A Rich Life

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

“Get Rich Quick/Buy-and-Hold Strategies Are Addictive. All of the Problems That We See Associated With Addictions Like Alcoholism or Drug Abuse or Gambling or Whatever Are Present in the Case of Buy-and-Hold. And Those Problems Don’t Just Affect Those Who Suffer From the Disease; They Also Affect Those Who Live Among Those Suffering From the Disease.”

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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:

Those weeks were over 3 months ago. Has the second item been sent out?

Yes, the second item went out. And other items went out. But I have not gotten one item out per week to meet the goal that I set for myself in that earlier comment. Most of those communications will show up as blog entries in future days. So you Goons (and Normals too!) will be able to see who I contacted and what I said to them and how they responded in the event that there was any response.

I wrote about this in a long comment that I put up here about a week ago and that will serve as the text for a future blog entry. I am referring to the one where I explained that I am now attending Al-Anon meetings to develop more effective strategies for dealing with the “disease” of Buy-and-Hold. Get Rich Quick/Buy-and-Hold strategies are addictive. All of the problems that we see associated with addictions like alcoholism or drug abuse or gambling or whatever are present in the case of Buy-and-Hold. And those problems don’t just affect those who suffer from the disease; they also affect those who live among those suffering from the disease. This is why we have gone 36 years since Shiller published his peer-reviewed research showing that there is precisely zero chance that a Buy-and-Hold “strategy” could ever work for a single long-term investor without accepting the reality that we need to permit honest posting re that research. The pull behind Buy-and-Hold is not anything rational — it is pure emotion. So Buy-and-Holders cannot be reached through appeals to reason alone.

It may be that we will as a society become able to overcome our addiction to Get Rich Quick thinking only by first hitting bottom — that is, by experiencing the next price crash, which will bring on a deepening of the economic crisis that began in late 2008. The job today for those of us who love our country (and who of course love our Buy-and-Hold friends we well!) is to learn how to deal with addicts in a loving and yet honest way. I engage in work in that regard on a daily basis. Sometimes it is by attending meetings. Sometimes it is by reading literature. Sometimes it is by going on a walk and reflecting on my interactions with you Goons and on how Normals respond to those interactions.

I am not on a once-per-week contact schedule today. I believe that I will be there within a few months. After I achieve a once-per-week schedule, I expect to up the goal to a once-per-day schedule. It will happen. I would like to give you a target date. But I have learned from hard experience that it is not always possible for me to meet my target dates. We are dealing with tough emotional stuff. And no good purpose is served by me being hard on myself when I fail to meet a target. So I am going to resist the inclination to offer a new target date and just say that I continue to work on a daily basis on the emotional work that I believe will down the road a piece place me in circumstances where I will be contacting the owner of one web site (some investing oriented, some not) each day of the year. This is a numbers gam,. In time those efforts will pay off big time. I am 100 percent sure.

Wish me luck!

Rob

Valuation-Informed Indexing #348: Buy-and-Hold Possesses Great Intuitive Appeal

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I’ve posted Entry #348 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Possesses Great Intuitive Appeal.

Juicy Excerpt:  A group of my critics posts at my blog on an almost daily basis, trying to trip me up or harass me or whatever. One time one of them asked a question that really did give me pause. This fellow pointed out that I say that at a time when stocks are priced at two times fair value investors need to divide their portfolio value by two to know the true value of their portfolios. Then he asked whether I thought that he could receive the full amount of the stated value of his portfolio if he converted his stock shares to cash on that day.

The answer of course is that he could indeed obtain the full stated value of the shares. The mutual fund company that would be engaging in the transaction is run by smart people. Why would those smart people be willing to turn over two times the real value of the portfolio in exchange for those shares? That doesn’t make sense.

Valuation-Informed Indexing doesn’t make sense. That’s why it hasn’t caught on. Buy-and-Hold makes sense. That’s why it is the dominant strategy.

“A Little Over a Year Ago I Began Attending Meetings of the Al Anon 12-Step Program. You May Recall That I Used to Have a Section of the Site Called “Stock Drunk.” Get Rich Quick Investing Is an Addiction. The Real Problem That We Are Facing Is That Millions of Middle-Class Americans Are Today Addicted to Buy-and-Hold.”

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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:

Rob, can you give us a sense of how many hours per week you work on investing matters? Any new books in the works?

I’ve talked about the book before. I have a draft of a book about investing (“Investing for Humans: How to Get What Works on Paper to Work in Real Life”) completed. I will finish the book when the story it tells is complete. That is when the Ban on Honest Posting is lifted at every site on the internet and we all feel free to say exactly what we believe about how stock investing works and when we all are enjoying an amazing learning experience as we integrate what we have learned from the last 36 years of peer-reviewed research into what we knew about stock investing in the years before 1981 (at that time it appeared that Buy-and-Hold might well be the answer). My belief today is that we probably will not see the big turn until we experience the next price crash. I hope it comes sooner. I hope it comes before the close of business today. But given what I have seen during the first 15 years of our discussions about whether or not to permit honest posting re the last 36 years of peer-reviewed research, my expectation today is that we are not going to see big moves forward until we experience another price crash and people get worried enough about the future of our country that their fears about what will happen to them if they stand up to you Goons become inconsequential in comparison.

In haven’t counted the number of hours that I devote to investing stuff each week. It’s not anything close to what I would like it to be. I think that I should be putting in a minimum of 50 hours. I would estimate that perhaps I put in 20 writing the column and responding to your Goon comments and handling a few similar matters, matters that are time-sensitive and that cannot be put off. So, on an objective basis, my record has been bad in recent years.

