first base until we come together as a people and adopt a 100 percent firm position re the financial fraud garbage. That’s 100 percent critical. That’s the entire ball of wax. Our laws against financial fraud are good and necessary laws. We need to enforce them.

That’s my sincere take re these terribly important matters, in any event.

Rob

“Wade Pfau’s Personal Story Tells the Tale That Needs to Be Told Better Than Any Research Paper Ever Could. Your Threats Have Denied a Valuable Resource to Millions of People in Desperate Need of It. When Wade Tells That Story, It Is Going to Go Viral.”

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

“Once Bogle gives his speech and it is written up on the front page of the New York Times, we will all be working together.”

Oops. Well, that didn’t work.

A big difference between you Goons and me is that you live in fear. I look forward to The Speech. You Goons dread the prospect of seeing millions of people freed to hear what they need to hear. I wouldn’t trade places with you for $500 million, just to pull a crazy number out of the air.

Bogle was the person best positioned to do it because he is perceived as the king of Buy-and-Hold. If he gave a speech telling Buy-and-Holders that they need to be more open-minded re the last 38 years of peer-reviewed research in this field, it would be pretty darn hard for them to reject what he was saying. But there are others who can do the job.

Shiller can do it. That Nobel prize gives him a lot of credibility, even among Buy-and-Holders, who are obviously suspicious of him. Shiller also has an amazingly affable personality. I think that would help him build bridges to “the other side.” If Shiller speaks out, people in the middle will pick up on what he is saying and at least a good percentage of Buy-and-Holders will listen. That group will eventually persuade the others to soften their opposition to discussion of the last 38 years of research.

Buffett could do it. He is respected by all camps. Buffett has said lots of positive things about Bogle. So he would be heard by Buy-and-Holders. And Buffett is a value investor. He obviously understands the importance of Shiller’s message although he rarely speaks about the far-reaching implications of Shiller’s research. Buffett is too big a figure in this field to be ignored.

Pfau could do it. Wade does not have the same level of influence as Bogle did or as Buffett or Shiller do. But Wade has a very, very compelling story to tell. He is obviously a strong Valuation-Informed Indexer in his heart. But he has always bent over backwards to applaud Buy-and-Holders for their many powerful and legitimate insights. So he has credibility on both “sides.” And Wade’s personal story tells the tale that needs to be told better than any research paper ever could. The paper that I co-authored with Wade is the most important research paper published in this field in three decades. He meant for that paper to benefit every investor alive. Your threats have denied a valuable resource to millions of people in desperate need of it. When Wade tells that story, it is going to go viral. It is by taking this thing viral that we make the world a better place in some very important ways.

Bernstein could do it. Bernstein is, like Bogle was, widely respected and loved by Buy-and-Holders. But Chapter Two of Bernstein’s book is the best concise statement of the case for Valuation-Informed Indexing that I have ever read. So Bernstein can obviously cover both sides of the story. So he can make things happen here.

Losing Bogle hurts. In many ways. Without question. But we are going to move on. And we can do so without Bogle. We obviously will be citing Bogle’s writings, which strongly endorse the key principle of Valuation-Informed Indexing — using peer-reviewed research as a guide to how to invest. So we’re fine. I just wish that SOMEONE would step forward and make that speech that we need to hear to turn things in a positive direction. I am not expecting to hear it until the days following the next price crash. But I obviously would like to be pleasantly surprised to hear it by the close of business today.

My best wishes.

Rob

 

“Ironically, It Is the Promotion of Buy-and-Hold Strategies That Causes Prices to Get So Out of Whack As to Make Buy-and-Hold Dangerous. If Investors Were Encouraged to Practice Price Discipline, Prices Would Never Stray So Far From the Fair-Value CAPE Value and Investors Would Rarely Need to Change Their Stock Allocations. It Is a Widespread Belief That Buy-and-Hold Can Work That Makes Buy-and-Hold Dangerous.”

