A Rich Life

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

“Lots of People Tolerate Criminally Abusive Behavior in Discussions of How Stock Investing Works. No One Should. Part of the Job of Those Seeking to Make Sense of Stock Investing in the Year 2017 Is to Explain Why Lots of People Tolerate Things They Should Not Tolerate.”

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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’ll supply a link to the members of your jury, Anonymous.”

I bet that if there was an article in which John Bogle or Robert Shiller said that Rob Bennett in the leading investment expert, you would provide the link without delay.

I don’t need Bogle or Shiller saying that I am the leading investment expert. There are thousands of people who have valuable things to say re stock investing and I am just one of them. We don’t need to identify any of them as the leading expert. We need to hear from all of them.

What I need Bogle or Shiller to do is to say that there is no place in discussions of how stock investing works for death threats or demands for unjustified board bannings or tens of thousands of acts of defamation or threats to get academic researchers fired from their jobs. If I saw behavior of that nature being advanced by other Valuation-Informed Indexers, I would disassociate myself from it in every way possible. I would be embarrassed by it. It would suggest that there is no reasoned case that can be made for Valuation-Informed Indexing. I of course I don’t believe that and I of course don’t want others to come to believe that. So I would speak up.

Everyone who knows about your behavior should speak up about it. There should not be even a tiny bit of controversy about speaking up re criminally abusive behavior. It’s over the line. Not one of us should tolerate it.

Lots of people do. But no one should. And part of the job of those seeking to make sense of stock investing in the year 2017 is to explain why lots of people tolerate things they should not tolerate.

When we’re all talking about this stuff in frank and open and honest and charitable ways, we will all be better off. I believe that we will turn the corner in the days following the next crash. But we will have to wait to see how things play out to know for sure. I have been wrong before. If it were happening again, there’s a good chance that I would be the last to know.

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

Rob

“Why Do You Feel So Strongly That Everybody Has to Either Believe in Buy-and-Hold or at Least Pretend to Believe or at Least Keep His or Her Mouth Shut? It Is My Belief That Buy-and-Hold Is DANGEROUS. Is There Some Reason Why I Shouldn’t Tell My Friends That?”

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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:

“If you had asked Buy-and-Holders in 2000 what the annualized real return would be for the next 18 years, not 1 in 100 would have said “2.25 percent.” Stocks have not been performing in the manner in which Buy-and-Holders say they should always perform for a long, long time now.”

I don’t know of anyone that only made their investment in 2000 and then immediately withdrew all their money after a crash. Buy and holders invest all the time and then withdraw money over a long period of time. To date, there has NEVER been a 30 year period in which a 4% withdrawal rate failed.

I agree that Buy-and-Holders invest all the time and then withdraw money over a long period of time. The question that has been on the table for 15 years now is — Is it better to take the price at which stocks are selling into consideration when doing that or is it better to ignore price? I believe that it is better to take price into consideration.

I obviously agree that there has never been a 30-year period in which a 4 percent withdrawal rate failed. The question that has been on the table for 15 years now is — What were the odds that retirements calling for a 4 percent withdrawal rate that began in January 2000 would survive 30 years? The historical data shows that those retirements had only a 30 percent chance of surviving 30 years. Those were high-risk retirements, not safe retirements. Why not tell people that?

It all comes down to whether the market is efficient or whether valuations affect long-term returns. A belief that the market is efficient takes you down one road and a belief that valuations affect long-term returns takes you down a very different road. I believe that valuations affect long-term returns. Is that okay by you, Anonymous? Should I have to ask “pretty please” before posting my sincere views on stock investing because you happen to hold different beliefs?

If so, why? Why do you get to dictate what people say about stock investing on the internet? People post their honest views on hundreds of different subjects on the internet every day and there is no big fuss made about it. Why is stock investing the one big exception? Why do you feel so strongly that everybody has to either believe in Buy-and-Hold or at least pretend to believe or at least keep his or her mouth shut? It is my belief that Buy-and-Hold is DANGEROUS. Is there some reason why I shouldn’t tell my friends that given that that is my sincere belief and given that this is a research-based belief and given that the consequences of getting this stuff wrong can be pretty darn dire (especially for those opting for early retirement)?

Rob

“The Core Buy-and-Hold Claim Is That Timing Doesn’t Work. It’s That’s Not So, the Entire Thing Falls.”

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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 need to reflect on what the last 36 years of peer-reviewed research in this field is telling us, Anonymous.”

What research, other than writings by Shiller and Pfau, have you included in your exhaustive review? Who are the”peers” that have provide review and responses to the research you have referenced?

One of you Goons asked this question about two months ago and I responded with a long and detailed answer. I am not going to repeat those words here. If you want to tap into that one, I think you could find it by going through the somewhat recent blog entries.

The short answer is that there is a mountain of stuff. Shiller. Pfau. Russell. Arnott. Smithers. Bernstein. Kitces. And on and on and on and on and on. There’s no shortage of material.

The most important research that has been done is the two months in which Pfau went searching through the literature to determine how many studies there are showing that it is not necessary to exercise price discipline (long-term timing) when buying stocks. He found that there are zero. He was amazed to discover this. He spent years acquiring his Ph.D. and no one had ever told him this. He had heard thousands of times that “timing doesn’t work” and so he assumed that there must be a lot of research showing this. In fact, there is precisely zero research showing this. The claim that timing doesn’t work is 100 percent myth. There is no “there” there.

That’s the story, Anonymous. Given that there is precisely zero support for the key Buy-and-Hold claim, we should all be spending our energies trying to determine how stock investing really does work. If we did that, we would look to that mountain of research showing that the key is to always, always, always practice price discipline (long-term timing). The only reason why we are not all doing that today is that millions of us have a huge emotional investment in Buy-and-Hold. Either we have built out careers around it or we have written books promoting it or we have invested our life savings pursuant to its dictates or we have persuaded our friends that it is the way to go or whatever. We have not been engaged in an intellectual battle over the past 15 years, we have been engaged in a turf fight.