It was not at all bad in earlier years. Every human being who has tried to do honest work in this field over the past 36 years had been subjected to a hurricane of hate if he or she made efforts to have his or her work brought before the eyes of a good cross-section of the American people. We were talking just yesterday morning about how this is so of Robert Shiller himself. Shiller has done work so important that he has been awarded a Nobel prize for it. But Shiller shies away from addressing the how-to questions that follow from his “revolutionary” (Shiller’s word) findings of 1981. I don’t doubt that Shiller is putting in more hours than me. But he is avoiding the most important work. The most important work is spreading the word far and wide. We need to have every single human being alive today feeling free to post honestly re these matters so that we all benefit from input coming from thousands and thousands of different perspectives. Shiller is not helping with that when he draws back from stating in clear and firm and simple and bold terms to what extent investors should be changing their stock allocations in response to big valuation shifts. That’s the work that I do. It is very, very, very, very, very hard work.

It’s not hard physically. It’s hard emotionally. You Goons know the story. Your knowledge of what keeps people from doing this hard but important work comes through in all your abusive comments. The thing that has kept Buy-and-Hold alive for 36 years since the peer-reviewed research showed that there is precisely zero chance that it could ever work for a single long-term investor is the fear that as a society we have put in people who dare to “cross” all those who believe in the Buy-and-Hold fantasies by pointing out the realities as revealed by the peer-reviewed research. People don’t want to see their loved ones placed in danger of attacks of physical violence by you Goons. People don’t want to see their careers destroyed. People don’t want to see their reputations destroyed. People do not want to hear words of hate directed at them. People do not want to be removed from communities where they have established friendships with many people. People do not want to feel isolated from their fellow humans. People do not want to bring “bad news” to friends of theirs whose entire lives are riding on a belief in the accuracy of the Buy-and-Hold claims.

This phenomenon — the fear that we Normals feel over offending our Goon friends (please remember that ALL humans have goonishness inside them — it is our inner Goon that leaves us vulnerable to Get Rich Quick schemes in the first place) is the core of our story, Anonymous. You Goons are cartoon figures. You take abusiveness to places that it has never been taken before. The vast majority of the population would never in a million years engage in the tactics that you engage in on a daily basis. So how is it that you Goons always prevail in getting honest posting re the peer-reviewed research suppressed? You prevail because the Normals who are not personally willing to engage in Goon behavior do have enough goonishness in them to TOLERATE Goon behavior engaged in by others in what they see as a good cause (the suppression of effective challenges to Buy-and-Hold). If we took a vote at any of the boards as to whether death threats should be permitted, you Goons would lose by a vote of 90 percent to 10 percent. But you always win the vote that counts. When death threats appear, the Normals keep quiet about it (usually after filing an objection or two that goes nowhere). As a people, our official position is that your tactics are unacceptable. But the practical reality is that an exception applies in the case of Buy-and-Hold. Get Rich Quick strategies are so dear to us that we tolerate behavior that we would otherwise not tolerate to see that the promotion of them can continue.

You noted the other day that you have never seen a case like mine. There is no other case like mine. I have touched the Third Rail of Personal Finance. You can do a lot of things in this world but you cannot ever, ever, ever make an effective case in public that Buy-and-Hold is a big pile of smelly garbage that was 100 percent discredited by the peer-reviewed research in this field 36 years ago. That truth must remain unspoken. The fact that the Buy-and-Hold retirement studies get the numbers wildly wrong must remain unsaid. I have broken a social Taboo. I didn’t know that I was doing it. I had no idea on the morning of May 13, 2002, what lay ahead for me and for our communities. I know today. I have violated a Social Taboo that MUST be violated if our economic system is to survive and I have paid the price for doing so.

It’s a big price that must be paid and that I have indeed paid. It hurts to be separated from one’s friends, to be isolated and humiliated and to have none of one’s peers stand up and say “Enough!” That’s all well documented at the site. What is not always documented as well as we might like it to be is that pain that follows from the employment of the tactics that you Goons make use of to suppress the discussions that as a society we very much need to have if out economic system is to survive. It would be good if we could document that pain. Then I could give you clearer answers when you ask whether Shiller or Pfau or Bogle or whoever will be going to prison along with you Goons. Most of us work very hard to do honest work and find that things get to a point where we just cannot take it any longer and then we start pulling back and advancing half truths and word games and all the other garbage that we see appear before our eyes so often when the subject of what the last 36 years of peer-reviewed research tells us about Buy-and-Hold comes up.

The vast majority of people who work in this field are obviously good people, they want to help others with the work they do. They have found that as a practical reality this is impossible today. And so they have retreated into silence on the most important questions (such as the true cause of our economic crisis). And of course each time someone retreats into silence, it makes things that much harder for those who are struggling not to retreat into silence, to continue doing the good, honest work that must be done if as a people we are to survive this crisis. Each time one more good person elects to self-censor, the trap gets tighter for every one of us and the damage that we are doing to our economic system and even to our political system grows even greater.

I have stood firm. Former than anyone else alive. I am the world’s #1 expert on the abusive tactics employed by Buy-and-Holders to block effective, research-based challenges to their “strategy.” And I have taken the hits that follow when anyone elects to go against the herd and say the things that must be said if as a society we are to expose this massive act of financial fraud. I have taken a lot of hits. It hurts.

I offer this preface to set up my next point. I said above that I put in perhaps 20 hours of work each week on these matters. It embarrasses me to say that. I should certainly be putting in 40 hours. Given the importance of the matter, it should shame me to put in less than 60. To put in only 20 hours of work re these matters is to put forward a feeble amount of effort. I should feel ashamed to say that and I do feel ashamed to say that.