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

“The CAPE value of 16 is the long-term CAPE value. ”

You tell us repeatedly that the SWR is not always the same number but you seem to think that the fair value CAPE number is always the same.

Yes. That’s very good. I like that comment a lot.

The Buy-and-Holders and the Valuation-Informed Indexers have different ideas as to what is stable and as to what changes.

Buy-and-Holders and Valuation-Informed Indexers agree that the average long-term return is 6.5 percent real. There’s no dispute re that one.

The Buy-and-Holders believe that risk is constant. This is why they believe that stocks are always worth buying. Stocks are generally an amazing asset class. If stocks are generally an amazing asset class and if risk is stable, then you should always go with a high stock allocation. The logic follows. And that of course if why Buy-and-Holders believe that the safe withdrawal rate is always the same number. The safe withdrawal rate is a risk-assessment tool. If risk is stable, the safe withdrawal rate is indeed always the same number.

Valuation-Informed Indexers believe that risk VARIES. So we of course believe that the safe withdrawal rate varies.

Identifying the fair-value CAPE number is just a math exercise. 16 is the median of all the CAPE values we have seen. Sometimes it goes higher and sometimes it goes lower. It always ends up at 16.

You are suggesting that there might be some economic circumstances in which the CAPE value would change. If our economic system became more productive, the fair-value CAPE value would be higher. That’s certainly fair to say. There’s no law that says that it will always be 16.

But of course there is no way to know in advance whether any portion of today’s scary CAPE value is attributable to increased productivity. It is possible that that is so. I certainly don’t have any problem with someone saying: “I think productivity has increased, so I am going to use a fair-value CAPE value of 18. That’s up to the investor. That’s fine.

But please note that that is subjective. Some investors may think that productivity has increased ans some may think that it has declined. They are all entitled to their opinions. But no one can state definitively that they are right on that question. “16” is my effort at identifying a neutral number. It is the average CAPE in the historical record. I don’t object if someone uses 18 or 14.

I have a problem when someone says that there is no need to make a CAPE adjustment when determining the value of their portfolio. Stock prices increased 126 percent from 1996 through 1999. Huh? What the f? Is there any reasonable person who thinks that all of those gains were the product of economic growth? I sure don’t. I think that the vast majority were the product of a runaway irrational exuberance.

That affects the determination of the safe withdrawal rate. If you believe that that 126 percent price increase was the product of economic growth, then you believe that the safe withdrawal rate in 2000 was 4 percent. If you believe that most of that 126 percent price increase was the product of irrational exuberance, then you believe that the safe withdrawal rate in 2000 was 1.6 percent.

Again, there are two schools of thought. One school believes that the market is efficient and thus risk is constant and there is no need for investors to practice price discipline (long-term timing). The other believes that valuations affect long-term returns and that risk is thus variable and it is essential for investors to practice price discipline (long-term timing) if they are to have any hope whatsoever of keeping their risk profile roughly constant over time.

Ironically, it is the promotion of Buy-and-Hold strategies that causes prices to get so out of whack as to make Buy-and-Hold dangerous. If investors were encouraged to practice price discipline, prices would never stray so far from the fair-value CAPE value and investors would rarely need to change their stock allocations. It is a widespread belief that Buy-and-Hold can work that makes Buy-and-Hold dangerous. Telling investors that it is okay not to exercise price discipline is like ripping the brakes out of a fast-moving car. Valuation-Informed Indexing puts the brakes back in and makes for a much more enjoyable long-term ride.

Rob

“No Society as Rich as Ours Should Ever Have to Endure an Annualized Stock Return of 3.0 Percent Real for 19 Years Running. That Number Is a Summation of the Horrors of What the Widespread Promotion of Buy-and-Hold Has Done to Us as a People. It’s a National Scandal.”

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

“It’s following a research-based strategy for investing in my favorite asset class.”

Your favorite asset class, which you haven’t owned in 23 years. Did that tidbit of information make its way into the article that you’ve been scattering far and wide? Or was there just no way to squeeze it into that tight 11,000 words?