Buy-and-Hold was a MISTAKE. The idea that it is not necessary to practice price discipline was a MISTAKE. Instead of asking me what research supports Valuation-Informed Indexing, you should be asking me what research supports Buy-and-Hold. 100 percent of the research available to us supports Valuation-Informed Indexing. 0 percent of the research available to us supports Buy-and-Hold. This is why things get so nasty on your end. It’s hard to participate in an intellectual debate when you have no ammunition.

The core Buy-and-Hold claim is that timing doesn’t work. It’s that’s not so, the entire thing falls. Buy-and-Hold is a numbers-based system and, if timing works, all of the numbers it generates are wrong. Huh? What good is a numbers-based system that gets all the numbers wrong? A numbers-based system that gets all the numbers wrong is DANGEROUS.

The Buy-and-Holders were sincere when they developed their strategy. They truly believed that timing doesn’t work. They just didn’t have available to them at the time the tools they needed to determine the realities. There were no index funds in 1965. So there was no way to test whether long-term timing works or not. So Fama only tested short-term timing. Short-term timing really does not work. But he concluded falsely that timing in general doesn’t work. Had he been able to test both forms of timing, he would have concluded that “short-term timing doesn’t work but long-term timing always works.”

Shiller was the first to test long-term timing. He changed our understanding of how stock investing works in a fundamental way by showing that long-term timing always works. Research that doesn’t take his findings into consideration just doesn’t count anymore.

If some physicist came out with a study that was rooted in a belief that the earth is flat, reasonable people would just ignore it because it fails to take into account many years of research. That’s what we have with the Buy-and-Hold retirement studies. They are rooted in beliefs that people held prior to 1981. Yes, there are still smart and good people who hold those beliefs today but those people are not proceeding in a scientific manner. To proceed in a scientific manner, you need to take into consideration all the research available to you and there is now 36 years of peer-reviewed research showing that long-term timing always works and 0 years or research showing that there ever might be some alternate universe where it might not.

The short answer is — ALL of the research available to us supports Valuation-Informed Indexing and none of the research available to us supports Buy-and-Hold.

Now we just need to get prison terms announced for you Goons so that all of us who have expressed a desire to engage in civil and reasoned discussions about what the peer-reviewed research in this field really teaches us about how stock investing works can get down to the business of helping each other overcome any remaining thoughts that Buy-and-Hold (AKA/Get Rich Quick!) might be the answer.

I hope that helps a small bit, my long-term Buy-and-Hold friend.

Rob

“It Doesn’t Make Much Difference to a Long-Term Investor Whether Stocks Crash Next Week or Double in Price From Here and Then Crash a Few Years From Now. The Investor Loses All His Phony Gains in Any Event.”

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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 true that math isn’t my thing. And it’s true that the math supports what I say 100 percent.”

Your understanding of the math begins and ends with “yup, that’s a dang high PE10.” Since that’s the only thing you understand, you stubbornly insist that that’s the only thing that matters.

But if it mattered that much, why isn’t the second highest PE10 in history enough to get Shiller to even issue a warning? (Today. Not in 1996.)

The obvious answer (to everyone but you) is that it doesn’t matter that much. Shiller has learned that the market isn’t that simple, so he moved on. Moving on is even less your thing than math.

It’s not that the P/E10 is high that concerns me so much. I 100 percent accept that you can have have a very high P/E10 number and not see an immediate crash, that you can even see 30 percent or 40 percent or 50 percent annual gains starting from a high P/E10 number. That’s not my focus.

My focus is what Shiller’s 1981 finding tells us about how the market sets prices. If the market is efficient, as people believed it to be in the days when Buy-and-Hold was being created, then prices are set through a rational process. It is unforeseen economic developments that cause prices to rise or fall. If that is so, then Buy-and-Hold is the ideal strategy. If that were so, I wouldn’t care what the P/E10 was, I would just follow a Buy-and-Hold strategy.

What Shiller did that was so important was to test this core Buy-and-Hold belief. Is it really unforeseen economic developments causing prices to rise and fall? That was never proven, it was an assumption. The thing that you do in science is that you test things. Is there a way to test that assumption?

There is. Shiller was the first person to test the assumption. If the assumption is correct, prices should fall out in the pattern of a random walk. There’s no pattern that should apply with unforeseen economic developments, sometimes they are going to take prices up and sometimes they are going to take prices down. This is why Fama was awarded a Nobel prize. He seemed for a time to have proven that the assumption is correct. He showed in his research that stock prices do indeed play out in the form of a random walk in the short term (up to 10 years).

Fama didn’t even think to test whether prices play out in the form of a random walk in the long term. Long-term timing was not a practical option in the day when Fama did his research. Long-term timing only works with index funds and index funds did not exist in the 1960s, when Fama did his most important work. Bogle formed Vanguard in the mid-1970s. Then Shiller became the first researcher to test long-term timing in 1981.

He found that it always worked. He found that market prices do NOT play out in the form of a random walk. He found that the core assumption on which our understanding of how investing works was in error.

If it is not unforeseen economic developments that cause stock price changes, what is it? It is investor emotion. That is the theory that Shiller puts forward and it is the only one that I have heard that makes sense and that is consistent with the peer-reviewed research of the past 36 years. That changes everything. That is a “revolutionary” finding. That finding merits a Nobel prize.

Not because we know now that a P/E10 of 30 means that a crash is coming next week or next month or next year. We don’t know that. Shiller didn’t show that. That’s not the point.

The importance of Shiller’s research is that it shows us that stock price changes are caused by shifts in investor emotion, not by unforeseen economic developments. We cannot say that there is going to be a crash soon just because the P/E10 is 30 because emotional investors might just ignore the high P/E10 level and push prices up to 35 or 40 or 45. Shiller didn’t give us information that helps us to predict short-term price changes.

What he did was to give up information that tells us that some stock price changes are rooted in real economic stuff and some are rooted in ephemeral emotions. Prices are caused by shifts in investor emotion. They follow a clearly defined pattern that has remained in place since the first day that stocks were offered for sale. The primary driver is the Get Rich Quick emotion. So the P/E10 level gradually increases over time. First it is 8, then a few years later it is 12, then a few years later it is 17, then a few years later it is 21 and then a few years later it is 26 and so on. The secondary driver is the Common Sense emotion. The Common Sense emotion causes people to feel fear over the long-term value of their emotion-generated returns. The Common Sense emotion causes prices to crash back to 8 so that the gradual-upward-movement part of the long-term pattern can reassert itself. The market always brings overpriced stocks back to fair-value levels or lower. There has never once been an exception.

