A Rich Life

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

“Rebalancing Does Not Account for Valuations”

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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:

Buy-hold-rebalance automatically accounts for valuations via rebalancing. You tend to ignore that fact since it doesn’t support the HocoAgena. Reality and Bat$hit Crazy Hocomania seldom meet.

Rebalancing does not account for valuations. Say that an investor determines that the proper stock allocation for someone with his risk tolerance is 80 percent stocks at a time when prices are at fair-value prices. Then prices double over the course of the year. Rabalancing will cause the investor to sell some stocks at the end of the year, the amount that he needs to sell to get back to an 80 percent stock allocation. But stocks are no longer selling at fair-value prices following a doubling in price. This investor is not going with a higher stock allocation than what is proper for someone with his risk tolerance.

This is the flaw at the core of the Buy-and-Hold project. This mistake always kills investors in the end. Unfortunately, it does not kill them quickly. It is like smoking four pack of cigarettes a day. The smoker can look at results at the end of one year and say to himself: “I’m doing fine, there’s no reason why I shouldn’t keep doing this!” But in the end it is going to get to him. It’s the same with the Buy-and-Holder. It kills you in the long run. You can get away with going with the wrong stock allocation for a long time but you cannot get away with it indefinitely.

No one ever has, according to the historical return data available to us. The trick is to turn to the peer-reviewed research for guidance re what works in the long run rather than the emotions you experience while testing out the strategy in your own life. Your tests are focused on one side of the equation — you see all the temporary benefits that follow from employing a pure Get Rich Quick strategy but you don’t see the downside until it it too late to do anything about it. The only way to see the entire picture is to open yourself to considering the peer-reviewed research because valid research is OBJECTIVE and can reveal long-term effects that your personal experience just does not catch up on.

I hope that helps a tiny bit, Long-Time.

Rob

“Markets Work Through the Magic of Information Exchange. 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.”

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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 you perform your valuation on a consumable item (like a car or banana) that also has an endless supply, like you do on an asset generates a profit and has limited supply.

Markets set prices. That’s what they do.

They perform this magic through a process in which both sellers and buyers act in their own self-interests. Sellers focus on all the aspects of the question that suggest that prices should be higher, thereby pulling prices upward, while buyers focus on all aspects of the question that suggest that prices should be lower, thereby pulling prices downward. The price that applies is the price at which the demands of the buyer and the seller meet at a point along the continuum of all possible prices that is acceptable to both. Any market without price resistance becomes dysfunctional.

The reason why we have price crashes in the stock market is that the stock market becomes dysfunctional when Buy-and-Hold strategies become popular. Buyers need access to the information that in a healthy market they would use to act in their own self-interest. But the Wall Street Con Men and the members of their various Internet Goon Squads very, very much do not want the millions of people who buy stocks to finance their retirements to gain access to this information, which is contained in an exploration and understanding of the last 36 years of peer-reviewed research. After your prison sentence has been announced, this critically important information will be available at every web site on the internet. At that time, both parties to stock transactions will be able to act in their self interest and the market will become functional again and prices will return to fair level values again, hopefully on a permanent basis.

Markets work through the magic of information exchange. 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. The entire nation — both the millions of middle-class investors who need access to the information and the Goons who deny it to them — suffers as a result. No one benefits in the long run from the presence of a dysfunctional (improperly priced) market. You Goons only believe that you are reaping benefits because you refuse to perform the calculation (dividing your portfolio value by two at a time when prices are at two times fair value) that you need to perform to identify the true and lasting value of your stock portfolios.

Price matters in all markets. Prices are what makes markets work. It is the entire purpose of a functioning market to set prices properly. A market in which prices cannot be set properly (because the information needed is being blocked) becomes a dysfunctional market. Everyone suffers when a market becomes dysfunctional. A functioning market is one of those free lunches we sometimes hear about. Restoring a market to a functioning status is a win/win/win/win/win, with no possible downside. We all should be grateful that the last 36 years of peer-reviewed research supplies us for the first time in history with the “revolutionary” (Shiller’s word) breakthrough in knowledge that we need to make the stock market a functioning market on a permanent basis.

Rob

 

“I Think That You Are Wrong When You Suggest That Shiller “Knows the Truth” in an All-Encompassing Way. We All Learn By Talking Things Over With Others. Shiller Is Not Able to Talk Things Over With Others to the Extent He Could If There Were No Social Taboo Against Speaking Openly and Honestly re These Matters. So There Are Lots of Things That Shiller Has Not Yet Learned That He Would Have Learned a Long Time Ago Had Circumstances Been Different.”