Note: The comment as it appeared in the thread from which it was taken contained errors in the numbers showing annualized real returns for January 2000 through January 2019. I corrected those errors when preparing this blog entry. The points that were being made in the comment remain valid with the correct numbers applied.

I don’t mention that in the article. It’s not my intent to hide it. If I were hiding it, you wouldn’t know about it. But you are right in your suggestion (which you advance in a sarcastic tone) that it was hard to find room for all of the essentials of this story in a single article. There were other things that had to be said, so that got left out. My #1 project for 2019 is to take that article (which I am extremely pleased with — I view it as the finest piece of journalism that I have ever produced) and to blow it up to full-book length. I will certainly be discussing the fact that I got out of stocks in the Summer of 1996 in the book. So people who are hearing my case in the place in which I put the entire story forward in one telling will know that.

You want them to know because you know that most people will find it offputting. People’s minds have been saturated with Buy-and-Hold thinking. So most people think that the idea that TIPS or IBonds could do better than stocks for 23 years running is absurd. The reality is that that is what has happened. If there had been no Ban on Honest Posting, if we had been talking about these issues at every discussion board and blog for the past 17 years, all investors would understand why they should expect TIPS and IBonds to beat stocks when as a society we permit stock prices to reach the levels that we have permitted them to reach during the Buy-and-Hold Era.

Here is the annualized real return, with dividends reinvested, for stocks starting from the various, relevant starting points:

January 1996 — 6.2 percent

January 1997 — 5.4 percent

January 1998 — 4.6 percent

January 1999 — 3.4 percent

January 2000 — 3.0 percent

I was getting big raises in those years. So I was able to save a lot more in the later years than in the earlier years. So it is the numbers for the later years that are most relevant. My 3.5 percent return beats the number for stocks in 2000 and in 1999. It comes close in 1998. It gets beat in 1997 and 1996. But if you adjust for risk (I think it would be fair to say that an investor should be compensated two additional points of return for taking on the much greater risks associated with stocks), the TIPS/Ibonds number wins in 1997 and gets beat by only a little in 1996.

Factor in the effect of a 50 percent price crash, and the TIPS/Ibond numbers are ahead across the board. Then consider that stocks will probably be offering a 10-year annualized return of 15 percent real after the crash, and that differential grows a lot bigger after the Valuation-Informed Indexer is able to take advantage of the fact that, by lessening his participation in the stock market when it offers a poor value proposition, he is able to increase his participation in it when it is offering a strong value proposition.

The Valuation-Informed Indexer comes out ahead in the long run. I have run many hundreds of scenarios on the Scenario Surfer. There are lots of variations re the details of the various return sequences. But the bottom-line reality is always the same. Practicing price discipline when buying stocks pays off big time in the long run. Surprise! Surprise! Who’d a thunk it?

Stocks have performed HORRIBLY for the past 19 years. You should be ashamed of that 3.0 percent number. Millions of people depend on the magic of compounding to finance their retirements. The magic is reduced considerably when the annualized return is reduced from the normal 6.5 percent real to a shocking 3.0 percent real for 19 years running. That number is killing us as a nation. We are all hurting because of that number.

What caused that number? It was that insane 126 percent price jump that we saw from 1996 through 1999. We are still paying for that. And what caused those four years of insanity? Buy-and-Hold. People thought those phony gains were real. So they didn’t bother to exercise price discipline. And we are all still paying the price for that horrible mistake 19 years later.

Yes, people are shocked to hear that I have been out of stocks for nearly 23 years. Most people have never heard the case against Buy-and-Hold. What people should be shocked about is that I have been out of stocks for nearly 23 years and I am ahead today because of my decision to go with the peer-reviewed research instead of the marketing slogans of our Wall Street Con Man friends. And I will be farther ahead following the next price crash, which will bring more devastation to millions of middle-class people. Again, courtesy of everybody’s favorite Get Rich Quick scheme.