Today’s P/E10 level is insane. But we cannot say that we are going to see a crash next week or next month or next year. Next year’s P/E10 level could be even more insane that this year’s P/E10 level. We just don’t know.

What we DO know is that stocks are a lot more risky today than they were the last time they were selling at reasonable prices. The more emotion there is present in the price at which stocks are selling, the more pressure there is for sharp downward movements in prices. The more risky stocks are, the less your stock allocation should be if you are seeking to maintain a steady risk profile. Stocks are insanely risky today. Prices might go higher. Then they would be even MORE insanely risky.

The question is — Do you want to gamble that prices will continue moving upward from these insanely risky levels? I do not want to gamble. I don’t care if prices double from where they are today before crashing back to a P/E10 level of 8. I am a long-term investor who does not believe that it is possible to engage in short-term timing successfully. So I don’t believe that I will know when to get out to avoid the crash that is inevitably going to come. So the only way to diminish the effect of the crash is to lower my stock allocation not when I think that the crash is about to arrive but when risk gets so high that stocks no longer represent a strong long-term value proposition.

It doesn’t make much difference to a long-term investor whether stocks crash next week or double in price from here and then crash a few years from now. The investor loses all his phony gains in any event. So why spend so much mental energy trying to figure out when the crash is coming? I don’t think it can be done. I just try to keep my risk profile roughly stable. If I do that, I am covered in all possible circumstances.

I think you are focused on the wrong thing, Anonymous. You don’t want to “miss out” on temporary gains. I focus on whether the gains are permanent or temporary. I don’t fret about temporary gains one way or the other. I just don’t care. I naturally don’t want to miss out on permanent gains. That’s where I direct my attention. I focus on distinguishing temporary from permanent gains.

Gains that are supported by the economic realities are permanent. There has never in the history of the market been a time when those went away. Yes, the market price can do down below fair value just as it can rise above fair value. But it always comes back when it does. That’s the beauty of it. If you focus on the real value of your portfolio, you always know where you stand and you always know what direction prices are moving in the long term. It makes financial planning about 50 times easier than it is when you are pretending that it is unforeseen economic developments driving prices rather than the crazy emotions of human investors.

What I learned from Shiller is that high prices are caused by investor emotion. That tells me to go easy on stocks when investor emotion gets too out of hand.

Shiller hasn’t “moved on.” If the Buy-and-Holders would drop the criminally abusive behavior, he would be 100 percent happy to talk these things over with you and to tell you everything he believes in a calm and clear and detailed way. There are some things he doesn’t know. He would learn those things over time by talking things over with you and with lots and lots of others. He is not able to do that today because you do nuts when anyone even suggests that the Buy-and-Holders might have made a mistake in earlier days and then failed to correct it for the 36 years since it came to light.

When the behavior of the Buy-and-Holders changes, our knowledge of how stock investing works will advance by leaps and bounds. We have 36 years of peer-reviewed research that we have not permitted ourselves to explore. That will change following the next price crash. We will explore the many far-reaching implications of Shiller’s research in days to come. I of course wish that we had begun those explorations back in 1981. We would have prevented a mountain of human misery by playing it that way. But the full reality s that the good news here is 50 times more good than the bad news here is bad. So we will just have to take the good with the bad and “move on,” to quote a phrase.

My best wishes.

Rob

“Math Is Great. I APPROVE of Math. But Math Can Only Take You So Far. At Some Point You Have to DO SOMETHING With the Math. If the Buy-and-Hold Retirement Studies Are in Error, Then You Need to Get Off Your Bottom and Produce ACCURATE Retirement Studies. Your Words That ‘You Guys Got the Numbers Wrong!’ Are Fighting Words to the Buy-and-Holders No Matter How Nicey Nice You Are in the Comments That Surround Those Words.”

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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:

“Math isn’t my thing, Anonymous. The math supports what I say 100 percent.”

Those 2 sentences are in conflict with each other. You admitted you lack credibility.

I don’t see any conflict. It’s true that math isn’t my thing. And it’s true that the math supports what I say 100 percent.

Your point seems to be that you cannot place confidence in what I say re the math because I am not personally good at math. But Shiller is good at math. And Wade Pfau is good at math. And Rob Arnott is good at math. And John Walter Russell is good at math. So the point remains.

My personal belief is that people should look at things other than the math. There are LOTS of things that support VII and math is just one of them. I am personally more impressed by some of the other stuff because math is just not my thing. But it gives me a good feeling to know that the math supports VII too. I’d much rather have the math on my side than not have the math on my side.

The puzzle is how there could be anyone who does not support VII given what the math says. That’s where cognitive dissonance enters the picture. And that’s where I get super interested. The cognitive dissonance thing is fascinating to me. What should investment advisors do when one strategy is far superior in terms of risk and return but the other strategy is better from a marketing perspective because it taps into the Get Rich Quick urge within us all while the other strategy is rooted in logic and math and other stuff that does not turn people on so much?

The story here is a story of marketing vs. research. It’s a story where the marketing edge held by one of the strategies is so strong that people cannot even appreciate what the research says. People are not persuaded by the research not because there is anything non-persuasive about the research but because people will not let the research findings into their minds because they find them too darn painful to accept.

That’s not math, that’s psychology. The psychology effect here cancels out the math effect, even among people who in other circumstances place great value on what the math says (Buy-and-Holders in ordinary circumstances LOVE math). So getting the math right is not enough. To offer helpful investing advice, you’ve got to get the psychology right. And that’s not something that most people in this field worry about too much. People think of investing as a math field, not as a psychology field.

One of the many far-reaching implications of Shiller’s “revolutionary” (his word) findings of 1981 is that the investing advice field is a field in which understanding psychology is more important than understanding math. So that’s the direction in which we need to move. In the future, we will never talk about the math without taking the effort to put it into a psychological context because there is a risk that people will not understand the math if we haven’t first put it in the proper psychological context.

