A Rich Life

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

“You Goons Have Contact With Mel Linduaer and Mel Lindauer Has Contact With John Bogle. If You Asked Nicely, Lindauer Would Be Willing to Ask Bogle Nicely to Ask Shiller Nicely Whether He Believes That Long-Term Timing Works or Not. And Shiller Is a Nice Man. Shiller Would Agree to the Request If Bogle Put It to Him in a Nice Manner. So We Have the Means by Working Together to Get a FINAL Answer to This Perplexing Question.”

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

Rob,

His words are clear. Stop making things up. PERIOD.

His research is also clear. And his Nobel prize is clear.

I can accept that Shiller may not have a complete understanding of how long-term timing works. My sense is that he does not. He has a partial understanding. To make his understanding more complete, he needs to engage in daily back-and-forth with lots of people exploring the subject from lots of different angles. That’s how we humans learn.

It is this daily back-and-forth in which lots of us offer lots of different takes that has been missing in investing discussions for 35 years now and which has been holding up progress for 35 years now. I mentioned up above that Shiller has made it his life’s work to show why exercising price discipline is required when buying stocks. I have made it my life’s work to get this national debate started.

I have chosen to do this because having the national debate is so darn important. You are not wrong to point out that Shiller said that P/E10 should not be used for timing. He really did say that. It is an exceedingly odd thing for the person who discovered the importance of price discipline to say — it is only through the practice of long-term timing that investors can exercise price discipline! So we really need to get to the bottom of the issue that you brought to the table with your post.

Where we get on very different tracks is when you point out one aspect of the puzzle and ignore the other. Shiller really did publish research showing that price discipline is required back in 1981. He really did write a book explaining why Buy-and-Hold can never work for a single long-term investor. He really was awarded a Nobel prize for his work in this area.

We need to get Shiller to address these matters. You cannot do the subject complete justice and I cannot do the subject complete justice. We need Shiller to address the subject head-on in a clear and complete and firm statement. If you really believe that Shiller thinks that long-term timing does not work, you should feel comfortable encouraging him to address the matter.

You Goons have contact with Mel Linduaer and Mel Lindauer has contact with John Bogle. If you asked nicely, Lindauer would be willing to ask Bogle nicely to ask Shiller nicely whether he believes that long-term timing works or not. And Shiller is a nice man. Shiller would agree to the request if Bogle put it to him in a nice manner. So we have the means by working together to get a FINAL answer to this perplexing question.

The key is that you need to be open to hearing what Shiller really thinks. He may issue a statement agreeing with me rather than with you and Bogle. So you are taking a risk going ahead with this suggestion to contact Lindauer. I encourage you to do it. If Shiller says “this Rob Bennett fellow is a fool, I do not AT ALL believe in long-term timing, I think thus guy is dangerous,” I will write a column here reporting on what he said and putting that statement in the headline.

Working together, we could learn something important. Working together, we could advance the ball in an important way for lots of people. If you are game, I am certainly game.

I naturally wish you all the best that life has to offer a person in any event, my good friend.

Rob

“Doing the Right Thing Doesn’t Get Easier By Putting It Off. It Gets Harder. Once We Have a Major Figure Speaking Out Clearly re This Matter, It Frees All the Rest of Us to Speak Out Honestly About What the Last 35 Years of Peer-Reviewed Research Teaches Us About How Stock Investing Works in the Real World. So Why Not Just Work Up the Courage to Do It Today and Thereby Put the Nasty Stuff Behind Us and Bring on All the Wonderful Stuff?”

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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:

Despite the fact that you have repeating the same stuff in this article thousands of times over and over, Shiller has repeated said not to u his work for timing……PERIOD. Saying that he implied it for long no term timing would be lying as his words were clear.

Besides, it has nothing to do with your financial failure. You should have continued to work past the age of 43 instead of wasting your time as an internet troll.

You’re wrong about this, Sammy. At least that’s my sincere take.

You are correct that Shiller has said that P/E10 cannot be used for market timing. That much really is so and it is important too. So I certainly do not object to you letting people know that that’s so. People need to know that.

You are 100 percent wrong re the “Period” part. Shiller’s statements re timing are HIGHLY ambiguous and HIGHLY unclear and HIGHLY uncertain. If there is one thing that should never be said about them, it is that he placed some sort of “Period” at the end of his claim that P/E10 should not be used for timing. That is a false claim and a dangerous claim and an irresponsible claim. I would not feel comfortable putting my name to that one.