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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 sounds like Shiller is guilty of playing a large part of the cover up since he would know the truth. Will he be going to prison as well?

We’ll work out together as a society who goes to prison and who doesn’t following the next price crash, Anonymous. I would be shocked and stunned and amazed if we decided as a society that Shiller should go to prison. I get the feeling that you Goons would like everyone who did even the smallest thing wrong to be treated the same as you Goons. You see that as your protection. Shiller has not behaved perfectly. Therefore, if we Goons go to prison, Shiller must go to prison as well. It doesn’t work like that.

I have drawn the parallel to the race relations issue. If someone makes a racist comment today in a public place, there is a heavy price to be paid. The person might lose his job. There was a time when racist comments were relatively common. Do you think that, as we changed as a society to become less tolerant of racism, we went around and rounded up every person who had committed even tiny racist crimes and sent them to prison? We didn’t. We employed common sense in making distinctions between different levels of bad behavior.

Just about all of us are guilty of some bad behavior during the Buy-and-Hold Crisis. I have often noted that I failed to speak up about the errors that I knew about in the Greaney retirement study because I was afraid of what his Goon squad would do to me. I rationalized my behavior. I said that Greaney’s study was a big improvement over the safe-withdrawal-rate analysis that was being advanced by Peter Lynch not too many years before the Greaney study was posted (this is so). But I held back from expressing my concerns that Greaney’s study, while an improvement from what had come before, still got the numbers wildly wrong. I was a coward.

Shiller has behaved in cowardly manner re a number of matters. We all have. There are very few exceptions. We are not going to elect as a society to put every person who on occasion acted in a cowardly manner in prison. I believe that all of the cowardly behavior will be brought to light and that most of the people who engaged in cowardly behavior will apologize for the harm they have done to others. I believe that Shiller will be making some apologies. But I don’t believe that he will be going to prison. I believe that he is going to be playing a huge role in helping us all move from the awful place where we find ourselves today to the wonderful place where we all deep in our hearts aspire to be tomorrow.

I think that you are wrong when you suggest that Shiller “knows the truth” in an all-encompassing way. We all learn by talking things over with others. Shiller is not able to talk things over with others to the extent he could if there were no social taboo against speaking openly and honestly re these matters. So there are lots of things that Shiller has not yet learned that he would have learned a long time ago had circumstances been different.

I have no doubt but that Shiller knows much more than he has thus far been willing to say in his public comments. But I do not believe that he today knows everything. I believe that he will be enjoying an amazing learning experience along with all the rest of us in days to come. He will be teaching us all by giving voice to things that he already knows but has thus far been afraid to speak about and he will be learning by hearing what lots and lots of others think about aspects of the question that he has not yet been able to explore in great depth himself.

That’s why I describe the opening of the internet to honest posting on investment-related topics as a win/win/win/win/win. Learning is the one true free lunch. When we learn together, we all end up better off than we were before we did so. It’s good stuff piled on top of good stuff piled on top of good stuff piled on top of good stuff with no possible downside for even a single one of us. This ain’t no zero sum game we’re playing!

I hope that helps a tiny bit.

My best and warmest wishes to you.

Rob

“What I Add Is That I Say Things Clearly and Simply and Firmly and Boldly. Everything That I Say Is Rooted in Shiller’s “Revolutionary” Nobel-Prize-Winning Research Finding That Valuations Affect Long-Term Returns. But, Yes, I Say Things 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:

“Robert Shiller is the one who published peer-reviewed research in 1981 showing that valuations affect long-term returns. If Shiller’s research is legitimate (he was awarded a Nobel prize), then the market is not efficient and Buy-and-Hold (which is rooted in a belief in an efficient market) is indeed a lie. Shiller doesn’t say it that way.”

Schiller doesn’t say it that way because he is not a mentally ill internet troll. Rob Hocus No 2 Step Bennett is.

What I add is that I say things clearly and simply and firmly and boldly. Everything that I say is rooted in Shiller’s “revolutionary” Nobel-prize-winning research finding that valuations affect long-term returns. But, yes, I say things differently.