Is Shiller a psychology guy or a math guy? I would say that he’s a psychology guy. His primary contribution is on the psychology side. But he likes to present himself as a math guy. He does that all the time. He uses the same sorts of tables as the Buy-and-Holders use. He likes to take surveys. That way he can talk about people’s beliefs and feelings and have numbers next to them in the places where he presents them. He uses charts and graphics, which are not that common in the psychology field, to make his points. He is almost always making a psychology-related point. But he makes an effort to make the point through the use of numbers rather than just narrative. Because that’s what people in this field do. It makes him fit in better for him to do that.

I don’t fault him for it. I think that it’s great that he does that. He takes psychological concepts that possess great power and importance and expresses them with numbers so that he is using the language that people in this field understand and appreciate and accept. So good for him.

There are limits with how far you can go with that, though. My contribution is often to take the psychological-concepts-presented-in-math-form that Shiller and others are putting forward and to translate them into the sort of narrative that you would expect to hear if they were being presented in a field other than the investing advice field.

The best example of this was when Bill Bernstein made the case that the Buy-and-Hold retirement studies get the numbers wildly wrong because they don’t include valuation adjustments. Those are my words, not his. What Bernstein did (in his book The Four Pillars of Investing) was to say that, to adjust for the valuation level that applied near the top of the bubble, you need to subtract two points from the withdrawal rate identified by the Buy-and-Holders as safe — 4 percent. Bernstein didn’t perform the math exercise. He didn’t say “subtract 2 point and you get a safe withdrawal rate of 2 instead of 4.” He just gave people the math-based information they needed to figure out the correct number for themselves. He understood that he would upset people if he said plainly that “the safe withdrawal rate is today 2” because that enters the psychology zone. Tell people that and you are going to cause them to experience intense anxiety.

I go the extra step. I say “the safe withdrawal rate is today 2 percent” That statement is the product of a math exercise but it has psychological import as well. That statement scares people who planned their retirements based on a belief that the safe withdrawal rate is 4. So it is not just math anymore when you say it that way. And I of course take it even a step further. I don’t just say “the safe withdrawal rate is today 2 percent.” I say “that means that we are likely going to see millions of failed retirements in days to come because we have been telling people for years now that the safe withdrawal rate is 4 percent and they believed us.” That’s an INTENSE psychology statement. That statement leaves the math behind and travels to places that Bill Bernstein does not dare go.

I am famous for making statements like that and then refusing to take them back or to shut up about them or whatever. I am a pain inflictor. Not because I don’t like my Buy-and-Hold friends. Because I think that what the math is telling us is important and has psychological implications that need to be explored.

I added the second part to this comment Thursday morning after re-reading what I had written Wednesday night. I read the initial response and I realized that I wanted to say a bit more about how I take math concepts advanced by people like Shiller and Bernstein and push them into the psychological realm.

The psychological realm is where I think the real action is. The math is important. I don’t at all mean to denigrate the good people who focus on the math. But I believe strongly that the psychological stuff is what drives the investor decision-making process in the investing realm and so we must be willing to explore psychological stuff in great depth to do truly effective work in this realm. So I make it a practice to push the math stuff to the next stage, to the psychological stage.

That’s why you Goons hate me. You don’t want to know what the math says. You want to live in a world of illusion. You tolerate the Bernsteins of the world and to a point even the Shillers of the world. They are willing to present their math-based stuff and then shut their mouths about the obvious psychological implications of what the math tells us. That’s bearable to you. You don’t like it. You would be happy if they would knock it off and be Bogle-pure. But you get it that sometimes a guy feels a need just to report the math accurately no matter what crazy thing it says. So you tolerate Bernstein (and Shiller, to a lesser extent).

But I cross the line. I say “so we need to correct those bogus retirement studies before they ruin more middle-class lives!” That’s a bannable offence. That is the sort of thing that simply must not be said. That comes pretty darn close to accusing the Buy-and-Holders of financial fraud. That sort of statement requires ACTION. You don’t want to act. You want to live in the comfortable, complacent world of 1980, in the days before Shiller did that darn math exercise that caused him to be awarded a Nobel prize in Economics. I blotted that happy world out with my math-translated-into-psychology statement. So I must be blotted out!

The reason why I did only saving work and never investing work in my early years is that I saw that investing was a numbers-oriented field. Numbers are not my thing, psychology is my thing. So I stuck to saving, where it is accepted that psychology (motivational stuff) plays a big role and left investing to the “experts.” Then Greaney’s Goon Squad launched their smear campaign against Wanderer, who was a guy who wrote effectively about saving from a emotion-based perspective. That’s when the numbers-based stuff at the old Retire Early board bled into the psychology-based stuff. Greaney violated the unspoken agreement where people from both sides stayed on their own turf and left people who wanted to play on the other side alone. He wasn’t going to permit the psychology-oriented side of the board community to continue to exist because something that Wanderer said about real estate threatened him too much.

I used the same psychology-oriented arguments that I had had such success with on the saving side in the discussions of investing that followed. But they didn’t bring about the same result! People are not used to hearing psychology arguments in investing discussions. Where are the numbers, man? Investing has long been a numbers-based discipline. People expect to see numbers, not narratives. And certainly not song lyrics!

Shiller is a transitional figure. He makes psychology-based points using numbers. He makes an effort to speak the language of the Buy-and-Holders. I make an effort too. But I am less willing to compromise my psychology-based points to make them palatable to people expecting to see investing-oriented points presented through the tools that are most commonly employed in a numbers-focused field.

I think we give up too much when we limit ourselves in that way. I think that there are many important things that Shiller either understands or is close to understanding about how stock investing works that he has never told us because he is held back by his fear of leaving the numbers behind at times and framing his psychology-based points in the way they would be framed in any field without such a long history of sticking to the numbers.