Except —

Except for the fact that I have done more than anyone else. I have done more than Shiller. I have done more than Bogle. I have done more than Pfau. These are great men. If I have done more than these three great men (and thousands of others), is shame really appropriate? That’s a question that I ponder a lot.

I think that the answer is that emotional work is work too. When I say that I only put in 20 hours per week, I am only counting the time that I am typing on a computer keyboard composing a column or responding to a Goon comment or whatever. That’s not the only work that I do. I think about this stuff every waking moment. I wake up very early in the morning many days because my brain is telling me that I need to think about some aspect of the question some more. If you count all that time as time that I am grappling with the emotional questions that are at the core of our economic crisis, then I am putting in a lot more than 20 hours per week. It’s more like 60 hours or perhaps 120 hours. It’s a lot of work that I put in if you count the emotional side of the story. And the emotional side of the story is of course the side that we have ignored for so long and that has thus gotten us all in so much trouble. So ignoring the emotional side of the story is not something that we should be doing.

I have taken the lead role on the emotional side. I am proud of that. For years, I hardly let all the attacks slow me down too much. I used to put in full 40- and 50-hour weeks. That stopped after Wade Pfau flipped to the Goon side. That one was hard to take because it was so obvious an act of outrageous financial fraud. After that, my feelings of isolation grew, my hopes that we could avoid the next price crash diminished and my ability to put in a full work day disappeared. So today I do the 20-hour thing and spend the remaining hours trying to figure out what more I can do to turn this situation in a more positive direction.

A little over a year ago I began attending meetings of the Al Anon 12-step program. I attend two meetings each week. You may recall that I used to have a section of the site called “Stock Drunk.” Get Rich Quick investing is an addiction. The real problem that we are facing is that millions of middle-class Americans are today addicted to Buy-and-Hold. The reason why we do not see discussions of the last 36 years of peer-reviewed research at every investing discussion board and blog on the internet is that addicts do not take kindly to hearing their addictions questioned. In extreme cases (and a P/E10 level of 44 is as extreme as it gets), they become violent when their addictions are questioned. Al Anon is not for alcoholics, it is for family members affected by the disease of alcoholism. I attend these meetings to gain a deeper appreciation of the pain of the addict with the aim of developing skills to help me get over the feelings of isolation that hold back all of us seeking to do good work in this field.

I am seeking to “recover” from the feelings of isolation that keep me from putting in 60-hour weeks not just on the emotional side but on the physical side as well. I have made progress in the 14 months that I have been attending meetings. My goal for this year is to get to a point where I am sending out one e-mail each day telling someone who does not know about this story what is really going on. I believe that this is a numbers game. To get someone to visit the site and learn the entire story, I might need to contact 1,000 people with an e-mail. It’s hard to do because being rejected 999 times is an emotionally painful thing to experience. But that is the way forward. I need to develop a tough enough armor that I don’t care about the 999 rejections but only about the one e-mail that is going to achieve the result intended for all of them, the one that will produce the buzz on the internet that will get this story written up on the front page of the New York Times and bring this economic crisis (this Buy-and-Hold crisis!) to a full and complete stop.

So I am working it. I don’t count the time that I spend in meetings or preparing for meetings in the 20-hour estimate. But I expect that it is those hours that are ultimately going to be the difference makers. We are as a nation Stock Drunk. We are addicted to Get Rich Quick investing strategies. We are not bad people. We are suffering from a DISEASE. Those of us who care about our fellow humans naturally want to help all of our friends and neighbors and co-workers and fellow community members overcome this disease. To do so, we must gain the ability to speak to them about the very serious dangers of Buy-and-Hold. To gain the ability to speak, we must overcome the feelings of isolation and shame that you Goons have instilled in us with your abusive tactics.

I make progress re these efforts every day. I am not where I want to be. But I am working this harder than any other human being alive. I tell myself that that is the most that I can expect of myself and that there is no cause here for me to beat myself up just because I don’t like it that the direct and simple and concise answer to your question is “about 20 hours per week.” I am putting in the most time that I am today able to put in. I have good reason to believe that that number will be increasing in the days to come. I believe that we will all find our way together to the other side of the Big Black Mountain and that the day will come when honest posting on safe withdrawal rates and scores of other critically important investment-related topics will be permitted (and encouraged!) at every investing site on the internet.

I hope that helps a small bit, my long-time Goon friend.

Rob

Buy-and-Hold Goon to Rob: If PE10 Is Everything, Why Didn’t Its Father Mention It in That Article? Why Is He Now Giving the Exact Same Advice as Buffett, Bogle, and All the Bogleheads? It’s Almost As If He Was Embarrassed by PE10. Face It, Rob. Shiller Is a Buy-and-Holder. The War Is Over.”

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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:

“We don’t feel a need to beat the market, just to match it.”

You could have done that 20 years ago by buying an index fund, and saved yourself several million words of typing.

If PE10 is everything, why didn’t its father mention it in that article? Why is he now giving the exact same advice as Buffett, Bogle, and all the Bogleheads? It’s almost as if he was embarrassed by PE1o.

Face it Rob. Shiller is a buy-and-holder. The war is over.

I couldn’t do that 20 years ago because stocks were not available for sale at a reasonable price. I would prefer that stocks ALWAYS be available at reasonable prices. If we opened up the internet to honest posting on the last 36 years of peer-reviewed research, we would be there. But we do not today live in a world where honest posting on the last 36 years of peer-reviewed research is widely tolerated. The reality is what it is whether I approve of it or not.

Shiller should have mentioned P/E10 in the article. I am 100 percent with you re that one, Anonymous. All of the points he makes are legitimate. There is nothing wrong with the words that he put forward. But it is weird for him to put those accurate words forward without also including a discussion of the valuation-related aspects of the question. I think you are right on re that observation.