Shiller has devoted his entire life’s work to showing why one form of timing, long-term timing, ALWAYS works and is ALWAYS 100 percent required. He has been awarded a Nobel prize for research that he published in 1981 showing that valuations affect long-term returns. If that’s so, then risk is not static but variable and it is not possible for investors not willing to exercise price discipline (that is, to practice long-term TIMING) to maintain a stable risk profile.

Shiller believes that his life’s work has value. If he didn’t, he would not be continuing with that work today. Shiller does not believe what you say he believes.

Why, then, did he say that investors should not use P/E10 to engage in timing? My guess is that he was using the word “timing” to refer to “short-term timing.” Short-term timing really doesn’t work. There is a mountain of research showing that. And it is common practice in this field to use the word “timing” to refer to “short-term timing.” Bogle does it all the time. So do hundreds of others. Given that so many in this field employ this shorthand and given that assuming that Shiller is using this shorthand permits us to make sense of his statement, I think it would be fair to assume that Shiller was indeed using this unfortunate shorthand.

In fact, Shiller has OPENLY ADVOCATED long-term timing on more than one occasion. I recorded a podcast back in 2009 when he did so. And he was advocating long-term timing when he gave testimony to the Federal Reserve saying that investors who retained their high stock allocations in 1996 would live to regret it within 10 years. I am certain that he gave a great deal of thought to that statement advocating long-term timing, a lot more than he gave to the single off-hand ambiguous statement that you refer to when he said that “timing” does not work.

You are engaging in deception here. It is shameful behavior given the importance of the question being addressed. And you of course are well aware of Shiller’s LONG advocacy of long-term timing. We have met up at scores of discussion boards and blogs at which you have engaged in insanely abusive posting practices aimed at shutting me down and shutting down other posters who see the value of long-term timing and the dangers of Buy-and-Hold investing strategies. Yucko, Sammy. This is low stuff. You need to get over whatever pain you experience when your investing beliefs are challenged by the peer-reviewed research in this field and rise above this sort of behavior.

All that said, you are raising a very important question. Those of us who have looked at these matters with reasonably open minds know that Shiller believes in long-term timing. WHY DOESN”T HE SAY SO IN CLEAR AND FIRM AND BOLD AND CERTAIN LANGUAGE THAT WOULD BRING THIS “CONTROVERSY’ TO A FULL AND COMPLETE STOP? He makes his living helping people to understand how stock investing works. All of the confusion of recent years, confusion that caused an economic crisis, came about because the “experts” in this field have failed to make this distinction between long-term timing — which always works and is always 100 percent required — and short-term timing — which really does not work — clear to millions of middle-class investors. Why doesn’t Shiller just step to the plate and say what needs to be said?

He doesn’t do it because he knows from experience that the advocacy of Buy-and-Hold has caused millions of investors to become as hyper-sensitive to hearing about the implications of his “revolutionary” (Shiller’s word) as you are, Sammy. We all kept our mouths shut until valuations reached a point where telling the truth about these matters would have caused the destruction of millions of middle-class lives and so today we hold back from saying what needs to be said because we cannot bear to face the abuse that we know will be visited on us for doing so when we finally work up the courage to do the right thing.

Doing the right thing doesn’t get easier by putting it off. It gets harder. Shiller will be speaking more clearly about these matters following the next price crash, just as he hesitantly started down that road in the early days of the last one. It will be harder for him then. His friends should be encouraging him to step forward today and thereby to put that hard piece of important business behind him. Once we have a major figure speaking out clearly re this mater, it frees all the rest of us to speak out honestly about what the last 35 years of peer-reviewed research teaches us about how stock investing works in the real world.

We are all sooner or later going to get to the point where we feel a need to speak up. It gets harder the longer we put it off. So why not just work up the courage to do it today and thereby put the nasty stuff behind us and bring on all the wonderful stuff that follows once we all feel free to speak honestly and accurately and clearly? That’s certainly my take re this terribly important matter.

I wish you all the best that this life has to offer a person in any event, my old friend.