I started out that way. I started out being as fearful as Shiller is of crossing the line, probably more so. Before May 13, 2002, I didn’t speak up AT ALL. But over time, I learned that holding back just doesn’t work. If you are going to say that the Buy-and-Hold retirement studies are in error and need to be corrected (I needed to say this much because of the circumstances that applied in a board community in which John Greaney was present), then you were persona non grata no matter how soft you played it and you might as well just let it rip. I still make a big effort to be polite because I have a general belief that that’s the way to go. But I state my investing points more boldly than Shiller dares to present his or than anyone else in this field dares to present his.

Math is great. I APPROVE of math. But math can only take you so far. At some point you have to DO SOMETHING with the math. If the Buy-and-Hold retirement studies are in error, then you need to get off your bottom and produce ACCURATE retirement studies, retirement studies that include valuation adjustments because the aim is to get the numbers right. Those sorts of studies are going to upset Buy-and-Holders not matter how gentle you are in your presentation. Your words that “you guys got the numbers wrong!” are fighting words to the Buy-and-Holders no matter how nicey nice you are in the comments that surround those words.

So you might as well just let it rip. If the Buy-and-Holders are going to threaten to kill your wife and children in any event, you might as well just go ahead and tell the full story to the best of your ability for that 10 percent that is losing confidence in Buy-and-Hold and that is open to hearing about a new truly research-based strategy.

Whew!

You got me going a bit with that one, my long-time Buy-and-Hold friend. Now I am pumped for the new day!

Rob

“My Agenda Is To Open Every Investing Site on the Internet to Honest Posting re the Last 36 Years of Peer-Reviewed Research in This Field.”

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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:

Rob,

Here is the difference between you and everyone else. The investment community reads the words Shiller says and believe that those are his opinions. You read what he says and then interpret it to fit your agenda.

My agenda is to open every investing site on the internet to honest posting re the last 36 years of peer-reviewed research in this field, Sammy. The Buy-and-Holders are good people and smart people. They came up with an investing strategy that they believe in and millions are grateful for their efforts. We have all learned many important things by listening to our Buy-and-Hold friends. All that is good.

Things turn sour when some Buy-and-Holders (not all, some) engage in abusive posting practices to block those of us who do not believe in Buy-and-Hold but instead believe in the 36 years of peer-reviewed research showing that valuations affect long-term returns from sharing on the internet our honest thoughts on how stock investing works. I have thoughts and I want to share them. I have had thousands of my fe llow community members express a desire to hear them. My views have been endorsed by some of the biggest names in the field. What’s the problem here?

We don’t agree. That’s the problem from your end. If I am permitted to post my honest views, some people who now agree with you are going to lose confidence in Buy-and-Hold. I get that and I agree. But you know what? It could be that Buy-and-Hold will prevail if we permit people on both sides to post honestly. That will make Buy-and-Hold all the more popular down the road. And, in the event that Buy-and-Hold really is as dangerous as I think it is, it is of course to your benefit to find that out. And the only way that you are ever going to find it out is to permit me and the thousands of others who have grave doubts about the Buy-and-Hold strategy to express their honest views.

Shiller’s ideas cannot be reconciled with Bogle’s ideas. Bogle believes that the market is efficient. Shiller believes that valuations affect long-term returns. These are completely different premises on which to build investing strategies. Some (the majority) believe that Bogle is right. Some (the minority) believe that Shiller is right. That’s not a bad thing. I think it is kind of a cool thing. Because we disagree, we both have someone on the other side to challenge our thinking and keep us honest. It’s a good thing that we don’t all agree.

So that’s my agenda. I want us all working together. I say that the goal is to learn the truth about stock investing and that the means by which we get there is to show respect and tolerance for those with other views. I don’t agree with you on many investing issues. But I sure respect you. I sure like you. I sure enjoy learning from you. I think it would be just groovy if you could say the same back to me.

It’s to be expected that we are going to have somewhat different takes re what Shiller says. And re what Bogle says. And re thousands of other things. We have different perspectives. When some new information bit appears before us, we both send it through out respective filters, which are designed to protect our differing perspectives from feeling the pain that comes when they are challenged in too serious a way. So we hear the same words and I have one take on what those words signify and you have a somewhat different take. What of it? That’s how things work when two people have different viewpoints. There’s nothing bad about that. That’s normal. That’s healthy.

I have learned things from you, Sammy. You show up here every week and you harass me. You have been harassing me at one place or another for 15 years running now. I would be grateful if you would just kindly knock off the funny business. But, if I were put to the challenge, I could write a long post detailing all the things I have learned from my interactions with you. That’s the good side of all this. That’s the side that I would like to focus on. I think it is very cool that I have learned things from you despite all the complications. And I have a funny hunch that if you were being perfectly honest you would acknowledge that there have been one or two occasions over the 15 years in which you have learned something from me too. That warms my heart, you know? It makes me happy that I have helped my friend Sammy out on one or two occasions.

I do indeed interpret what Shiller and everyone else says to fit my agenda. That’s normal. That’s healthy. That’s good. I cannot help you or anyone else if I do not process information in the way that I was built to process information. So that’s what I do. You can take or leave any of the products of my agenda. That part is up to you. But please don’t ask me to stop producing material that follows from a belief in my agenda. I cannot produce anything that helps you or others unless I post what I sincerely believe. So I do that and I intend to continue doing that.

I do it all out of friendship for you, Sammy. Believe it or not, that’s the bottom-line reality here.

Rob

“I Greatly Enjoyed the Time That I Spent at the Bogleheads Forum and Learned a Lot From the Experience and Made Lots of Good Friends. But I Was Not Willing to Say Either That the Buy-and-Hold Retirement Studies Contain Valuation Adjustments or That Such Adjustments Are Not Needed to Get the Numbers Right. So I Am No Longer Permitted to Post There….We All Learn More When We Permit Our Beliefs to be Challenged in Civil and Reasoned Discussions.”

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Set forth below is the text of a conversation that recently took place at the FinCon Community on Facebook:

Miranda Marquit: Also, I’m looking for a legit Boglehead. Any of you been (or still are) a Boglehead? Would like to know what it’s like to be on the “inside” as well as if there are some issues with being too fervent about it.