I have advanvced the ball in a very important way by doing that. People need to know the practical, how-to stuff. They need to know whether they have saved enough to retire. They need to know what stock allocation they should be going with to keep their risk profile stable. They need to know what caused this darn economic crisis. Shiller hints at the answers to those questions but pulls back from stating the answers in way that most investors can understand the practical import of his message.

I certainly don’t apologize for advancing the ball in a major way, Long-Time. Everyone who has doubts about Buy-and-Hold should have started doing this 36 years ago. We would all be in a lot better shape if they had. There obviously can never be any downside to exploring new ideas. Everyone who is exposed to the ideas in clear form has the option of accepting them or rejecting them. So this is a win/win/win/win/win.

Buy-and-Holders perceive a downside because hearing the ideas expressed clearly stirs up their own inner doubts about the long-term merit of their investing strategy. Shiller showed that it is investor emotion that causes bull markets, not the economic realities, and the Buy-and-Holders show just how emotional investors get during bull markets in the reactions they offer to clear statements re the implications of Shiller’s research findings.

We need to work through this process as a society, Long-Time. We cannot make the journey from a place where most of us believe in Buy-and-Hold to a place where most of us believe in Valuation-Informed Indexing without passing through a place where lots of Buy-and-Holders are going to experience upset that they for a long time followed a gravely flawed investment strategy. If this could be done in way that didn’t cause any pain to Buy-and-Holders, I would do it that way. But I am not sparing my Buy-and-Hold friends pain by keeping my mouth shut, not if the last 36 years of peer-reviewed research is legitimate. If the last 36 years of peer-reviewed research is legitimate, the Buy-and-Holders need to hear the case for Valuation-Informed Indexing stated as clearly and simply and firmly and boldly as it can possibly be stated. Then they need to have the opportunity to ask questions. They they need time to ponder the new ideas and to determine for themselves whether or not to integrate them into their thinking about how stock investing works in the real world.

I am your best friend in the world, Long Time. You don’t see it, but I am. I paid a price to achieve benefits for you that no one else was willing to pay. I put my neck on the line so that you could learn something new. That cannot possibly hurt you. It could possibly help you in a huge way. But there’s zero chance that it could hurt you. If I am wrong re every single thing that I have ever said about stock investing, you would have ended up ahead had you permitted me to speak on the same terms that every other community members speaks because you would have been able to see Buy-and-Hold survive a challenge that it has never faced before and to see it survive that challenge and that would have given you added conference in a strategy that must inspire confidence in those who follow it if it is to work in the long term.

Every word I write benefits you. If you let it. You have to be willing to let the words in for them to have their desired effect. But that part is out of my hands. My job is to always screw up the courage to put the words forward in a clear and simple and firm and bold way. Once I have done that, I have done all that I can do. Once I have done that, I have done something very important and loving.

I was a Buy-and-Holder on the morning of May 13, 2002. I thought that the errors in the Buy-and-Hold retirement studies were going to be corrected once I pointed them out. It never occurred to me that what happened could possibly happen in this country, in which we and have laws protecting us all from this sort of thing. When the Greaney Goons came after me and my fellow community members, I looked on the internet for sites where the implications of Shiller’s revolutionary insight of 1981 were being explored on a daily basis so that I could ask some of those people to visit the Retire Early board at Motley Fool and help us all out. I learned that there are no such sites! What the h?

Shiller holds back from talking about the how-to aspects of his Nobel-prize-winning research. And no one else has picked up the ball in 36 years. Why? Because Valuation-Informed Indexing is very, very, very different from Buy-and-Hold. They both claim to be research-based strategies and yet one leads to one set of strategic recommendations and the other leads to a very different set of strategic recommendations. It is upsetting for Buy-and-Holders to hear that they are walking down a dark path, that they may be hurting themselves rather than helping themselves, that they may be hurting their friends to whom they recommend Buy-and-Hold rather than helping them.

None of that is my doing. I wasn’t around in 1981. I cannot even speak with any certainty as to why the people who were around at the time made the choices they made. What I can say is that they made a choice to delay the national debate that we very much need to have to determine once and for all whether Fama is right or Shiller is right. And, 36 years down the road, the result has been 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. This is what we have become as a result of the 36-year cover-up. The 36-year cover-up was not a good thing. This ain’t the way.