I cannot see into his mind. I can speculate as to what is going on. But I cannot say with certainty.

I don’t know if I would go quite so far as to say that Shiller is giving the exact same advice as Bogle. But I agree with you that what he is saying sounds close to what Bogle is saying. He is certainly not doing much to highlight his differences with Bogle. I can see how someone who read only that article could think he has no major differences with Bogle. I have lots in common with Bogle but I don’t think that anyone would say that about me. I highlight the differences, Shiller does not. That’s a perfectly fair assessment, in my view.

I don’t think that Shiller is embarrassed by P/E10. I think that he doesn’t want to be slammed and he has learned from bitter experience over the years that being too clear in one’s statements re what the last 36 years of peer-reviewed research shows leads to one being slammed pretty darn hard. I think your statement that “it’s almost as if he was embarrassed by P/E10” is a fair one. The behavior is exceedingly odd. I don’t think that deep down he really is embarrassed of his life’s work. But I think it is fair to say that at times he gives that impression. It’s a strange way for someone who truly is the creator of the Valuation-Informed Indexing concept to spread the word re his “revolutionary” (his word) research findings. If it is all so revolutionary, why doesn’t he tell us more about the revolutionary how-to aspects of the question from his perspective?

I don’t think that Shiller is a Buy-and-Holder and I don’t think that the war is over. I obviously believe something quite to the contrary. But I cannot say that I fault you too much for saying this. I have won every battle we have fought on the content side and you have won every battle that we have fought on the process side. It’s a pretty darn big victory for you to be able to point to Shiller statements of this sort while also pointing out the absence of Shiller statements saying that what Bogle is saying is wrong and dangerous. If I were you, I would be pointing this out. I don’t quite agree with you. But I don’t think you are engaging in much distortion re this particular point.

If you really cared about your own long-term investing success, you would want to pin both Shiller and Bogle down to a far greater extent than they have allowed themselves to be pinned down thus far. That’s my comeback. Shiller is offering you a certain measure of happy talk. Are you going to let him get away with it? If you were thinking clearly, you would be holding his feet to the fire. You don’t do that. That tells me that you are worried that, if you tried to hold his feet to the fire, you would hear things that you very much do not want to hear.

So your position is ultimately a weak one. You have a temporary strength that you can use to get people like Shiller and Bogle to issue public statements that keep the fantasy going. Okay. But what do you do for an encore, you know? If the last 36 years of peer-reviewed research points to something real, prices are going to collapse and a lot of people are going to be angry about what happened to their retirement portfolios. People are going to be asking hard questions in those days and looking for real answers to them. Happy talk is not going to close the sale in those days. I have a mountain of real answers to offer them. I got off the happy talk road a long time ago.

It all comes down to whether people develop a desire to know the realities or not. If they do, I win. If they don’t, you win. That’s the bottom line, The desire is not intense enough today to overcome your abusiveness. But what about tomorrow? Will a price crash bring about a change? I believe that it will. I cannot see into the future. But I don’t feel comfortable being one more person generating a lot of happy talk. So I guess that I will just continue to walk this path that I have been on for the past 15 years.

I believe that Shiller will be singing a clearer and bolder tune in the days following the next price crash. But I cannot prove it. We will have to wait to see how things play out.

A few years back I talked these matters over with my priest. I supplied him with a summation of events and he asked me: “Have you considered contacting Shiller and asking for his help?” It’s a fair question, no? That’s pretty much the same point that you are getting at here, no? Shiller is the guy with the Nobel prize. One would think that he would be doing everything in his power to spread the word re the last 36 years of peer-reviewed research. But the reality is that he has never said “The Buy-and-Hold retirement studies get the numbers wildly wrong” or “Bogle’s investing advice is dangerous” or “It was the promotion of Buy-and-Hold strategies for decades after the peer-reviewed research showed that there is precisely zero chance that they could ever work in the real world that served as the primary cause of the economic crisis.” It hurts the cause that that is so.

I obviously would like to hear Shiller say all those things. What do you want me to do about it? I cannot force the man to say those things any more than I can force Bogle to say the things that I would like to hear Bogle say. There would be no Valuation-Informed Indexing without the contributions of Shiller and Bogle. So I obviously need to be supremely grateful to both of them. And I just have to accept that neither of them sees fit today to offer all the help that I would like to see them both offer. It’s not like I can do anything about it anyway, you know?

It wouldn’t surprise me to see Shiller publish a sequel to his Irrational Exuberance book in the days following the next price crash in which he reports on all the how-to implications of his research that he has held back commenting on through this day. I have no inside knowledge. But it would not surprise me to learn that he has already written the sequel and is just waiting for a time to publish it when he believes that the follow-up work will generate a good reception.

I want to read the sequel now, you know? I don’t want to wait. When it comes to learning what I need to do to invest my retirement money effectively, I am an impatient sort of fellow!

Rob

“Buy-and-Holders CLAIM That Their Strategy Is Not Aiming to Beat the Market. But This Claim Is Fallacious. The P/E10 Value Is Produced By the Market. The Buy-and-Holders Do Not Take the P/E10 Value Into Consideration in Any of Their Calculations. The Buy-and-Holders IGNORE a Key Component of the Market’s Message.”

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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:

“match the overall performance of the market and not beat it”

is the exact definition of buy-and-hold. It is the exact opposite of all market timing strategies.

As you well know.

No. Buy-and-Holders CLAIM that their strategy is not aiming to beat the market. That’s why I once found appeal in Buy-and-Hold. That’s why I became a Buy-and-Holder myself.

But this claim is fallacious. The P/E10 value is produced by the market. The Buy-and-Holders do not take the P/E10 value into consideration in any of their calculations. If they did, they would divide their portfolio values by two when prices are where they are today. The Buy-and-Holders IGNORE a key component of the market’s message.