Doug Nordman: I’ve been a member of the Bogleheads forum since 2007, if that helps. I was also at the Vanguard Diehards forum with Morningstar when the first Bogleheads broke free to build a better forum. But I’ve never had any accounts with Vanguard or been to a Bogleheads’ meetup. Years ago I remember that Mike Piper had been to one.

The Bogleheads forum, like every forum, has its share of passionate zealots. It’s heavily moderated to stay on topic and avoid self-promotion, which its (remaining) members seem to prefer. Its wiki is also exceptional, and I’ve helped build out the military part of that.

It has a forum’s usual share of drama. It’s also produced several very good investing books and become a tremendous educational resource.

Tom Drake: Rob Bennett

Doug Nordman: Tom, I wouldn’t do that to Miranda.

Rob Bennett: Miranda knows me. We are friends. I am friends with Tom as well. And it has always been my hope to be friends with all Bogleheads (including you, Doug). The fact that some of my Boglhead friends do not view me as a friend is an unfortunate and sad reality.

Tom Drake: Miranda is looking for any issues, so I thought Rob would be a good addition to her post.

Rob Bennett: If I were asked by Miranda or anyone else about the Bogleheads Forum, I would say that it is an amazing resource populated by lots of smart and good people that has unfortunately suppressed discussion of the far-reaching implications of the 36 years of peer-reviewed research in this field showing that valuations affect long-term returns. I greatly enjoyed the time that I spent at the forum and learned a lot from the experience and made lots of good friends. But I was not willing to say either that the Buy-and-Hold retirement studies contain valuation adjustments or that such adjustments are not needed to get the numbers right. So I am no longer permitted to post there. It is my belief that I am not the only one who lost out as a result of that decision. Everyone who participates at the board lost out on a great learning experience. We all learn more when we permit our beliefs to be challenged in civil and reasoned discussions.

 

“Some People Try to Retire Early to Escape Work. I Wanted to Retire Early to Do More Meaningful Work. That Is What Motivated All of My Saving Efforts.”

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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:

So instead of an easy job that pays money, you took a hard job that pays nothing. For 15 years and counting.

That sounds, now what’s the word? Dumb.

Most people would call it dumb. I think it would be fair to say that that’s why you don’t see anybody else doing it.

I do love my country, Anonymous. Some would call that dumb too. But I do love my country. I don’t mean that I go carrying the flag around on anything like that. I mean that I love the idea of progress, I love the marketplace of ideas. That runs very, very deep with me. I think that’s why I was the one who couldn’t turn away from the opportunity even when I saw the brutality that was going to be directed at me if I didn’t.

I have a law degree and a Masters in Tax Law. I obtained both of those degrees with zero intention of becoming a lawyer. I always intended to become a journalist. But I didn’t want to be an ordinary journalist. I wanted to be able to say something that mattered. Getting the tax law degree meant that I could understand and write about the tax reform movement in a way that none of the other journalists covering it at the time could pull off. So I went to that extra time and expense even though I did not have the money to spare. It was important enough to me that the work I did count for something that I was driven to go the extra mile.

Some would say that that was dumb too. People say all kinds of things. It wasn’t dumb for me. We all get to live one life. And we all have only so much money. I would rather spend mine making myself the best tax journalist out there than going on nice vacations or whatever. So I did what I did.

My Retire Early dream was the same sort of thing. Some people try to retire early to escape work. I wanted to retire early to do more meaningful work. That is what motivated all of my saving efforts. Again, this goes very deep.

So here I am. Yes, there are people who will say I am dumb. They have to live their lives and I have to live mine. If I didn’t jump on the opportunity that was presented to me to change the world in an amazingly positive way, I would have regretted it for the rest of my life. So even today I don’t have any second thoughts. It’s just not in me to play it any other way. I am a child of the 60s. I see this as a 60s kind of thing to do. It’s idealistic. I am an idealistic sort of fellow.

For good or for ill, I am doing what I believe I was put on earth to do. It would have made my life easier if someone else had taken on the opportunity. But whatever it takes to walk way from it, I don’t have that thing inside me. I like to think that I would not walk away from a burning building if I heard a baby screaming inside it. And I cannot walk away from a situation I discover in which millions of middle-class people are looking for good information on how to plan their retirements and they are all being given information that is 36 years out of date. However things turn out, I will be able to go to sleep at night knowing that I did not walk past the burning building.

The part that you miss is that the fact that this job has not paid money for 15 years is what makes it so important that I take it on. If it paid a nice, steady wage, there would be people lined up to do the job. It’s very important work and, because it is such hard work and it does not pay a steady wage, there is no one else willing to accept the assignment. That makes it all the more critical that I accept it. If there were others taking it on, I could take a pass. Or, if it were not critically important work, I could take a pass. As things are, I cannot take a pass and live with the knowledge that I have done so.

I hope that helps you understand this particular aspect of the question a wee bit better, my long-time Buy-and-Hold friend.

Rob

“One of the Things That I Love About the Bogleheads Forum Is That Implications of Bogle’s Ideas Are Being Teased Out There on a Daily Basis. Bogle Got the Ball Rolling re Those Ideas. But Then Others Came Along and Applied Them in New Ways. Bogle Teaches Others and Then Others Teach Bogle. The Same Thing Will Happen With Shiller As We Permit Discussion of His Ideas at More Places.”

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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:

Below is what Shiller is saying today.

“Spooky valuation story No. 1: The Shiller P/E ratio is now at 30.8, higher than it was right before the 1929 market crash.

The only time it was higher was right before the 2000 dot-com market meltdown, as you can see here. That does sound scary!

Especially when you consider that this valuation metric was invented by a Nobel Prize winner and Yale University professor Robert Shiller, who wrote The New York Times best-seller “Irrational Exuberance.” That’s an impressive list of credentials. He’s smarter than you and me, or at least me anyway, so his P/E ratio formula has to be right, no?

Not so fast. I checked with Shiller, and even he disagrees with this one. Shiller tells me he’s still got money in the U.S. markets, though he has been tilting toward Europe and emerging markets, in part, because they look cheaper. “For the immediate future, I am not that bearish,” says Shiller. “I am not thinking that the U.S. is a disaster.”