Rob

Valuation-Informed Indexing #321: Valuation-Informed Indexing Combines the Best Elements of Fundamental Analysis and Technical Analysis

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I’ve posted Entry #321 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Valuation-Informed Indexing Combines the Best Elements of Fundamental Analysis and Technical Analysis.

Juicy Excerpt: Shiller is not a technical analyst but he has incorporated one very valuable element of technical analysis into a framework dominated by fundamental analysis considerations and he thereby has developed something new, a balanced model that I believe in time will bring the long ongoing conflict between fundamental analysts and technical analysts to an end by allowing each of the warring camps to come to a better appreciation of the merits of the other fellow’s perspective. Stock returns really are predictable. But only in a limited sort of way. The fundamental analysts have been too complacent in their belief that the things they know are all there is to know and the technical analysts have reached too far too quickly and discredited their genuine contributions by doing so.

“Everyone Who Works in This Field Needs to Pull Together to Insist That Bogle Come Clean re These Matters. There Is Not One School of Thought re How Stock Investing Works. There Are Two. Buy-and-Hold Was Once a Legitimate Strategy and There Are Millions of Good and Smart People Who Believe to This Day That It Is a Legitimate Strategy. But There Is 35 Years of Peer-Reviewed Research Showing Otherwise. People Need to Know That.”

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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:

If we look at your column that you posted on your blog today, we once again see how disgusting you are when you strike a comparison between Jack Bogle to that of Bill Cosby and disgraced priests.

Yet another example of poor behavior that has led to you being banned at boards.

I strongly disagree, Sammy. Our differences re this matter are the key to understanding what is going on in the investing realm today.

Bill Cosby was a great comedian and in most respects a great man. He was an inspiration to millions. He had one grave flaw. Almost all of us have flaws. The right thing for us to do when we see that someone has a flaw is to help him overcome it. That didn’t happen with Cosby. He had lots of power and money and connections. So lots of people who knew that there were seriously wrong things going on kept their mouths shut. As a result, the problem got worse and worse until things reached a point at which Cosby’s reputation is all but destroyed.

That never should have happened. It’s a terrible shame that things played out that way. Cosby is responsible because we all are responsible for our own behavior. But everyone who knew and kept his or her mouth shut contributed to the problem in a less direct and less significant way. As a society we failed Cosby and all the women he hurt.

That’s how things have played out re Jack Bogle. Bogle is a great man, he is a genius and he has helped us all in many amazing ways. In a perfect world, I could stop there, that would be the end of the story. We don’t live in a perfect world.

Bogle should have come forward when Shiller published his “revolutionary” (Shiller’s word) research in 1981. Even if Bogle was not convinced that the research pointed to something real (it is my strongly held belief that Bogle was and still is suffering from cognitive dissonance), he should have come forward and noted that there was now serious research showing that Buy-and-Hold can never work for a single long-term investor and that all investors who follow Buy-and-Hold strategies need to know about that research and take it into consideration when forming their own assessments re how to plan their retirements.

Had Bogle done that in 1981, there would have been thousands and thousands of good and smart people participating for the past 35 years in a national debate about how stock investing works. As a society we would have generated hundreds of powerful insights. We would all be living better lives today. I of course believe that Valuation-Informed Indexing would be the dominant investing strategy today had things played out that way. But that doesn’t really matter so much. The important thing is that everyone in this field would have felt free for that entire 35 years to post his sincere views re this terribly important subject. Knowledge would have continued to advance. Everything would be on the level and we would all feel better about ourselves.

We cannot go back to 1981 and change things. The past is past. We can change the future. Everyone who works in this field needs to pull together to insist that Bogle come clean re these matters. There is not one school of thought re how stock investing works. There are two. Buy-and-Hold was once a legitimate strategy and there are millions of good and smart people who believe to this day that it is a legitimate strategy. But there is 35 years of peer-reviewed research showing otherwise. People need to know that. We all need to be exploring how stock investing works in the event that Shiller’s Nobel-prize-winning research is legitimate, even those of us who continue to believe in the merits of Buy-and-Hold.

That’s my sincere take, Sammy. I love Jack Bogle. There would be no Valuation-Informed Indexing if not for Bogle’s many amazing contributions. I rank Bogle as the second most important investing analyst of all time, second only to Robert Shiller. But the full reality is that Bogle messed up big time when he failed to come forward and at least acknowledge doubt back in 1981 when Shiller published his “revolutionary” findings. The longer the cover-up continues, the more pain we cause to all our fellow humans, including the Buy-and-Holders and very much including my good friend Jack Bogle.