It is my job to take it the other way, the American way, the ‘the other fellow gets to have his say as well” way. That way is best for every single person involved. I love my Buy-and-Hold friends. I want to help my Buy-and-Hold friends out in every single way available to me. Lying to my friends about the numbers that they use to plan their retirements is not one of the ways available to me. For obvious reasons. It is my job to search for things OTHER THAN THAT that I can do to make the lives of my Buy-and-Hold friends easier.

I can’t do it by myself. We have 15 years of Post Archives showing that. I need at least 10 good and strong people who will stand with me to get this job done. I believe with 100 percent certainty that I will have that in the days following the next price crash. That’s Door One.

Or the Buy-and-Holders themselves could elect to act in a way that would make life better for every single person involved. That’s Door Two. A better and quicker door. It makes all the sense in the world for us to collectively choose Door Two. But it would be an exceedingly non-Goonish thing for us to do. I don’t think we will do it. Not after what I have seen. But the door remains standing before us. I can point out the opportunity to my Buy-and-Hold friends, knowing that the odds that they will choose the life-affirming door are something less than great.

And that’s it. Those are the two doors, Long Time. Door One opens for me regardless of what you do. Door Two requires your cooperation. So the odds are strong that it is going to be Door One. But there is something about the fact that you show up here on a daily basis week after week, month after month, year after year, that tells me that you feel some unease about going through Door One. Good for you. Door One is a terrible door. For all of us. But for you in particular.

If you want to choose Door Two instead, I am with you 100 percent. I think that would be super.

But please don’t ask me to join Shiller and all the others in talking about his “revolutionary” (his word), Nobel-prize-winning insights in the guarded and hesitant and fuzzy and cautious way that most others talk about them. This decision not to risk upsetting the Buy-and-Holders was no doubt motivated by a feeling that it is the charitable way to go. I have 15 years of Post Archives showing me that there is nothing even a tiny bit charitable about it. It is not the charitable way to go, it is the cowardly way to go. The 36-year cover-up is killing us all. The 36-year cover-up of the implications of Shiller’s 1981 research finding that valuations affect long-term returns was the primary cause of the economic crisis that in turn was the primary cause of the political frictions that we have been seeing on both the left and the right in recent years. Not this boy. Please try to find somebody else, you know?

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

Rob

“Bill Bernstein, a Guy That All Buy-And-Holders Love — Was Saying the Exact Same Thing As the Hated Rob Bennett Going Back to the First Day! So Why Doesn’t Bernstein Get Harassed? He Doesn’t Say Anything That Hurts Buy-and-Hold From a Marketing Perspective. The Money Keeps Rolling In!”

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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:

“We will have to see how it all plays out following the next crash.”

Why wait? You could rejoin every single board that banned you TODAY. Just pick a new user name and tone down the crazy. You’ve been talking about writing another book for years. And talking about joining political boards. But you throw up your hands and say absolutely none of it can be done until after the next crash. Honestly, you act as helpless as a newborn baby. Take some control of your life, man.

We need to have everyone feeling free to say precisely what they believe about stock investing, Dan. Hiding under new user names and “toning down” is exactly the OPPOSITE of what we need to see. We need to see people working up the courage to stand up to you Goons.

Take Bill Bernstein. In May 2002 I put forward my famous post saying that the safe withdrawal rate was really 2 percent because of valuations That’s the one that brought on all the commotion. Bernstein published a book in the SAME MONTH in which he said that you need to subtract two percentage points from the 4 percent SWR to account for the high valuations. That’s the same thing, isn’t it? Subtract two from four and you get two — Bernstein, a guy that all Buy-and-Holders love — was saying the exact same thing as the hated Rob Bennett going back to the first day!

So why doesn’t Bernstein get harassed? He doesn’t say anything that hurts Buy-and-Hold from a marketing perspective. He doesn’t say “the Buy-and-Holders got the numbers wrong” or “the Buy-and-Holders need to correct theirs studies” or anything like that. So the Buy-and-Holders just ignore the comment buried deep in his book and continue to push the same garbage studies. The money keeps rolling in!

I tell people that we need to figure out the realities. If the Buy-and-Hold numbers are really as wildly off as Bernstein says they are, we need to get those darn studies corrected before they cause even more failed retirements. It makes it hard to work a con on millions of people when someone says something like that. So I am Public Enemy #1.

I wouldn’t want to get the numbers wrong in my retirement plan. So I try to help out the people who to this day are being taken in by the Buy-and-Hold studies. There are millions of people who have been taken in by these studies. So this is a big deal.