Shiller cites two reasons you shouldn’t buy the scare story that bears are concocting from his famous valuation metric. First, as many Shiller P/E commentators like to point out, Shiller says his P/E ratio is not a good predictor of short-term market moves, meaning one or two years. Instead, it’s better as a 10-year predictor. But even here, it’s not forecasting dire news. It’s still predicting gains over the next 10 years, even if they’re modest, says Shiller.”

So, Rob, what gives? Shiller says we shouldn’t buy your scare story. Not only is he not warning “divide your portfolio by two”, he’s still in the market himself. Doesn’t Shiller understand the last 36 years of peer-reviewed research? Doesn’t he understand his own research? If Shiller isn’t on your side, who is?

I don’t see any conflict between what I say and what you quote in that comment, Anonymous.

I certainly believe that you need to divide by two to know the true, lasting value of your stock portfolio. That’s what it means to say that stocks are priced at two times fair value.

But I certainly do not think of myself as a bear. I think of myself as someone who uses the peer-reviewed research as a guide to how to invest in stocks. I don’t see anything bearish or bullish about using peer-reviewed research as a guide.

I certainly agree that most investors should have some money in stocks today. But I certainly do NOT believe that most investors should have the same stock allocation today as they would have at a time when stocks are priced reasonably. If Shiller is saying that investors should go with the same stock allocation at all times, then we do indeed disagree. There’s a tiny bit of a suggestion of that in the words you quote. But I don’t think he says that. My take is that he is dancing around the issue. He doesn’t want to address the issue clearly because he knows that the Buy-and-Holders will go nuts if he does. So he offers some words that cut one way and some words that cut the other way.

I don’t quite agree with the fellow who is saying that Shiller’s words have credibility because he is “smarter than you or me.” Shiller is plenty smart. But Bogle is plenty smart too. If the test is which group has higher I.Q.s, I would feel comfortable with the Buy-and-Holders, there are plenty of smart people on that side of the table. I go with Shiller because he has 36 years of peer-reviewed research supporting him. That’s the biggie for me. The other biggie for me is that what Shiller says is consistent with what common sense tells me — price matters with everything else I buy so I have a hard time ignoring it when I buy stocks. Shiller is plenty smart but I wouldn’t say that that is the sole thing that makes him so persuasive for me.

I don’t like it AT ALL when Shiller says “for the immediate future, I am not that bearish.” Yucko! That one makes my blood run cold. He says this kind of thing all the time. He is saying here that he thinks that he can look at some sort of signal and identify the right time to get out of U.S. stocks. I am with the Buy-and-Holders re this one. I don’t believe that short-term timing works and I find it embarrassing when Shiller indicates that he believes in it. I believe that Shiller’s official position is that short-term timing doesn’t work but I have seen him refer to “indicators” and his confidence in them on many occasions. Nobody’s perfect and this is a case where my take is that Shiller is saying something that is outright foolish. I don’t see it as a super big thing. But I find it more than a little perplexing given how smart he indeed is. It shows once again that smart people get them wrong all the time. Being smart is a plus but it is not enough.

I don’t think that the U.S. is a disaster. I wouldn’t be looking around for undervalued markets. It can make some sense to do some of that. But my personal view is that the U.S. is a well-established market with a great track record. I think you can outsmart yourself trying to look for other markets at times when the U.S. market is insanely overpriced. My inclination would be just to lower your allocation in the U.S. market for a time.

I of course agree that P/E10 does not predict short-term returns. I agree that today’s P/E10 predicts a positive return over 10 years. But it predicts a very low positive return. If you are happy with a very low positive return and you understand that that’s what you are likely to get, a high stock allocation can work for you. But I think it makes more sense to go with a lower stock allocation today and then move to a high stock allocation when prices fall and the 10-year return going forward is much higher. Stocks have been providing a poor (about 2.25 percent) return for 18 years now. Most people cannot go for years and years with such a low return. People invested heavily in stocks have now lost out on close to two decades of compounding. What the f? Most people rely on compounding to meet their goals. Miss out on two decades of compounding and you are not going to make it. I think that the likely 10-year return at today’s P/E10 level is too low to be acceptable for any more than a small percentage of one’s portfolio.

I don’t have any “Scare story.” I have a research-based story. I think we should permit honest posting re the last 36 years of peer-reviewed research at every site on the internet. I see it as a win/win/win/win/win.

I do think that to some extent it would be fair to say that Shiller does not appreciate the implications of his own research. I don’t think there is anyone who ever lived who was able to appreciate all the implications of his own ideas. People learn from discussions with other humans. When we open every site on the internet to honest discussion of Shiller’s research, Shiller will hear lots of things that he has not heard until now. That will help him come to a better understanding of the far-reaching implications of his work. That will be a very good thing.

I don’t think that Bogle understands all the implications of his many powerful insights either. One of the things that I love about the Bogleheads Forum is that implications of Bogle’s ideas are being teased out there on a daily basis. I would bet $10 that, if you asked Bogle if he has ever read anything at that board that he did not think up himself, he would say “yes.” That’s super groovy, so far as I am concerned. Bogle got the ball rolling re those ideas. But then others came along and applied them in new and interesting and exciting ways. A win/win/win/win/win. Bogle teaches others and then others teach Bogle. I think that’s great. And I think that the same thing will happen with Shiller as we permit discussion of his powerful ideas at more places.

Shiller is on my side. So is Bogle. So is every American citizen. We acted as a people to make financial fraud a felony in the United States. I don’t know how anyone could be more on my side than to do that. If you asked Mel Lindauer or John Greanry on May 12, 2002, whether they thought that there is a place in investing discussions for death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs, they would have said that there is no place for such garbage. They changed their minds under pressure. Humans do not always act rationally under pressure. But there is no problem here of the entire country not being united in opposition to the tactics that we have seen advanced by the Lindauerheads and the Greaney Goons over the past 15 years. We are entirely united. I mean, come on.

Everybody is on my side. But this has been a difficult transition. It hurts people to hear that they need to divide their portfolio balances to know the true and lasting value of their stock holdings. When people are hurt, they forget their true beliefs. This is something that happens with the humans all the time. I am 100 percent certain that we will all get things back on the right track in the days following the next price crash. Once there is no more need to divide by two, the marketing edge that Buy-and-Hold possesses today will disappear.

