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 we get to the other side of the Big Black Mountain, we will never again need to worry about seeing our plans for the future disrupted by crazy swings in stock prices.”

Crazy swings in stock prices will always be with us. They are the reason that stocks provide great returns. If you somehow removed the risk inherent in stock ownership you would also remove the great returns. If a low risk/high return asset was available for purchase the the huge demand for such an asset would drive the price up lowering the return.

Your problem is that you want the great stock returns but are not willing to stomach the associated risk.

I do not agree that crazy price swings will always be with us, Evidence. And I do not agree that it is the crazy price swings that somehow cause the high returns associated with stocks.

I believe that stocks provide high returns because the underlying businesses are highly productive. In the United States, they have always been productive enough to support returns of 6.5 percent real per year. More than that is just emotional garbage. So I don’t trust returns of any more than that. But 6.5 percent annual returns are real and there is no need to take on foolish amounts of risk to obtain them. The underlying companies are going to be just as productive if I invest in a rational risk-reducing way as they are if I follow a Buy-and-Hold strategy.

I want the high returns for sure. And, no, I don’t like taking on risk. I would be willing to take on some added risk to obtain some added return. That part of what you say makes sense. But I don’t buy this idea that it is only by investing foolishly that I can obtain a good return. No. I like Bogle’s original idea of using the peer-reviewed research to guide one’s investing choices. That’s what makes sense to me.

The peer-reviewed research that I co-authored with Wade Pfau shows that investors can reduce the risk of stock investing by 70 percent just by being willing to leave the smelly Buy-and-Hold stuff in the rear-view mirror and so that’s what I do. I’ve been beating Buy-and-Hold on a risk-adjusted basis for 22 years running now and I have a funny feeling that I will be continuing to beat it for a long time to come.

But we’ll see, you know?

You’re not going to believe what I say just because I say it. Time is going to tell the tale. I go by what the research says. That tells us how stock investing has always worked IN THE PAST. In coming days, we will see whether the research is telling us something important or whether it is all going to turn out different this time. I think that the next crash will tell the story in a sufficiently compelling manner that even my good friend Jack Bogle will sign up with the good guys. And then where will you Goons be? I think that a good number of you Goons may come out in support of the idea of permitting honest posting re the last 37 years of peer-reviewed research in the days following the next crash. I will welcome the change. I will enjoy being able to talk things over with you in less friction-filled discussions.

I understand that you are going by one of the Buy-and-Hold dogmas when you say that stocks pay high returns only because of the risks associated with them. But I just don’t buy it. Shiller “revolutionized” (his word) the field with his Nobel-prize-winning research. So those old dogmas just don’t have the explanatory power that they once possessed, at least not for me.

Stocks have never in history been as risky as they were in January 2000, when the P/E10 level hit 44. They have provided an average annualized return of 3.3 percent real in the 18 years since. That’s far below the usual return of 6.5 percent real. It’s half of the normal return. For 18 years running. If investors are compensated for taking on extra risk, the return to stock investors should have been higher during those years, not lower.

The Buy-and-Hold dogmas don’t hold up to scrutiny. They possess a certain surface plausibility. But they just don’t stand up to scrutiny. When you test them with any sort of vigor, they always fail the test.

You believe in Buy-and-Hold because you want to believe in it, because you are emotionally invested in the concept, not because the ideas are strong enough to stand up to tough scrutiny. That’s why you get so angry when I challenge Buy-and-Hold in a forceful manner. You want to believe and I am making it harder for you to believe and so you strike out at me.

That’s my sincere take re these terribly important matters, in any event. I could be wrong. It has been known to happen.

Take good care, man.

Rob the Buy-and-Hold Challenger

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

So Bogle, Buffett and Shiller are all worried about job threats, death threats and getting banned from the boards, so they hold back. Got it.

All human beings want to be liked. All humans beings want to be able to work in the profession in which they have trained for years. No human beings enjoy seeing their words upset others.

I believe that these feelings of not wanting to go against the herd have been installed in our being by evolution. I believe that millions of years ago those who did not go along with the herd did not survive. So we all have this inclination to try to go along with majority opinions.

That’s why we have bull markets, Anonymous. We all would be better off if we did not have them. We all would be better off if we saw stock prices increase by 6.5 percent real every year without fail. But we don’t “vote” in the way that would serve our best interests. Some of us push prices higher and higher and higher, even to insanely dangerous heights. And the rest of us tolerate that behavior. Lots of us limit our participation in bull markets. But few of us actively try to stop them in their tracks. Few of us call out our friends and neighbors and co-workers on their b.s.

