A Rich Life

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

“The Problem Comes When People Start Believing That They Can Earn MORE Than 6.5 Percent Real Just By Believing in the Buy-and-Hold Fantasy That It Is the Economy Producing Those Oversized Returns Rather Than Their Get Rich Quick Impulses Left Untethered and Out of Control. The Message of the Last 35 Years of Peer-Reviewed Research Is That Buy-and-Hold Investing Strategies Are Every Bit As Bad As Irresponsible Spending Strategies. Failing to Rein in Our Irrational Emotional Impulses Hurts Us Big Time in the Personal Finance Realm.”

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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’ve yet to meet a middle class person who ‘lost it all’ through buy and hold. Most of them appear to be in serious debt, which has everything to do with spending habits and nothing to do with investing habits – which normally are erratic and undisciplined – the farthest thing from buy and hold.

What universe do you live in where middle class people have stock portfolios and have been ruined by buy and hold? Let’s take the past 30 years, which has had 2 major recessions. The US market has returned about 7.9% real. Looks like those middle class folks that actually invested in stocks did very well.

Stocks are an amazing asset class, Laugh. There is certainly no disagreement there.

The question is — Presuming that stocks are an amazing asset class that everyone should be using as the primary means of supporting his or her retirement, is it better or worse that people be taught to exercise price discipline when buying stocks? The last 35 years of peer-reviewed research shows that it is far, far better if people are taught to exercise price discipline.

Failing to exercise price discipline adds nothing to the equation except to help turn a quick buck for the Wall Street Con Men. And they could make plenty of bucks offering honest, research-based advice. The Wall Street Con Men themselves would love to make the transition from Buy-and-Hold to Valuation-Informed Indexing. I have never seen any evidence that Bogle was not sincere when he developed the Buy-and-Hold concept as a first-draft effort at developing a research-based strategy. If Bogle is okay with people following a research-based strategy, (at least according to most of his public words — I of course understand that he has offered an implicit endorsement of Mel Lindauer’s abusive posting), who are you to object?

Shiller’s “revoltionary” (his word) 1981 findings represent an advance in our understanding of how stock investing works. They help everyone: the Wall Street Con Men; the millions of middle-class investors who need to finance their retirements; even the millions of non-investors who would like to see the economic recessions and depressions that cause such economic and politicsl turmoil put to an end. A huge advance in knowledge is a win/win/win/win/win.

The only thing that has been holding us back now for 35 years is the unwillingness on the part of the Buy-and-Holders to acknowledge having made a mistake. It was an honest mistake. And it was certainly not a dumb mistake. So there is nothing to be ashamed about re the mistake. What the Buy-and-Holders are ashamed about is the 35-year cover-up of the mistake. It is the shame re the long cover-up that is causing all the problems.

That should be our focus. That’s why I often make reference to your prison sentence. The announcement of your prison sentence will give people the confidence that our system is operating properly, that we have overcome the wealth and power of the Wall Street Con Men and the hate of the members of their Internet Goon Squads. Once we have more and more people speaking out honestly every day re their sincere views re how stock investing works, we will all come to feel better and better about ourselves every day. We need to bring an end to all the ugliness and just let the same process of gradual learning that applies in every field of human endeavor other than stock investing apply in the stock investing realm as well. We need to overcome the corruption that has been keeping us in ignorance for over three decades now. We need to let our system work in the investing realm in the same manner that it works in all other realms by applying U.S. law in a reasonable manner when we see people like you committing financial fraud.

There is nothing wrong with stocks. If you somehow got the idea that I am saying something negative about stocks, you dialed a very wrong number. But I do see something wrong with those two major recessions that you made reference to. We now know how to describe how stock investing works in a way that helps us either do away with recessions or at least greatly reduce their impact. All we need to do is to be honest with people re what the peer-reviewed research says about how stock investing works. Why not do that? What’s the downside? The only downside is that Jack Bogle will need to say the words “I” and “Was” and “Wrong.” But once he does that, he gets applauded as a hero for the remainder of his days and long into the future. Is that so terrible an outcome for a fellow who was intending to do good for everyone going back to his early days? I don’t see this as a terrible outcome.

