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

Why do you say your post in 2002 is famous, when it really isn’t? Does it have to do with your comment about wanting to be popular?

There’s never in the history of the internet been another post that generated so many responses, Anonymous. Reaction to that post dominated discussion at the Retire Early board for over a year and then dominated discussion at several other board communities for several years later. That post ultimately caused the death of the Retire Early board. It was a thriving community before the Greaney freak-out. Now there is no longer any discussion of early retirement there. The Bennett/Pfau research paper, which I think can fairly be described as the most important research published in this field in the past 30 years, would not exist if I had not first worked up the courage to advance that post. That post started it all. You Goons wouldn’t be going to prison if I hadn’t put forward that post. It was the message in that post that you felt you had to block that caused you to engage in all the intimidation tactics.

It was a simple post. It just asked a question: Should we be counting valuations when we calculate the safe withdrawal rate? The problem is that the obvious answer to the question is “yes” (why the heck wouldn’t we?) and yet the Buy-and-Hold answer is “no” (none of the Buy-and-Hold retirement studies contain valuation adjustments). So, if the question is permitted, Buy-and-Hold goes down. And bringing Buy-and-Hold down would be the biggest advance in the history of personal finance. It is because we cannot question Buy-and-Hold that we have not been able to advance in our understanding of how stock investing works for 37 years now. Bring Buy-and-Hold down and you open up an enormous learning experience for millions. That post and the reaction it provoked is eventually going to be the cause of every discussion board and blog on the internet being opened to honest posting on safe withdrawal rates and scores of other critically important investment-related topics. It would be pretty darn hard to top that.

You would never have written a single post here if you didn’t see the importance of that May 13, 2002, post, Anonymous. You’ve never gotten over it. It drives you to this day. You believe in Buy-and-Hold and it is an important part of your life. But that post implicitly questions Buy-and-Hold and there is no intelligent answer to the question that it poses but to abandon Buy-and-Hold (at least the dogmatic version of it that was responsible for the error in the Buy-and-Hold retirement studies).

So, yes, the post was a super, super big deal. It took me three years to work up the courage to write it. That’s why. I held back because I sensed the power that I was unleashing. Advancing that post was my finest moment. It is my job to create learning experiences like that and I went far beyond anything that I thought I was capable of achieving with that one. It was such a big wave that I created that instead of just enjoying a fun ride, I was knocked to the ocean floor and spun around head to toe about 500 times. So there’s been a scary side to the aftermath of that post, I am not saying different. I of course have not collected the $500 million yet. And we haven’t opened the internet to honest posting yet. And we haven’t gotten the textbooks rewritten and all that sort of thing. So we have not yet seen with our eyes the full impact of that amazing post.

But we have seen the beginnings. We have seen hundreds and hundreds of thousands of reaction posts. Those of us who are capable of thinking clearly about these matters can see where things are headed.

The answer to the post is that, yes, we should have been taking valuations into consideration all along. We destroyed millions of lives by failing to do so. And human psychology is such that we have been able to rationalize doing that for so long as prices remain high. That’s the story. Humans are capable of rationality. But we are also the rationalIZING animal. For so long as prices remain high, we will continue to rationalize and hurt ourselves and others. But we will accept what our rational minds tell us re these matters when prices drop and we are in a corner with no choice but to move forward in our thinking. And the reactions that we have seen from that post will tell us what we need to know. We have the negative reactions that reveal our human weaknesses. And we have the thousands of positive responses to the post that show us what we can do when we permit rationality to exist in our discussions of how stock investing works.

If it is true that the Buy-and-Hold retirement studies lack valuation adjustments, then Buy-and-old is dangerous. Every person alive in the United States today is affected deeply by that reality.

If there really are valuation adjustment in those studies, then I was wrong in what I said in that post. But that of course is not the case. You Goons would not have responded in the way you did if you truly believed that the Greaney study contained a valuation adjustment.

The story is still being told. That’s why we are still here. In the end we are going to determine as a society whether the study contained a valuation adjustment or not and move on with a much stronger understanding of how stock investing works than we ever possessed before. We are not there yet. But we are close. We are getting closer every day. And the post of May 13, 2002, generated a mountain of material that we can use to understand how we got off the right track and caused all this human misery.

I don’t say that I knew when I hit the “Submit” button. I didn’t. I knew that the post was important. I knew that it was going to create a stir. But I didn’t anticipate 1/500th of what we have seen. I was only slightly less in the dark than everyone else. I was still a Buy-and-Holder myself on the morning of May 13, 2002. I kick myself for it today. I don’t see why I hadn’t put the pieces together. If the retirement studies were so off, the entire model was suspect. But I didn’t see that then. It takes time for the human mind to let all these things in.

As a society we are still working through the process of letting it all in. But the post pointed us to the future. Not one Buy-and-Holder has been able to answer the question posed in that post honestly and effectively in 16 years. Should we be taking valuations into consideration when calculating the safe withdrawal rate? OF COURSE we should. And yet we still do not. Every abusive post that you Goons have advanced has been an effort to see that that remains the reality. And that’s a doomed effort. All of the board bannings in the world cannot change the reality bought to light by that post. If the Buy-and-Hold retirement studies do not contain valuation adjustments, they are in error and they have hurt millions of people in very, very serious ways. There is no more important public policy issue before us today than the need for us all to pull together and fix that.