These are my sincere thoughts re these terribly important matters. I think of Jack Bogle as a friend. That’s one of many reasons why I INSIST that he come clean by the close of business today.

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

Rob

 

Valuation-Informed Indexing #320: Effective Financial Planning Becomes Impossible During Both Bull and Bear Markets

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I’ve posted Entry #320 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Effective Financial Planning Becomes Impossible During Both Bull and Bear Markets.

Juicy Excerpt: No, you don’t have to give back the things you bought with phony bull market gains. But you wouldn’t have bought most of those things at the prices offered had you known that you were not going to be able to retain all of your bull market gains. So you made bad purchasing decisions and bad financial planning decisions. How can anyone plan effectively without knowing the true numbers that apply? And you cannot go back in time and take those choices over once the price crash teaches you the realities. So bull markets do hurt even those who cash in their gains.

Buy-and-Hold Goon to Rob: “It’s the Sophisticated Wall Street Firms That Set the Prices. They’re Not Getting Emotional. They’re Making Cold, Hard, Data-Driven Calculations.”

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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:

And of course none of this matters because it’s the sophisticated Wall Street firms that set the prices. They’re not getting emotional. They’re making cold, hard, data driven calculations.

We disagree, Anonymous.

The sophisticated Wall Street firms take into consideration what the majority of investors believe in everything they do. They want to make money in the short term. If they didn’t care about the short term, they would be driven out of business by competitors. They are forced to consider what the majority of investors believe whether they like the idea or not. And most are probably fine with doing so, at least today.

I believe that there will be a change following the next price crash. I believe that at that time the Ban on Honest Posting will be removed and millions of ordinary investors will learn what the last 35 years of peer-reviewed research in this field says. The firms that you are speaking of will then of course take that into account in the decisions they make. And the textbooks used in the schools attended by the people who work at these fields will be updated to reflect the last 35 years of research. And so the Wall Street people will be more inclined to focus on the long term even when the majority of investors is not so inclined.

The fact that we are not there today does not tell us that we will never get there. Knowledge advances over time. The last 35 years of peer-reviewed research points to a very big advance.

And I don’t even a tiny bit agree with your claim that these Wall Street people are cold, calculating machines. They would like you to think that. They work hard to create that impression. The reality is that they are humans too and they have emotions like all the rest of us. They may well be better educated humans re this particular topic. But of course when the ideas in the textbooks they are working from were developed in an era prior to when the most important research was published, their educations count as a negative rather than a positive.

There is no such thing as a 100 percent emotion-free human.

That’s my sincere take in any event.

I naturally wish you all good things.

Rob

“It’s One Thing to Know That There Is 35 Years of Peer-Reviewed Research Showing That There Is Zero Chance That a Buy-and-Hold Strategy Could Ever Work for Even a Single Long-Term Investor. It’s Something Else to Look Into the Eyes of the Millions of People Whose Lives You Have Destroyed With Your Relentless Promotion of the Purest and Most Dangerous Get Rich Quick Scheme Ever Concocted by the Human Mind and Not Feel Humbled By the Experience. Jack Bogle Is a Good Man. He Is Going to Come Around.”

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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:

No, it is YOU that has the disagreement. Bogle and Shiller have said not to time the market. YOU created the story. The words don’t line up, so then you say they are lying, it it is still all part of your story. You keep trying to blame everyone else, experts, goons (also made up by you), media, etc. Why? Because you need to find someone to blame for your failed retirement plan and to avoid the public embarrassment that has gone along with it.

Let’s see how it all plays out following the next price crash, Sammy.

It’s one thing to know that there is 35 years of peer-reviewed research showing that there is zero chance that a Buy-and-Hold strategy could ever work for even a single long-term investor. It’s something else to look into the eyes of the millions of people whose lives you have destroyed with your relentless promotion of the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind and not feel humbled by the experience.

Jack Bogle is a good man. He is going to come around. Robert Shiller is a good man. He is going to come around. The other Wall Street Con Men are good men. They are going to come around. God help me for saying so, but I believe that there is good buried somewhere deep even in you Goons. You are going to come around.