We should all be striving to invest rationally. Our common sense tells us that price discipline must work when buying stocks because it works in every other market that has ever existed. We now have 28 years of peer-reviewed research confirming that what our common sense tells us must be so really is so.

We have as a society spent millions of dollars promoting the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind. I think it would be a good idea to now spend an equal amount of money promoting the first true research-based approach, the first strategy developed after the research needed to get it right was available to us all.

Valuation-Informed Indexing is what Buy-and-Hold was intended to be. We should fix the mistake and move forward as a people. There is no good reason to deny ourselves the benefits of Shiller’s Nobel-prize-winning research any longer. Knowing how to invest effectively for the long run is a good thing. Learning how to pronounce the words “I” and “Was” and “Wrong” gets us to the place that deep in our hearts we all really want to go. Those three words have an incredible liberating power.

Stocks are my favorite asset class. And yet I have been out of stocks for close to 23 years now. Huh? What the f? It says something about us as a people that a person who believes that the lessons of the past 38 years of peer-reviewed research should be acknowledged has had to stay out of stocks for 23 years as a result. That’s freakin’ crazy. But it is not the investor who follows the research who is off his meds, as you Goons like to suggest. It is the people still advocating Buy-and-Hold strategies 38 years after the peer-reviewed research in this field showed that there is precisely zero chance that such strategies could ever work out well in the long run who are off their meds.

No society as rich as ours should ever have to endure an annualized stock return of 3.0 percent real for 19 years running. That number is a summation of the horrors of what the widespread promotion of Buy-and-Hold has done to us as a people. It’s a national scandal. That never could have happened in a world in which we permitted honest posting re the peer-reviewed research.

I should be able to invest in stocks and earn a return at least somewhat approaching 6.5 percent real doing so. We all should. Once we open every discussion board and blog on the internet to honest posting re the last 38 years of peer-reviewed research in this field, we all will be able to do so from that point forward. It is Buy-and-Hold holding us back and Buy-and-Hold can be corrected by a society of people with enough concern for its future to enforce the laws against financial fraud.

My sincere take

Beating-3.0-Percent-Real-for-19-Years-Running Rob

“It Would Be Better Not to Have Any Investing Boards Than to Have Them and to Ban Honest Posting on the Past 38 Years of Peer-Reviewed Research at Them. You Will Say That That’s a ‘Strident’ Viewpoint or Some Such Thing. But I Don’t Think So. I Think It Is Common Sense. If We Were All Thinking Clearly, I Don’t Think There Would Be a Single Voice Raised in Dissent to the Proposition That We All Need to Feel Free to Post Honestly for Any of Our Boards to Serve Any Good Purpose.”

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

“Valuation-Informed Indexing is linked to everything. Absolutely everything.”

Wrong again, Sluggo.

You’re entitled to your opinion. But I obviously hold a different opinion.

When I am considering what to do with the hours of life given me, I obviously have to go by my opinion when making decisions. Yes?

You do not need to go by my opinion when making decisions as to what to do with your life. You’re not me.

But I sincerely believe that it is important to get the retirement planning numbers (and much else) right. I think it would be better not to have any investing boards than to have them and to ban honest posting on the past 38 years of peer-reviewed research at them. You will say that that’s a “strident” viewpoint or some such thing. But I don’t think so. I think it is common sense.

I wish you the best of luck in your life endeavors, Anonymous. But I cannot go down the path that you have chosen for yourself. I cannot do it. I care about the people who read my stuff and I feel an obligation to share with them my honest beliefs about any matters that I post on.

I am not a Buy-and-Holder. I am a Valuation-Informed Indexer. It would make me happy if that were okay with you. But if it is not, I just have to accept that reality. I cannot pretend to be something that I am not. That one’s a non-starter and it has been for 17 years now. I wish that I could say that I posted with complete honesty even prior to May 13, 2002. It shames me that I cannot say that. I know that I never want to go back to pretending that I believe that Greaney got the numbers right in his retirement study.