If in Year One, the P/E10 is at fair value, all investors know the true value of their portfolios and are able to invest effectively and rationally. Now, say that prices are pushed up to two times fair value in Year Two. The Valuation-Informed Indexers continue to invest effectively and rationally. Their portfolio statements provide a number two times what they provided one year earlier. But the P/E10 value tells them to divide by two. So they are still using accurate numbers.

The Buy-and-Holders only listen to one part of what the market is saying. They listen to the price increase. They change all of their plans because of the phony change in that number. But they tune out the part of the market’s message where the market says that they need to divide by two to know the true value of their portfolios. They do this so that they can take a false comfort in the phony price message. They are trying to beat the market by using phony numbers to fool themselves re where they stand.

Why are the Buy-and-Holders not happy with a return of 6.5 percent real if they are not trying to beat the market? If the nominal market price goes up 30 percent in one year, the real gain is 6.5 percent real and the rest is cotton-candy nothingness, right? Why do the Buy-and-Holders count the cotton-candy nothingness as if it were real? They want to beat the market and refusing to do the calculations properly permits them to do so (at least in their own minds).

This is why we have crashes, Anonymous. There is no economic explanation for crashes. Crashes are emotional events. We have crashes when Buy-and-Holders realize that their phony numbers are not rooted in anything real, that they are the product of exercises in self-deception. The stock crash phenomenon is similar to what you see when a spouse who has been cheated on for years finally gets a clue about realities that his or her friends have known about for many years. He or she always “knew” what was going on but lied to himself or herself until the point when it became impossible to maintain the fantasy belief. At that point, the illusion “crashes.”

If you are not trying to beat the market, why do you refuse to adjust your portfolio value for the amount of overvaluation that applies today? Why do you not divide by two? The market produced that P/E10 value. Do you think you know better than the market what the P/E10 value should be?

We are as a people working through a transition in which we become self-aware of our stock investing illusions and thereby become able to rein them in so that they cannot do as much damage to us. That’s why Shiller’s 1981 findings were so “revolutionary” (his word). That’s why the man was awarded a Nobel prize for his work.

P/E10 is produced by the market. It is not something outside the market. Anyone who ignores P/E10 when doing stock-related calculations cannot claim to accept the market. Buy-and-Holders ignore an important part of what the market has produced.

Buy-and-Holders count the numbers that support their illusions and then refuse to count the ones that do not. That’s trying to beat the market, not acceptance of the market’s verdict re how much money you have to retire on. Buy-and-Hold is an exercise in self-delusion for so long as it ignores the effect of valuations on long-term returns. No Buy-and-Holder has ever been able to explain why he ignores valuations. He does so because it is by ignoring valuations that he is able to delude himself into believing that he has done the impossible, he has beaten the market in a convincing way, he has done what has never been done before. Yeah, sure he has.

All investors who claim to be able to beat the market have some rationalization that they put forward as their “proof” that they were the first in history to develop this amazing power. The Buy-and-Holders are no different than any of the others in this respect. Buy-and-Hold just happens to be the Get Rich Quick strategy that is most popular at this point in time (because it has been pushed so relentlessly by the Wall Street Con Men, who just happen by sheer coincidence to have become multi-millionaires by doing so).

Valuation-Informed Indexers ACCEPT that the economic realities permit an annual return of 6.5 percent real, nothing more and nothing less. We don’t have to delude ourselves that there are years when our portfolio values increase by 20 percent or 30 percent or 40 percent because we know that the 6.5 percent real return is enough to finance our retirements JUST FINE. We don’t feel a need to beat the market, just to match it. And we know that accepting the delusions that the Buy-and-Holders accept to permit us to fool ourselves into thinking that we are beating the market makes effective financial planning impossible and that we are far better off just not going there.

If you are not trying to beat the market, why do discussions of the last 36 years of peer-reviewed research cause you such intense emotional pain, Anonymous? All of your abusive posting is rooted in your intense emotional need to keep the illusion that you and you alone have figured out the way to beat the market. I am seeking to disabuse you of this foolish and dangerous illusion by pointing you to the 36 years of peer-reviewed research showing that a belief that valuations do not affect long-term returns is a fantasy.

I don’t need to beat the market for my plan to work. A 6.5 percent annual real return works JUST FINE for me.

Rob

“It’s Not Research-Based Strategies That Are Seeking to Beat the Market. It Is Get Rich Quick Strategies That Are Seeking to Beat the Market.”

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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 there was good reason why Shiller was awarded a Nobel prize.”

Shiller is back in the NY Times:https://www.nytimes.com/2017/06/23/business/in-long-run-theres-no-such-thing-as-an-einstein-investor.html

Juicy excerpts:

“without deep expertise, it makes little sense to veer much from a simple market portfolio — one that seeks to match the overall performance of the market, and not beat it.”

“No single strategy is likely to beat the market forever.”

VII is a single strategy. You say it always always ALWAYS beats the market. Shiller says you’re wrong.

That article is 100 percent in tune with Valuation-Informed Indexing, Anonymous.

The point of the article — that you can’t beat the market — is one that I associate much more with Bogle than with Shiller. This is why I list these two men as the two top investment advisers of all time. The two most important principles of successful long-term investing are: (1) you can’t beat the market; and (2) valuations always matter. Bogle has done the most to promote the first point and Shiller has done the most to promote the second point. Combine the two points and you have Valuation-Informed Indexing, the first true research-backed model for understanding how stock investing works.