That’s what is meant by the term “bad behavior.” I am exposing the great Buy-and-Hold con. I want to do that, Dan! I don’t want to post under some phony name and I don’t want to “tone down the crazy.” I want to expose the con. Not because I don’t care about my Buy-and-Hold friends. I want to expose the con because I want us all to move on to better things. I don’t want to see my Buy-and-Hold friends continue to waste their energies covering up all the time.

Bernstein should have said things in the way that I said them. If he had, we would have seen that article in the New York Times years ago and we all would be living far richer (in every sense of the word) lives today.

We don’t need to see Rob Bennett tone down, Dan. We need to see everyone else tone UP. This affects each and every one of us. We need to get this stuff right. It’s important. We don’t get there by toning down. We get there by toning UP. Either Buy-and-Hold can meet the challenge we put to it or it cannot. If it cannot, we all need to move on to better things.

Rob

Buy-and-Hold Goon to Rob: “Respectful Behavior Is What Is Required, Rob.”

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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:

Respectful behavior is what is required, Rob.

I have the greatest respect possible for the PEOPLE who advocate Buy-and-Hold, Sammy. I sing their praises all the time. Every Buy-and-Holder whom I have ever met is smart and it appears to me that just about all of them are top-notch people in a more general sense too. The Buy-and-Holders have made huge contributions to our understanding of how stock investing works. I have learned many, many important things from them. I rank Jack Bogle, the king of Buy-and-Hold, as the second most important investment adviser of all time.

I do NOT endorse the strategy. I believe that the strategy needs to be updated to reflect the 36 years of peer-reviewed research showing that valuations affect long-term returns. I believe that the failure to update the strategy has put millions of middle-class retirements at risk of failure and has served as the primary cause of our economic crisis. I advocate Valuation-Informed Indexing, which is Buy-and-Hold updated to incorporate the findings of the last 36 years of peer-reviewed research in this field.

What does that add up to, Sammy? I LOVE the people. I consider them friends. I want to interact in a friendly way with them. But I do not want to pretend in any way that I believe that it is okay not to consider valuations when developing investing strategies. I believe strongly that valuations must always be considered by the long-term investor (since valuations affect long-term returns).

It is my view that I SHOW my respect for my Buy-and-Hold friends by pointing out to them things that I believe they got wrong. I would want my friends to help me out by pointing out my mistakes. So I do for my Buy-and-Hold friends what I would like them to do for me if the tables were turned. So my view is that my behavior is 100 percent respectful.

Is your of what constitutes respectful behavior different from that in some way?

Rob

Valuation-Informed Indexing #346: Can Two Schools of Thought on How Stock Investing Works Co-Exist?

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I’ve posted Entry #346 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Can Two Schools of Thought on How Stock Investing Works Co-Exist?

Juicy Excerpt:  It’s not possible that both schools of thought are legitimate in an ultimate sense. They are rooted in opposite premises and they generate opposite strategic conclusions. But as a society we cannot make a switch from Buy-and-Hold to Valuation-Informed Indexing with the flip of a switch. We need to have a transition time-period in which both schools of thought are viewed as at least somewhat legitimate so that they can be compared and contrasted.

For that to happen, we all need to adopt the manner exemplified by Robert Shiller. We need to argue our viewpoints with forcefulness. We learn most quickly when our views are challenged and when other views are presented effectively. But we need at all times to evidence warmth and friendship to those on the other side of the table. We learn best together. We all want the same thing — to invest effectively. We need to see some big-name Buy-and-Holders step forward and ask for more positive interactions between the advocates for the two schools of thought.

“If Wade Pfau Wasn’t Threatened, He Wouldn’t Have Changed His Views 180 Degrees on About 20 Important Issues Overnight.”

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Set forth below is the text of a comment that I recently put to the discussion thread for one of my columns at the Value Walk site:

Roughly right? Um, no. None of it makes any sense at all unless Wade was threatened. Wade says he was not threatened. You disregard that, without offering any remotely plausible evidence. There is no reason in the world for anyone to take your word over his.

The obvious conclusion: 1700 words wasted.

If he wasn’t threatened, he wouldn’t have changed his views 180 degrees on about 20 important issues overnight, Dan.

The man was threatened. Lots of people have been threatened. And lots more who haven’t been threatened in a direct way have engaged in self-censorship because they have picked up a vibe in the air telling them that it is not a career-enhancing move to post honestly re the far-reaching implications of the last 36 years of peer-reviewed research in this field.