And I think that posting honestly re all the other topics that have come up over the past 17 years is a good idea too. If we were all thinking clearly, I don’t think there would be a single voice raised in dissent to the proposition that we all need to feel free to post honestly for any of our boards or blogs to serve any good purpose. I acknowledge that more than a single voice has been raised in dissent. But I have to observe that it scrambles my brain each time I try to get it around that one. Holy moly!

Your good friend,
Sluggo

“Valuation-Informed Indexing Is Linked to Everything. Absolutely Everything. The Money That People Have in Their Retirement Accounts Is What They Have to Show for Decades of Work in Our Economic System. We Show Great Disrespect to Them If We Lie to Them About How Much Money They Have in That Account.”

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

PETA??? Really???

Maybe you can somehow link VII to 2-ply toilet paper.

You are obviously being sarcastic. But the point that you are making in your sarcastic tone is right on. Valuation-Informed Indexing is linked to everything.Absolutely everything.

The money that people have in their retirement accounts is what they have to show for decades of work in our economic system. People go to work each day knowing that there will come a time when they will not be able to do it anymore and so they put money aside into a retirement account to provide for that day. We show great disrespect to them if we lie to them about how much money they have in that account. Their futures depend on it. They cannot plan their futures effectively unless we talk straight with them.

The Buy-and-Holders have a theory as to how much money people have in their retirement accounts. The strategy was developed in the days before Shiller published his “revolutionary” (his word) peer-reviewed research. The popular idea at the time was that the market is efficient. If that were so, it would mean that the stock price is the product of millions of rational assessments of the value of the market. We would all be able to trust the numbers on our portfolio statements as reflecting something real and lasting. We would all be able to plan our futures effectively making use of the investment advice available today at hundreds of different discussion boards and blogs.

But what if Shiller’s research if legitimate research? What is Shiller merited that Nobel prize of his? What if the Yale Economics professor is on to something?

Shiller tells a very different story about the real value of portfolio statements. He says that the stock price is set by humans, who are emotional creatures. So, when prices are as insanely high as they are today, close to half of the amount purporting to be in a stock portfolio is really the product of irrational exuberance, nothing more. People who are misled into believing that those numbers reflect a real and lasting value are going to be hurt in very serious ways in days to come.

I believe that Shiller is on to something. And I care about the people who read my stuff. So I feel a need to post honestly re safe withdrawal rates and re lots of other critically important investment-related topics. The Buy-and-Holders don’t want to learn how to pronounce the words “I” and “Was’ and “Wrong.” So they don’t like the idea of permitting me or anyone else to post honestly re the last 38 years of peer-reviewed research at even a single board or blog. Yucko, you know? I call “foul!” But there’s not too much that I can do about for so long as prices remain at these insanely high levels. I think it would be fair to say that much at this point in the proceedings.

I love my country. That means that I believe in the goodness of my country. People support PETA out of the goodness inside them. So, yes, PETA supporters might well be drawn in time to support my cause of opening every discussion board and blog on the internet to honest posting re safe withdrawal rates and lots of other critically important investment-related topics. I certainly plan to give it a try, in any event. I can do no more and I can do no less.

It will be interesting to see how it all plays out.

I wish you the best of luck with it. I hope that that helps at least a tiny bit.

My best wishes to you, dear Goon friend.

2-Ply Rob

Valuation-Informed Indexing #430: The Strongest Argument Against Valuation-Informed Indexing Is the Long Stretch of Time That Stock Prices Have Remained at High Levels

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I’ve posted Entry #430 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Strongest Argument Against Valuation-Informed Indexing Is the Long Stretch of Time That Stock Prices Have Remained at High Levels.