When we are all working together, we are going to be grateful that there were some among us who were not willing to go along with the con and who instead directed their energies to exploring and developing the new research-based ideas re how stock investing works in the real world. I know that I started feeling a whole big bunch better about myself when I got off the Buy-and-Hold train and embraced the idea of doing honest work in this field.

That shouldn’t be such a controversial choice. In other fields of human endeavor, it is common for people to do honest work and it is common for others not only to tolerate that but actually to encourage it. I believe we are going to see the rules that govern human behavior in every field of human endeavor apply to the stock investing field as well following the next price crash and the worsening of the economic crisis that may well come with it.

We’ll see, you know? I certainly will be rooting for all good things to happen for you regardless of how this stuff works out. I believe that as a nation we are working through a process. I believe that the good news here is 50 times more good than the ugly stuff that we have seen for 14 years now is ugly. We all just need to hang in there and have faith in our fellow humans and let all the good stuff play out before us.

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

Rob

Valuation-Informed Indexing #319: Three Scenarios For What We May See Following the Next Price Crash

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I’ve posted Entry #319 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Three Scenarios for What We May See Following the Next Price Crash.

Juicy Excerpt: The third scenario is that we could see an economic hit strong enough to bring on a significant recession but not so strong as to bring on a Second Great Depression; there is a range of possibilities that follow from any P/E10 level so it is at least possible that we could avoid another Great Depression even in a bear market initiated by a P/E10 level of 44. The unlucky side of this generally lucky outcome might be that experts in this field would continue to hold back on the launching of a national debate re the implications of Shiller’s findings (out of embarrassment of the role that they played in delaying the national debate for so many years). In that case, we would likely see a more drawn-out recession, followed in time by another bull market and then of course another crash many years down the road.

“The Biggest Thing That Is Wrong With It Valuation-Informed Indexing That We Have Not Had Enough People Study It In Depth To Have Confidence In It. We Need To Have Lots Of Good And Smart People Doing Their Best To Find Holes In It. That’s How We Learn. “

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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:

As you are so fond of pointing out, there are post archives:

“Rob says
December 5, 2014 at 6:03 am
You’ve asked me what I will do if there is not another crash within the next two years. I have said that I will write a column saying that that tells me that there is something wrong with the Valuation-Informed Indexing concept and that I will continue studying the matter to try to figure out what really works best.”

You have a month to draft and polish that column. Of course, you won’t. Attempting to type “there is something wrong with VII” would cause your fingers to snap off.

No, that’s not so.

I have an article at this site titled something like “20 Reasons to Have Doubts About the VII Strategy.” There IS something wrong with VII. The biggest thing that is wrong with it is that we have not had enough people study it in depth to have confidence in it. We need to have lots of good and smart people doing their best to find holes in it. That’s how we learn. I believe strongly that VII is the future of investing analysis. But am obviously biased and extremely so. I have invested 14 years of my life in this. Anyone who goes just by what I say is a darn fool. We need to have lots of people looking at this and seeking to poke holes in it.

I am not going to have that column up by the end of this year. But I do have a column like that in my list of future columns. So it will probably come out in the early part of next year. My tentative title is “The Odds That We Will See Another Crash By the End of 2007 Are Now Less Than 50 Percent.” There’s only a small bit of time left in 2016. So I pretty much rule out the possibility that the prediction will be proven accurate. I now say that we should see the next crash “within the next year or two or three.” That takes us to late 2019. If you go ten years out from September 2008, you get to late 2018. I am adding an extra year to be extra careful that I do not flame out on yet another prediction. The odds are probably stronger in the first of the three years than in the last of the three years. So I think that it is probably so that the odds of seeing the crash in 2017 are a tiny bit less than 50 percent (even though 2017 is the most likely year of the three years).

Again, all of this DOES indeed show that, “there is something wrong with VII.” I am not disputing that. I am saying that VII is the best strategy that we can come up with given what we know from the research available to us today, nothing more and nothing less. We need to continue to advance in our understanding of these maters. We do that by talking things over, by exploring new ideas and confirming or refuting earlier ones and by performing new research. That’s just the standard way by which humankind advances in its understanding of things over time. We need to follow the standard procedures that apply in all other fields of human endeavor to the stock investing field as well.

That’s my sincere take in any event, X. I naturally wish you all good things.

Rob