And so we end up with bull markets. And the bear markets that follow from bull markets. And the economic crises that follow from bear markets.

Shiller showed us the way out of the craziness.

But he hasn’t helped us in a practical sense because we have not yet given ourselves permission to post honestly re what the last 37 years of peer-reviewed research shows us re how stock investing works in the real world.

I think we are going to give ourselves permission in the days following the next price crash. I think that we are going to realize at that time that we don’t really have any other choice available to us.

We’ll see.

My best to you and yours.

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:

So Shiller has never said he is holding back. It is just something that you are claiming.

It is something that I am claiming.

And it is something that I am documenting.

There are thousands and thousands of cases of this phenomenon reported on at my site.

Bogle said in his book that Reversion to the Mean is an “Iron Law” of stock investing. Yet he had not come out an stated in clear and firm terms that the Buy-and-Hold retirement studies get the numbers wrong.

Bernstein said that investors would need to subtract 2 percentage points from the 4 percent number to get the correct safe withdrawal rate at the top of the bubble. But he never demanded that the studies be corrected or that honest posting on the safe-withdrawal-rate topic be permitted.

Wade Pfau said that the Buy-and-Hold retirement studies are “dangerous” and that “Yes, Virginia, Valuation-Informed Indexing works!” But he also stopped reporting on the amazing peer-reviewed research that he co-authored with me and doesn’t speak out publicly about the abusive behavior that he reported to me and that he told me scared him.

It’s the same with Michael Kitces. And with Bill Shultheis. And with Larry Swedroe. And with Carl Richards. And on and on and on and on and on.

Bull markets are an emotional phenomenon. And it is the Buy-and-Hold tall tales that drive that emotion.

We will either open the entire internet to honest posting in the days following the next price crash or we will watch our economic system go down together. I am betting on the people of the United States. I think we will work up the courage to stand up to you Goons when we see how much human misery we have caused by failing to do so up until now. I think we are going to have Jack Bogle leading the way and that no one will be able to stand in our way once Bogle signs up with the good guys.

But we will have to wait to see how things play out, you know? I ain’t God. I could be wrong.

Yes?

Slightly Uncertain 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:

This makes no sense. Because stock crashes have always occurred you could say that just about anything creates them.

I think it makes perfect sense, Laugh.

It is the very purpose of a market to get prices right. That’s what markets DO.

Now, think what happens to the stock market when people become Buy-and-Holders and just flat-out REFUSE to consider price when making their purchases. The price just keeps going up and up and the long-term value proposition just keeps going down and down until we get into the sort of situation where we are today. The market wants to get the price back to fair-value levels. But the only way it can do it when purchasing decisions become as dysfunctional as they are today is to crash. Crashes hurt us all. I think we should all be doing what we can to avoid crashes, not to encourage them.

Buy-and-Hold is the ultimate crash-inducer. What causes crashes? The lack of price discipline. What is the key Buy-and-Hold principle? Don’t ever, ever, ever consider price when buying. Huh? What the f? In every market that exists, price is the most important thing that buyers need to keep in mind at all times. But what do the Wall Street Con Men tell us? They say that there’s is some mystical, magical secret sauce that they apply to the stock market so that price makes no difference when buying stocks — stocks are ALWAYS worth buying, say the people who sell stocks. Um — sure they are. Um — I believe that! No, really, I do! Really!

It’s a scam, Laugh. Price has mattered for the entire 150 years for which we have good records of stock prices. It will continue to matter for the next 150 million years. It is a logical impossibility that there could ever be a market in which price did not matter. That’s a marketing gimmick that the Wall Street Con Men use to separate us all from our money. It’s a lie that has made the Wall Street Con Men very rich indeed. But it is not working out so great for the millions of middle-class people who are seeing their hopes of being able to afford decent retirements some day destroyed. That is causing political frictions on both the left and the right. I OPPOSE that sort of thing. I love my country.

Get Rich Quick is not the answer, Laugh. Not in this boy’s sincere opinion. I wish you all good things. But I cannot say that I do have much confidence that all of the laws of stock investing that have applied since the beginning of time are going to be turned on their heads and that the pure Buy-and-Hold “strategy” is going to work for one or two long-term investors for the first time in history.

I guess we will all get to see how it plays out, right?

My best wishes to you in any event, my dear Buy-and-Hold Goon friend.

Research-Believing Rob