Juicy Excerpt: I find those four explanations all added together somewhat but not entirely convincing. I find it exceedingly strange that prices have remained so high for so long. I still believe in Valuation-Informed Indexing. My confidence in the concept remains strong for many reasons. But I am no longer going to say that I believe that all of the evidence available to us supports the concept. I think that the length of time for which prices have remained very high justifies at least some doubt in the minds of reasonable people.

Buy-and-Hold Goon to Rob: “On the Day After Bogle’s Death, You Still Have to Say How You Think He Is Wrong, All in an Effort to Try and Promote Yourself and Your Agenda.”

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

You can try and put lipstick on a pig, but the archives are there to see all the nasty comments you made about Jack.

You can’t even stop for one moment when it comes to your agenda. On the day after Bogle’s death, you still have to say how you think he is wrong, all in an effort to try and promote yourself and your agenda. I bet that if you attended his funeral, you would find some way to promote yourself and VII, rather than honor Jack.

You can try and put lipstick on a pig, but the archives are there to see all the nasty comments you made about Jack.

The Post Archives show that I have expressed my love for the man on hundreds of occasions going back to the earliest days of our discussions re these matters and continuing right through today. The Post Archives show that I rank the man as the second most important investing analyst in history, second only to Shiller. What a meanie I am!

You can even stop for one moment when it comes to your agenda.

It’s a pretty darn important agenda, Anonymous. There are millions of people who have put together their retirement plans pursuant to the demonstrably false claims advanced in the Buy-and-Hold retirement studies. If you think that Bogle wants to see those millions of people suffer failed retirements, we have very, very, very different beliefs about the purposes to which the man directed his life energies.

I bet that if you attended his funeral, you would find some way to promote yourself and VII, rather than honor Jack.

If some attending the funeral with me asked me what I thought of the man, I would say what I have said in these comments. I would tell both the good and bad sides of the story. I think that the cover-up of Bogle’s mistakes has done him great harm. I think that his contributions look even more important when one tells the full truth about what we know about how stock investing works in the year 2019. I think that the 17-year cover-up has done Jack a huge disservice. Until he died, he had an opportunity to set the record straight himself. Now that opportunity is lost to him. If Bogle is looking down on us today possessing a greater clarity of mind than he possessed yesterday, I think it would be fair to say that he is probably shedding a tear at having been deprived of that opportunity to set things straight before he was required to take his leave of us.

Again, one’s take on these matters is always going to be influenced by what one believes about how Bogle felt about these matters deep down inside. I think it would be fair to say that my assessment of the man’s character is 20 times more charitable than your own.

My sincere take.

Bogle-Helping (in a Spirit of TRUE Charity) Rob

Buy-and-Hold Goon to Rob: “Wade Pfau Doesn’t Talk to You and He Said His Job Was Never Threatened.”

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

Wade Pfau doesn’t talk to you and he said his job was never threatened.

Here’s what he said in the days before he was threatened:

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.”

“Buy-and-Hold Is a Numbers-Based Strategy. Bogle Has Never Updated the Buy-and-Hold Strategy to Reflect the Nobel-Prize-Winning Research Showing That a Valuation Adjustment Must Be Made to Every Calculation. So All of the Calculations Generated By the Buy-and-Holders Are in Error!”

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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 think Rob already ranked himself above Bogle, so he didn’t really move up a notch.

What I say is that my work completes Bogle’s work by making it effective in the real world.

Buy-and-Hold is a numbers-based strategy. He developed it before Shiller published his “revolutionary” (Shiller’s word) research findings of 1981. And in the 38 years since, Bogle has never updated the Buy-and-Hold strategy to reflect the Nobel-prize-winning research showing that a valuation adjustment must be made to every calculation. So all of the calculations generated by the Buy-and-Holders are in error!

Huh? What the f?

The purpose of investment advice is to help people, not to ruin their lives. If we were all thinking clearly, there wouldn’t be one voice of dissent to my proposal that we open every discussion board and blog to honest posting re the last 38 years of pee-reviewed research by the close of business today.

I mean, come on.

True Boglehead Rob