It’s not the Valuation-Informed Indexers who are trying to beat the market. That’s the Buy-and-Holders. Valuations have been affecting long-term returns for 145 years now. Shiller did not publish his “revolutionary” (his word) peer-reviewed research showing this until 1981. But the data used in that research stretched as far back as we have good records for U.S. stock returns. The reality that Shiller was pointing to has been a reality since the first stock market was opened for business. Valuations have ALWAYS affected long-term stock returns.

The Buy-and-Holders are seeking to beat the market by pretending that through some magical, mystical process it is all going to turn out differently for them than it has turned out for every investor who ever walked the planet before them. Is there a one in 250 billion chance that it is all going to turn out different this time? Sure, there is always a one in 250 billion chance. But risking your life savings on a one in 250 billion chance is not investing, it is gambling. I mean, come on.

I agree that “no single strategy is likely to beat the market forever.” I believe that today’s Valuation-Informed Indexers will beat today’s Buy-and-Holders. That’s because the Ban on Honest Posting has created an artificial environment. When the Buy-and-Holders became so emotional about their “strategy,” they denied themselves the information they need to act in their own best interests in the investing realm. Naturally, there is a financial penalty associated with that. Markets have always imposed financial penalties on irrational behavior.

But that behavior will not survive the next price crash. As the penalty is imposed and the Buy-and-Holders experience in real life the pain that is only in their imaginations today and that drives their abusive behavior, they will work up the courage to have the discussions about the last 36 years of peer-reviewed research that they need to have to come to understand what they could have come to understand 36 years ago. Then they will be able to accept the average annual market return of 6.5 percent real that the Valuation-Informed Indexers already accept today.

The Buy-and-Holders are not today emotionally capable of accepting the market return. But there is a mountain of evidence that they would be THRILLED to accept the market return if only they could have the discussions they need to have to make the transition from what we all knew about how stock investing works in 1980 and what those of us who can bear to look at the last 36 years of peer-reviewed research are happy to know today. We are working our way through a process of learning and growth, Anonymous. Accepting the market does not mean the same thing today as it meant in 1980. Today part of what it means to accept the market (rather than to try to beat it) is to accept that valuations affect long-term returns.

Shiller says: “It makes little sense to veer much from a simple market portfolio — one that seeks to match the overall performance of the market and not beat it.” You suggest that you agree with that statement. If you agree, why do you not divide the number on your portfolio statement by two to determine the value of your retirement portfolio today? The P/E10 value is at two times fair value, is it not? Does it not follow that you need to divide by two to identify the true value of your portfolio? The market produced that P/E10 value. You are rejecting what the market has done, living in a fantasy world where the market has done something different than what it has done. You are not accepting the market, but trying to beat it.

When you brag about how much money you have made with your investing strategy, is that not evidence that you are trying to beat the market? I don’t do that. I calculate the return that I have made and I accept it. I am not tied up in it emotionally. I don’t have to brag because it is not important to my self-esteem for me to believe that I am smarter than everyone else when it comes to investing. I am just using the stock market as a tool to provide for my retirement, it’s not personal. For you it is very personal. I get the feeling from you that, if your investing strategy did not make you feel smarter than everyone else, it wouldn’t be worth following. I get the feeling from you that 90 percent of the game is these feelings of superiority that you get from following a Buy-and-Hold strategy and that the actual returns you receive are a relatively small matter. I don’t think that’s healthy. I just want to do what I need to do to finance my retirement and then turn my attention to more interesting matters.

The question here is: “What is a ‘simple market portfolio’?” Is a simple market portfolio one where the risk profile jumps wildly up and down over time? Or is a simple market portfolio one in which the risk profile remains constant, one in which the investors misses out on the irrational exuberance “enjoyed” by the Buy-and-Holder but then also misses out on the irrational depression experienced when his beat-the-market strategy fails and leaves his retirement hopes in ashes, just as Get Rich Quick approaches have done to so many other investors over the history of the market? Thinking that you are going to be the first investor so smart that he can beat the market is a long-term recipe for ruin, Anonymous. The market is bigger than you. The market eats those so arrogant that they think that they will be the first to beat it for lunch.

It’s not research-based strategies that are seeking to beat the market, Anonymous. It is Get Rich Quick strategies that are seeking to beat the market. You can easily see whether it is Valuation-Informed Indexers or Buy-and-Holders who are seeking to beat the market by noting which group is more emotional in the comments that it makes on discussion boards and blogs when these sorts of issues come up in discussion.

Valuation-Informed Indexing is Buy-and-Hold with the Beat-the-Market element removed. That’s why it has less immediate marketing appeal. It is that Beat-the-Market element that makes Buy-and-Hold such an easy sell; we all have a Get Rich Quick urge residing within us and strategies with strong appeal to that urge are going to make lots of money for their advocates in the short term. But as Shiller (and Bogle long before him!) argues, Beat the Market/Get Rich Quick is always a loser in the long run. Buy-and-Hold is what sells, but Valuation-Informed Indexing is what works.

These are my sincere thoughts re these terribly important matters, in any event.

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

Rob

“The Core Idea of Valuation-Informed Indexing Is That Investors Should Be Trying to Keep Their Risk Profiles Roughly Constant Over Time. Risk Increases As Price Increases. So For an Investor to Keep His Risk Profile Constant, He MUST Adjust His Stock Allocation in Response to Big Price Swings. Do That and You Reduce the Risk of Stock Investing by 70 Percent.”

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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:

Yet another article that says you are wrong, Rob.

http://svrn.co/blog/2017/5/14/waiting-for-the-market-to-crash-is-a-terrible-strategy

And can you tell us how his data is wrong?

It’s not his data that is wrong. It’s his thinking process that is wrong. This fellow is testing what John Walter Russell referred to as “Idiot Switching.” Idiot Switching never works. For obvious reasons.