I’m working on it! I’m working on it!

Whew!

No apologies for the post. That’s what I aim to do with all of them. It was not my intent to hurt anyone’s feelings. My intent was to help. If I had gotten a number wrong in a study, I would want one of my friends to point it out. So I did for my friends what I would have wanted them to have done for me. I think you Goons will see that one day. Not today, I know. But I believe that there will come a time when you will be able to get your heads around it. And we will all go out for a nice cold one and laugh about the crazy things that went down in the old days.

The post sure has not made me popular. I don’t think there has ever in the history of the internet been a post that caused a person to lose so many popularity points. In the long run, I believe that that will change. But I guess we are just going to have to wait to see. I could be wrong. It’s been known to happen.

My best wishes.

Unpopular (For Now!) Rob

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

Who says there are two schools. Are you the finance dictator of investing?

That’s a good question. It is unfortunate that it is phrased in a hostile way; I obviously am not the dictator of anything, nor do I care to be. But the question being asked is an intelligent one and an important one. It would be helpful for people concerned about these matters to think this one through.

I cannot link you to the New York Times article reporting on the awarding of Nobel prizes to both Eugene Fama and Robert Shiller on the same day; the Times keeps their articles behind a paywall. But I read the article in paper form and in real time. It remarked on how odd it was that the highest award in the field was being given to two men who had opposite ideas of how stock investing works. That’s the story.

Fama and Shiller cannot possibly both be right. Fama says that the market is efficient and Shiller says that valuations affect long-term returns. If valuations affect long-term returns, the market is not efficient. If the market is efficient, valuations cannot affect long-term returns. Fama and Shiller are saying opposite things. The name for the school of thought that believes that Fama is right is “Buy-and-Hold.” The name for the school of thought that believes that Shiller is right is “Valuation-Informed Indexing.” There are two schools. That’s just the way it is.

All of the friction that we have seen results from the unfortunate reality that we have as a people tried to paper over the differences between what Fama is saying and what follows from it and what Shiller is saying and what follows from it. Most Buy-and-Holders acknowledge that Shiller has done important work. But I have never seen a Buy-and-Holder integrate Shiller’s findings into his or her understanding of how stock investing works. Buy-and-Holders ignore Shiller. They credit him with having done important work. But then they go about their lives as if Shiller did not exist.

That’s why my famous post of the morning of May 13, 2002, caused so much controversy. What I said should not have been even a tiny bit shocking. If valuations affect long-term returns, then you OBVIOUSLY need to take valuations into consideration when calculating the safe withdrawal rate. But most Buy-and-Holders had never stopped to realize that. Most Buy-and-Holders don’t believe that the market is purely efficient. But they believe that it is LARGELY efficient. So they think that the numbers you get from a study that does not consider valuations are at least in the right ballpark. But they have never checked the numbers. They don’t in fact know how much of a difference it would make to count valuations. They react with shock when someone says that they should count valuations because doing that would put them in a different world than the one that they have always lived in and they don’t like the idea of going to that different world.

Shiller created that different world, I didn’t. I have done nothing but advance views that follow from a belief that Shiller’s research is legitimate, which is a perfectly reasonable belief given that he was awarded a Nobel prize for his work. But when I say the things that I say, Buy-and-Holders are shocked because they have not heard these things before. The things that I say sound outlandish to them because they have never heard them before. And they are not too cool with thinking them through for the first time because their entire lives are riding on their belief that Buy-and-Hold is solid.

I am not the dictator of anything and I do not want to be the dictator of anything. But it is a simple fact that you don’t get the same numbers when you include a valuation adjustment in your calculation of the safe withdrawal rate. If Fama were right, there would be no need to include such an adjustment. But, if Shiller is right, an adjustment is required. So there are two schools of thought, no? One school says that you need to include the adjustment (because it affects the result), the other says that you do not need to include the adjustment (because it does not).

People who belong to the different schools should not be enemies. We should be working together to try to arrive at the truth of things. It is the shock that causes the friction. And the shock is the result of the unfortunate reality that as a society we have developed the habit of sweeping these differences under the rug rather than speaking about them openly and frankly. I think that Fama was wrong. I think he merited his Nobel prize because I think he made huge contributions. But I do not believe that he was right because I do not believe that the market is efficient. But I sure am not angry about the fact that his beliefs about how stock investing works are different than my own. And I am not angry that anyone else’s views are different than my own.

Should I lie when I post at boards, Anonymous?

I obviously believe that valuations affect long-term returns. So I obviously don’t believe that the safe withdrawal rate is the same number at all times. Should I lie about that to make you Goons happy? You cannot possibly believe that I should do that. It would be an absurd thing to believe. But I have never been able to figure out anything else that would satisfy you. You want me to lie. And that just can’t be right. The better way to go would be to acknowledge that there are two schools of thought and be friends despite our differences.

It is the 37 years of peer-reviewed research showing that valuations affect long-term returns that says that there are two schools of thought. Buy-and-Hold was developed at an earlier time, a time in which is was believed that the market was efficient. If the market were efficient, Buy-and-Hold would be the ideal strategy. But those of us who believe that Shiller’s research is legitimate do not believe that the market is efficient. So we of course have different ideas.

I hope that helps a small bit, Anonymous.

My best wishes to you.

Finance Dictator (According to My Goon Friends But Not According to Me) Rob