It will all come out in a front-page story in the New York Times that will be published shortly after the onset of the next price crash. I have a funny feeling that Wade Pfau will be quoted as saying some very positive and encouraging and intelligent and helpful and life-affirming things in that article.

I hope that all works for you, my good friend.

I naturally wish you all the best that this life has to offer a person in any event.

Rob

“On May 13, 2002, the Day That I Put Forward My Famous Post Pointing Out the Errors in Greaney’s Retirement Study, We Already Had “Known” (Intellectually, But Not Emotionally) About the Errors in That Study for 21 Years. How Do We Handle Something Like That As a Society?”

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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:

Wade said point blank that he was not threatened. He clearly stated the reasons for cutting you off, and they make perfect sense. Tons of other people have cut you off, for the same reasons. But Wade is the one you just can’t ever let go. Why is that?

I don’t say that Wade is different from everyone else. I say that Wade is exactly the same as everyone else.

Wade is a hero in my eyes. Wade was the first person in this 15-year saga who worked up the courage to write to the authors of the Trinity study and ask that they correct their study. Someone should have done that years before Wade came along. Every last one of us would have been in a better place had someone done that years before Wade did it. The authors of the Trinity study are great people and they made an amazing contribution. Had they corrected their study years ago, all of the focus today would be on their great contribution. Instead they are at the center of this mess where we see cover-up piled on top of cover-up piled on top of cover-up.

What I have said going back to the first day is that Greaney should have corrected his study within 24 hours of the moment that he learned about the errors he made in it. People use retirement studies to plan retirements. So it is very important not to get the numbers wildly wrong. If we were talking about this in the abstract, there would not be one person disagreeing that it is critical to correct a retirement study within 24 hours of the time that an important error is discovered in it.

The problem that we are having is that on May 13, 2002, the day that I put forward my famous post pointing out the errors in Greaney’s retirement study, we already had “known” (intellectually, but not emotionally) about the errors in that study for 21 years. We knew about the errors in the Greaney study for years before Greaney even posted the study!

How do we handle something like that as a society? If the New York Times wrote about the errors in the Buy-and-Hold retirement studies back in May of 2002, there were going to be civil lawsuits brought against the people who were still claiming that Buy-and-Hold is a research-based strategy 21 years after those who follow the peer-reviewed research learned that this is not so. Others would not be sued but would see their reputations damaged in the eyes of the millions of investors who were misled. Our decision as a society in 2002 was to keep the cover-up going. The thought was that the alternative of coming clean 21 years too late was just too horrible to contemplate.

The problem with continuing the cover-up is that, so long as we do not point out the dangers of Buy-and-Hold, we cannot give accurate and honest and effective investing advice. The Buy-and-Holders say that there is no need to take valuations into consideration when making investing decisions. The last 36 years of peer-reviewed research shows that valuations are BY FAR the biggest factor in long-term success or failure, a bigger factor by itself than all other factors combined. Pretend that Buy-and-Hold is a reasonable approach and it becomes impossible to say anything intelligent and helpful about the subject of stock investing.

The cover-up cannot continue indefinitely, Dan. The continued promotion of Buy-and-Hold for decades after it was 100 percent discredited has already caused the second biggest economic crisis in U.S. history. And prices are still so high that, in the event that stocks continue to perform in the future anything at all as they always have in the past, we will be seeing another crash bigger than the one we experienced in 2008, one that may bring on the Second Great Depression. We are already seeing serious political frictions as a result of the first nine years of the economic crisis. Having the crisis worsen is obviously going to exacerbate those political frictions.

We are in a situation where there are lots of powerful and wealthy and influential people who have zero willingness to tolerate honest posting on the last 36 years of peer-reviewed research but in which permitting honest posting re the last 36 years of peer-reviewed research is the only way out of an economic and political crisis threatening to do great damage to each and every one of us. What to do, what to do?

What does Wade Pfau want to do about all this? He wants to help. In a big way. Nothing could be more clear. Wade Pfau is a patriot. I love the guy. And of course I feel pretty much the same way re all of my Buy-and-Hold friends and even to a considerable extent re most of my Goon friends. The problem is not Wade Pfau and the problem is not Jack Bogle and the problem is not Robert Shiller and the problem is not even Mel Lindaurer.