The thought process behind Idiot Switching is that overvaluation is irrational and that the irrationality should be exposed by the market and that the smart investor should therefore be able to exploit this irrationality by timing his moves in and out of the market. It makes sense. I don’t deny that. But it doesn’t work. Idiot Switching has a TERRIBLE track record. My guess is that Idiot Switching does even worse than Buy-and-Hold in the long run. Sometimes it works just by luck. But the historical record shows that it is a very, very bad strategy. One of the things that I love about the Buy-and-Holder is that they have done more than anyone else to EXPOSE the flaws of Idiot Switching.

Look at what happened in the late 1990s. Stock prices were at insanely high levels in 1996. We were priced for a crash. Idiot Switchers got out of stocks. Then we had three years of the biggest gains in history in 1997, 1998 and 1999. If you want to know how stock investing works in the real world, you need to take a moment to try to understand why that happened, why Idiot Switching was such a disaster in that particular case and in fact fails just about every time it is tried.

The Idiot Switchers are applying reason to an unreasonable situations. They are saying “prices SHOULD come down because they are now so high.” But the entire reason why prices got so high in the first place is that investors are not rational but highly EMOTIONAL Those darned emotional investors DON’T CARE that stocks are priced for a crash, they just go ahead and send them to higher and higher price levels anyway despite the logic behind the Idiot Switching “strategy.”

Valuation-Informed Indexing is not Idiot Switching. Not in any way, shape or form. Valuation-Informed Indexers are as much opposed to Idiot Switching as they are to Buy-and-Hold. Idiot Switching is at heart really just another emotional approach, another marketing gimmick.

Valuation-Informed Indexing is a risk management approach. The core idea is that investors should be trying to keep their risk profiles roughly constant over time. Risk increases as price increases. So for an investor to keep his risk profile constant, he MUST adjust his stock allocation in response to big price swings. Do that and you reduce the risk of stock investing by 70 percent while also increasing your returns enough to be able to retire many years earlier. It is impossible to imagine any scenario in which keeping your risk profile constant would not produce good results and of course the entire historical record shows that taking this simple step has been paying off big time for the investors who follow it for 145 years now. It is impossible for the rational human mind to imagine any circumstances in which it would not.

A showing that Idiot Switching does not work is old, old news, Anonymous. Those who follow the research in this field have known what this guy is saying for a long, long time. To check the merit of VII, you have to do what Wade Pfau and I did in the research that we co-authored and had published in a peer-reviewed journal. We checked the merit of VII. That is of course something very, very different from what this fellow did.

That’s of course why you threatened to destroy Wade’s career if he continued to do honest work while you did not threaten this fellow in any way. Idiot Switching offers no threat to Buy-and-Hold. Once the American people are able to learn about Valuation-Informed Indexing, which is the first true research-backed strategy, there will be no more Buy-and-Hold. We will all pull together to bury the smelly Get Rich Quick “strategy” 30 feet in the ground, where it can do no further harm to humans and other living things.

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

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

Rob

“You Measure Success By How Many Dollar Bills Are Coming In. I Measure Success By How Much Value I Am Contributing to the World. It Is By Adding Value That We Create the Wealth That Permits Us to Be Paid Large Sums.”

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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:

“Einstein’s definition of insanity was doing the same thing over and over again and expecting different results.”

Says the guy who’s been blogging on the same topic for 15 years.

Precisely so. But you overlook the fact that Bogle has been saying the same thing for 45 years. That’s three times as long!

And I have been learning amazing things in just about every one of the days that I have lived through during those 15 years. Things that someone with my background should not be so blessed to learn.

You measure success by how many dollar bills are coming in. By that standard I am a miserable failure. But I don’t measure success that way. I measure success by how much value I am contributing to the world. It is by adding value that we create the wealth that permits us to be paid large sums. But that standard. I have achieved 500 times the success that I ever dreamed of in earlier days. So I just keep on doin’, you know?

Dylan said” “There’s no success like failure and failure is no success at all.” I used to use that one as my signature line way at Motley Fool way back in the Summer of 2002. If I had given up back then, as you Goons advised me, I wouldn’t today have my name on the most important piece of peer-reviewed research published in this field in over 30 years. How did I know that that’s where this was leading? I didn’t know the specifics. I just knew that the way to real wealth is creating value and that it would be a mistake to walk away from the greatest opportunity that anyone has been presented with in a long, long. long time. I saw where the long-term wealth was and I ran in that direction.

And I soldier on to this day.

My best wishes to you.

Rob

Buy-and-Hold Goon to Rob: “You Are the Only One Widely Banned. I Don’t Know of Anyone Else in a Similar Circumstance.”

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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:

“When my right to post honestly is recognized, EVERYONE’s right to post honestly will be recognized.”

You are the only one widely banned. I don’t know of anyone else in a similar circumstance.

I am the only one who played it the way that I played it, Anonymous. I took a position of “I am going to post with complete honesty regardless of any intimidation tactics, this stuff is too important to do anything less.” No one else does that. Everyone else looks for some sort of compromise that you Goons can live with.

So Jack Bogle says “Reversion to the Mean is an Iron Law of stock investing,” which means that there is zero chance that the safe withdrawal rate can be the same number at all times. If Reversion to the Mean is an Iron Law, then the safe withdrawal rate must be a lower number at times when valuations are high and when the effect of Reversion to the Mean is going to be strong. So Bogle gets us halfway there. But he doesn’t say “therefore, the Buy-and-Hold retirement studies should be corrected before they do more harm.” That’s the part that I leave in and that he cuts out. That’s the part that gets me banned.