Or so the greatly flawed brain of Rob Bennett believes, you know?

I could be wrong, Anonymous. That’s the wild card here.

I naturally wish you the best of luck in all your future life endeavors.

Rob

“When We Have the Reassurance of Knowing That Lots of Other Humans Are Having the Same Thoughts, THEN We Feel Confident Enough in What Our Reasoning Capabilities Tell Us to Make Decisions Based on Logic.”

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

If you really had a strong case, someone would take it on contingency.

I called about six places and I did not find anyone willing to take it on contingency. There was one fellow who came close. He was a sole practitioner. He loves the case. He wanted to take it. But when he looked closely, he saw how big it was and felt that he would need to put all his waking hours into the case. So his entire career would be riding on this one case. He ended up taking a pass.

It’s possible that, if I just made calls 10 hours a day, that I would eventually find someone. I tend to think that I would. But then, is that the way I want to go about finding a lawyer? I would prefer to be in circumstances in which the lawyers are coming to me and begging me to take them. I have a funny feeling that that will be the circumstance that I will be in in the days following the next price crash. So my inclination is to be a bit patient.

I’ve tried lots of things. I tried bringing legal cases. I tried getting Guest Blog Entries posted. I tried going to FinCon meetings. I tried contacting political blogs. And on and on and on. It seems to me that it always comes down to the same thing. People like to see the validation that comes from having lots of others join in a cause. Think of the sorts of things that they say in advertisements and in television commercials, when they are trying to persuade you of something. They say: “As seen on TV!” Or “four out of five doctors recommend!” Or “50 millions Elvis fans can’t be wrong!” We humans don’t like to trust our own judgment. We like to hear that other humans have come to similar conclusions. When we have the reassurance of knowing that lots of other humans are having the same thoughts, THEN we feel confident enough in what our reasoning capabilities tell us to make decisions based on logic.

That’s the story of bull markets, Anonymous. If you look at the historical record, you see that there has never been a bull market that did a lick of good for a single investor. We have had numerous bull markets in the history of our stock market. But there has never yet been one that produced lasting gains. We ALWAYS give the money back in the bear market that follows. Every single dollar that has ever been earned from overvaluation has been lost through the sub-par returns experienced in the years that followed. So bull markets are just a big waste of time and energy. They hurt us because they make effective financial planning impossible; how can anyone plan his or her financial future when he doesn’t even know how much wealth he possesses? Bull markets are a curse.

Given what a curse they are and given how easy it is to determine that they are a curse, it ought to be pretty darn easy to do away with bull markets, right? Just tell people. People want to act in their self-interests. So, when you show them how much they are hurting themselves, they are going to do what it takes to bring the bull market to an end. That all follows.

But it obviously hasn’t played out that way for the past 15 years, right? Learning what the last 36 years of peer-reviewed research tells us about how stock investing works in the real world cannot possibly hurt a soul. But we sure do see lots of opposition to the idea, do we not? What’s that about?

The opposition is rooted in the conflict that we all face between accepting reality and living in fantasy worlds. It is not true that we humans always act in our self-interest. It makes logical sense to believe that we would. But it is just not true that we actually do that. Alcoholics do not act in their self-interest. Gambling addicts do not act in their self-interest. Smokers do not act in their self-interest. The same humans that smoke and drink and gamble are the ones who buy stocks. It is not reasonable to believe that these creatures are going to amazingly become capable of acting rationally when they buy stocks. It takes great effort for humans to act in their self-interest. They are capable of it when given lots of help. But it does not at all come naturally to them. It is very much against the nature of humans to invest rationally.

Lawyers are humans too. To win their cases, to build strong careers, to make lots of money, they need to please their fellow humans. They all know this on some level of consciousness. They might not ever give voice to the reality. They don’t articulate it in speeches or write it down in books. But they know that part of the job is making their fellow humans happy and they are able to pick up if they possess even a tiny bit of intelligence — and most lawyers possess at least a tiny bit of intelligence — that most of the humans very, very, very much do not want to be told that they need to divide their portfolio balances by two to know how much money they have saved for retirement.

That’s the story here. When I tell people that they need to divide their portfolio balances in two, I am telling them something that they very, very, very much do not want to hear. People want to be able to retire sooner, not later. They want to hear that their portfolio balances are higher than what they appear to be, not smaller than they appear to be. The Buy-and-Holders don’t tell them that the balances are higher; perhaps we should thank God for small favors! But at least they tell them that they are not smaller. I tell them that they are smaller, a lot smaller. So I am not the most popular guy in town at this particular point in time.

Lawyers want to be popular. For the same reason that investment advisers want to be popular. And for the same reason that bloggers want to be popular. And for the same reason that academic researchers want to be popular. And for the same reason that book authors want to be popular. And so on and so on.

I basically have a sign hanging on me that says “I do not want to be popular, I am the fellow telling you that you need to divide your portfolio balance number by two to know the amount of true, lasting wealth that you have working for you.” So I am not popular at the moment. But I think that there’s great potential in the idea of telling people the truth about how stock investing works given the 36 years of peer-reviewed research we have available to us today that teaches us the realities. So I am going to continue going with that.

I might be able to find a lawyer who would take the case today. It would be a lot of work to find him or her. It would have to be someone who is an independent thinker, someone who is willing to take his or her chances with a jury that is probably going to come to the case with a bias against the fellow who is saying that you need to divide your portfolio balance number by two to know the true, lasting value of your accumulated wealth.

Is that going to change following the crash? I think it is going to change. I think that I will have a much better chance of signing up with a top-flight lawyer following the crash than I have today. So my inclination is to wait a bit on the legal side just as I am waiting a bit on publishing the book and on getting written up on the front page of the New York Times and on being the keynote speaker at FinCon and on all the rest. Everything depends on gaining some popularity and the popularity issues changes dramatically when stock prices drop by 50 percent or more.

Does all of that not make at least a little bit of sense? It seems to me to be the best way to proceed, given the realities that apply today.

Rob