The problem is the fix in which we find ourselves today. We all know deep inside what we need to do. We are all in the same boat. We all want to the same things. We all want to learn how to invest effectively in the real world. But how do we get from the unfortunate place where we live today to the positively wonderful place where we could all reside tomorrow if a small number of us could just work up the courage to stand up to you Goons and thereby get the good side of this show on the road?

We have to just do it. It’s like jumping into a pool when you are not sure whether the water is going to feel cold or not. You can think about it and think about it and think about it and nothing changes. Ultimately, you either walk away from the pool (which would likely mean the collapse of our economic system and possibly of our political system as well) or you just take a leap into the darn pool and find out for real how things are going to play out.

I have put forward little suggestions as to how we might smooth the transition. We could have Congress adopt some form of amnesty to let people off the hook re criminal prosecutions and perhaps even civil prosecutions. We could put forward explanations of the behavior that we have seen emphasizing the reality of the cognitive dissonance phenomenon. We could focus on the positive side of Shiller’s revolutionary research findings, which I think it would be fair to say would put millions of people in a far better and less angry mood. We could tell the story of how the new internet communications medium played a big role in bringing about all this life-affirming stuff. We could show gratitude for all the wonderful advances achieved by our Buy-and-Hold friends and make clear that the only people who never make mistakes are people who never stick their necks out and that we should be happy that our Buy-and-Hold friends were willing to stick their necks out a bit for us. There are lots of things that we can do on the positive side once we get down to business of deciding that we all want to work together to take this in a positive direction.

I told Wade that I thought he was “insane” to sign up with you Goons after all the amazing work he had done helping out his country. Wade and I were talking about the possibility of him being awarded a Nobel prize for the peer-reviewed research that we co-authored. And that Nobel prize would have been a well-merited one. I wish that he had taken a more life-affirming path in that moment of personal crisis. I think that working together Wade and I could have gotten this story written up on the front page of the New York Times a number of years back and that we all would be living in very, very different economic and political circumstances today. It’s true that I found a little bit of fault with my good friend Wade re that particular call.

But you know what? Wade had two small children to provide for at the time you Goons threatened to destroy his career. He had knowledge of your smear tactics and how effective they had been in destroying the lives of people you had turned on before he became your Goon Enemy #1. He did stand up to Mel Lindauer for a time. But when he saw that Jack Bogle knew about Linduaer and was not doing anything about the situation, he lost heart, he gave up his confidence that good people can still do good things in this wonderful country of ours. Bogle is a powerful person. Wade is like most fathers; he loves his children dearly. Can any of us say with absolute confidence that we would not have done the same in similar circumstances?

My job is to tell the story. I love Wade. I want him to be able to do honest work again. I love you Goons. I want your prison sentences to be as short as possible given the circumstances that apply. To make these little dreams of mine a reality, I have insisted for 15 years now on recognition of my right to post honestly re safe withdrawal rates and scores of other critically important investment-related topics. I think it is all going to work out for each and every one of us in ways far better than any of us are capable of even imagining today. In fact, I am 100 percent sure that that is what will happen when we all pull together, as I am sure we will in the days following the next price crash.

But you Goons still cling to the hope that it won’t play out that way, right? I cannot change that, I do not have magical powers to make you do the right thing (tolerate honest posting re the last 36 years of peer-reviewed research in this field) that you have refused to do for 15 years running now. So I am resigned today to the sad reality that we are all just going to have to wait to see how things play out in the days following the next price crash.

Does all of that not sound at least roughly right, my long-time Goon friend?

Rob

“Arnott Had the Courage to Discuss Some Very Far-Reaching and Very Scary Implications in Plain Language. Reading His Work Gave Me the Courage to Do the Same. I Did Not Speak the Way I Speak Today Back in 2002.”

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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:

What peer-reviewed research, outside of Shiller’s paper and Pfau’s paper, have you read and taken into consideration with respect to how stock investing works?

Those are the two biggies. I also recall looking at work by Rob Arnott, by Peter Bernstein, by Michael Kitces and by Andrew Smithers. Some of the things that I looked at may not have been peer-reviewed but in all these cases we are talking about material that was published in high-quality publications with tough standards.

And of course there was eight years of in-depth research on safe withdrawal rates and scores of related issues by John Walter Russell. John’s work was not peer-reviewed but it was subject to intense scrutiny by thousands of our fellow community members and every non-Goon agreed it was the highest quality work possible.