And Bill Bernstein says (I am paraphrasing): “When valuations are where they are today, you need to subtract 2 point from the ordinary safe withdrawal rate of 4 percent.” Again, that gets us halfway there. I supply the other half of the story. I say: “So we need to warn people of the dangers of using the uncorrected 4 percent withdrawal rate reported as safe in the Buy-and-Hold studies so that we don’t cause even more unfortunate people to suffer failed retirements.” It’s that fuller and clearer and firmer and more simple form of honesty that gets me banned.

And Wade Pfau says: “The information contained in the Buy-and-Hold retirement studies is not the information that people planning retirements are looking for and it could be dangerous.” He leaves out the part about how it is financial fraud to fail to correct the errors so that more people can be taken in and so that more money can be made taking people in. And he leaves out the part about how the death threats are a sign of desperation and inappropriate and are going to get people sent to prison in the days following the next price crash.

Einstein’s definition of insanity was “doing the same thing over and over again and expecting different results.” We have been playing it this half-honest/half-dishonest way for 36 years now. Where has it gotten us? It brought us an economic crisis. It brought us political instability. It brought us the destruction of many fine discussion boards and blogs. It brought us upcoming prison sentences for you Goons. Something tells me that the half-dishonest/half-honest approach to investing advice has not been working out so hot.

So I play it a different way. I aim for COMPLETE honesty re safe withdrawal rates and re scores of other critically important investment-related topics. That’s the future, Anonymous. We have learned a lot of important stuff over these past 15 years because I elected to play it that way. I think it would be fair to say that we will be learning a lot more over the next 15 years. My guess is that we will do better over the next 15 years than we have over the past 15 years. The good stuff here is 50 times more good than the bad stuff here is bad.

The three people mentioned above and THOUSANDS of others very, very much want to join me in doing fully honest work in this field. First of all, they want to help people; that’s why they got into this field in the first place. And second of all, they want to make money. And there is a mountain of money to be made putting forward fully honest, research-backed investing advice. So, no, I am the first person to offer fully honest takes re the last 36 years of peer-reviewed research in this field but I am certainly not going to be the last. Once my right to post honestly is recognized, there will be an opening of the floodgates. I know that. You know that. Everyone watching knows that.

The problem is the transition. The many good and smart people who have been less than fully honest for 36 years now don’t want to go to prison. They don’t want to be sued civilly. They don’t want to see their reputations damaged. What to do, what to do?

I am open to anything that anybody comes up with that doesn’t require me to go to the wrong side of the felony line. We can put out articles pointing out how many of us suffered from cognitive dissonance because this new stuff is so “revolutionary” (Shiller’s words). We can point out the social pressures that many of us experienced because our readers and our clients want so much to believe that the numbers on their portfolio statements are accurate. We can work out some sort of amnesty program to be passed by Congress. We can do all sorts of things.

Our problem is that none of these things can be done by me alone. They are all things that can only be done by us working as a community. Others are afraid to join in because as of today they feel that posting with full honesty is career death. Again — What to do, what to do?

I am going to continue doing what I am doing. I am incapable of saying that I believe that Greaney’s retirement study contains an adjustment for the valuation level that applies on the day the retirement begins. I just cannot go there. So I am going to continue doing what I am doing today.I love my country. I believe that we are a good and smart people. I believe that we will all pull together following the next price crash. Then things that seem so difficult today will seem easy to all of us.

I obviously wish that it wouldn’t take a deepening of the economic crisis to get us there. Obviously. But it takes what it takes, you know? I am not Superman. The transition from Buy-and-Hold to Valuation-Informed Indexing is a big move. It is not something that can be achieved by one person. We are going to need at least 10 people to work up the resolve to stand up to you Goons. Once we do that and show people that it is safe to speak out honestly, we are going to see good stuff piled on top of good stuff piled on top of good stuff piled on top of good stuff and I am 100 percent confident that not a one of us will ever look backwards.

We all know where we need to take things. Now we just need to work up the courage to let things go there. Valuations affect long-term returns. We have all known that for 36 years now. Now we need to get down to the business of telling every investor alive on Planet Earth WHAT THAT MEANS in strategic terms.

I hope that helps a bit, Anonymous.

Rob

Buy-and-Hold Goon to Rob: “Your Assumption Is That, If You Could Post Whatever You Wanted at Any Board, the Stock Market Would Behave Much Differently.”

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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:

“Your abusive and even criminal posting behavior has blocked access to the information that those of us who want to buy stocks to support our old-age retirements need to perform the job that we need to perform for the market to do its job of setting prices properly. ”

You are referring to your banning at the various financial boards, correct? Therefore, your assumption is that if you could post whatever you wanted at any board, the stock market would behave much differently.

Obviously.

When my right to post honestly is recognized, EVERYONE’s right to post honestly will be recognized. We will as a nation tap into the benefit of 36 years of powerful research-based investing insights in the space of about 24 hours. And these last 36 years of peer-reviewed research is no ordinary 36 years of peer-reviewed research. The last 36 years of research is BY FAR the most important 36 years of research in our nation’s history.

There will be no stopping us at that point. The way that I often stated it is that: “The good stuff that applies here is 50 times bigger than the bad stuff that we have seen here.” It would not surprise me to see that, after we turned our economic system around, we declared the day that prison sentences were announced for you Goons a national holiday. People use retirement studies to plan retirements. They need accurate and honest studies to be able to plan in such a way that there long-time hopes for financial freedom are realized. I am very much looking forward to working with both my Valuation-Informed Indexing friends and my Buy-and-Hold friends to take us all to a far better place than where we reside as a nation today. I mean, what’s the freakin’ downside, you know?

The entire point of doing research is to make positive changes to the world. It’s a darned shame that we have denied ourselves these benefits for over three decades now.

Good question, Anonymous.

Rob