There were two long papers on “Bubble Logic” by Cliff Asness that impressed me. They had more of a focus on logic than on data but data was used in support of the logical arguments.

I also was strongly influenced by the book “Stocks for the Long Run,” which makes data-based arguments. That book is firmly rooted in a belief in the Buy-and-Hold model. So I don’t agree with many of the strategic recommendations advanced in the book. But it is possible in some cases to gain a sense of how the recommendations made in that book would be altered if the author (Jeremy Siegel) appreciated the importance of making adjustments for valuations. So I found the material presented in the book helpful in advancing my understanding even though in most cases I wouldn’t feel comfortable citing its results without offering qualifications or caveats.

The single finding that had the biggest impact for me was Wade’s finding that there is not a single study in the literature showing that it is not necessary for investors to practice price discipline (long-term timing). I had heard the claim that “timing doesn’t work” so many times from Buy-and-Holders that I just assumed that there must be at least one study backing it up. There is not. There is the one study that Wade discredited because of its glaring flaws. And outside of that, nothing. Most people who say that timing doesn’t work are thinking that Fama’s work showed that. But the reality is that Fama looked only at short-term timing — he never even attempted to examine whether long-term timing works or not (it was not even possible to practice long-term timing until Bogle founded Vanguard in the mid-1970s and made broad index funds widely available). Wade was ASTOUNDED by that finding. He couldn’t get over it. He was very careful to be sure that he had checked the entire literature because he realized that this finding turned everything we once thought we knew about how stock investing works on its head.

Another thing that has always impressed me is that in 36 years no one has found major problems with Shiller’s work. There are details that people argue over and that is always going to be the case and that is of course appropriate. But given how “revolutionary” (Shiller’s word) Shiller’s findings were, there obviously would be lots and lots of people motivated to find holes in his claims. Yet he was awarded a Nobel prize in 2013, after his critics had had over 30 years to find any significant holes.

Finally, I think it is a big deal that Shiller’s finding has continued to apply on a going-forward basis for 36 years now. The Buy-and-Holders like to suggest that this mountain of research showing that valuations affect long-term returns is the product of data mining. But if it were, there is no reason why it should continue to work on a going-forward basis. Yet here we are 36 years down the road and stocks are still performing in the way that the Valuation-Informed Indexing Model posits that they should perform and not in the way that the Buy-and-Hold Model posits that they should perform. I do not think that that means that the Valuation-Informed Indexers have it all figured out. I very much believe otherwise. But I do think it shows beyond any reasonable doubt whatsoever that the last 36 years of peer-reviewed research is pointing to something important and that we should permit it to be discussed at every investing site on the internet.

I certainly do not mean to leave people out. I understand that there are others who have made important contributions in this area. I am just mentioning off the top of my head the people who had the greatest effect on me personally as I struggled to gain a better understanding of these terribly important matters.

I probably should mention that Rob Arnott’s “Editor’s Notes” column at the Financial Analysts Journal had a big influence on me. A very common phenomenon in this field is that people read the findings of a paper and appreciate them in some very limited way but are not able to appreciate how far reaching the implications of the findings are. People are very cautious in the money area and they want to be 100 percent certain that they get things right before they state something. Arnott had the courage to discuss some very far-reaching and very scary implications in plain language. Reading his work gave me the courage to do the same. I did not speak the way I speak today back in 2002.

I was deeply influenced by the book “Stock Cycles.” That book is heavy on statistical analysis but none of it has gone through a peer-review process.

Finally, I really have to mention the hundreds of thousands of comments by my fellow community members. The comments are not peer-reviewed, to be sure. Far from it! But they serve a similar purpose as a peer-review process. The comments of our fellow community members keep us on the straight and narrow, they identify holes in our thinking, they suggest new directions that need to be explored, they warn of the dangers of over-statements. I have benefited immensely from that sort of feedback, both from my thousands of Buy-and-Hold friends and from my hundreds of Valuation-Informed Indexing friends. Heaven help us all but I have benefited from feedback advanced by my Goon friends (on more than one occasion feedback that appeared in a form very, very, very unlike any that has ever been seen in a peer-review sort of environment!).

I think that it would be fair to say that 100 percent of the peer-reviewed research available to us today shows that valuations affect long-term returns and that 0 percent shows otherwise.

I hope that helps a small bit.

Rob