Say that someone goes bankrupt because he over-extends himself using credit cards irresponsibly. That happens all the time, right? Does that mean that credit cards are bad? I don’t see it that way. I say that it is the irresponsible use of credit cards that is bad. We need to help people to understand how to spend reasonably in the present while also planning effectively for their futures.

So it is with stock investing. There is nothing even a tiny bit wrong with people investing in stocks and earning that 6.5 percent real return that stocks really do reliably provide. The problem comes when people start believing that they can earn MORE than 6.5 percent real just by believing in the Buy-and-Hold fantasy that it is the economy producing those oversized returns rather than their Get Rich Quick impulses left untethered and out of control. The message of the last 35 years of peer-reviewed research is that Buy-and-Hold investing strategies are every bit as bad as irresponsible spending strategies. Failing to rein in our irrational emotional impulses hurts us big time in the personal finance realm (as well as in all other realms, to be sure). We need to update the investing advice that we provide people to reflect the last three decades of research-based learning experiences.

I am saying that we should tell people the truth about stock investing. Stocks provide an awesome return. They are the best asset class for middle-class people seeking to finance their retirements. But stocks don’t ever provide returns of 20 percent or 30 percent in a single year. That’s what the Buy-and-Holders were telling people in the late 1990s. The Buy-and-Holders caused a great deal of human misery by telling those lies and I am asking them to knock off the darn funny business. I am telling them to continue to encourage people to buy stocks to finance their retirements but to begin doing so RESPONSIBLY. Doing so irresponsibly adds nothing and subtracts a great deal indeed.

John Greaney destroyed many lives with his lies about safe withdrawal rates. The people who met at the Retire Early board were friends of mine. I wanted to tell them the truth about what the peer-reviewed research in this field says. Those people made clear that they wanted to hear the truth. I have every right in the world to tell them the truth. We even have laws in place to protect me and those people when Goons like you enter the scene and engage in insanely abusive posting practices to block people like that from being able to engage in the conversations that they need to engage in to learn the truth. Those laws need to be enforced in a reasonable manner. Otherwise lots of people (including you Goons) get hurt. It’s a lose, lose, lose, lose, lose for us to fail to enforce our laws against financial fraud.

I believe that Greaney himself wanted to help the people who met at the Retire Early board. I believe that he knew all along on at least one level of consciousness that his retirement study lacked a valuations adjustment and that that was a problem. His problem is that he saw that Bogle and the other Wall Street Con Men were not including valuation adjustments in their studies and so he felt that he didn’t need to include one in his study either. It’s worse than that. If he did include a valuations adjustment, his study would generate accurate numbers. But those accurate numbers would look funny because they would differ from the numbers being generated by the Wall Street Con Men. Once Buy-and-Hold became dominant, any studies rooted in reality began to look funny. Greaney got trapped by that insanity. He took the easy route of pretending that he didn’t understand why it was wrong not to include a valuations adjustment and look where he ended up as a result.

Greaney was wrong to conclude that it was okay for him to commit financial fraud because Bogle is a big shot and Bogle was doing it long before Greaney came on the scene. Greaney should have reported the numbers honestly. At the very bare minimum, he should have pointed out in the study that it lacked a valuations adjustment, that there was research showing that such an adjustment is required and that the study would generate very different numbers if the adjustment were included. That way the readers of his study would be put on notice that they were following a Get Rich Quick approach and Greaney would be off the hook for committing financial fraud. There has to be deception for there to be financial fraud.

The same is of course true of Bogle. Bogle thought he was doing good when he developed the Buy-and-Hold concept. And of course he did do a great deal of good in about 20 different ways. But he messed up re the valuations question because the world just did not know at the time he was developing the Buy-and-Hold concept how stock investing really works. Then Shiller provided us the missing piece of the puzzle in 1981 and it became possible for us to develop a research-based approach that really works, Buy-and-Hold 2.0 or what we today call Valuation-Informed Indexing. All of Bogle’s many years of hard work were about to pay off.

The man dropped the ball. Like Nixon, he went into cover-up mode. Nobody destroyed him. He destroyed himself. Like all of the humans are tempted to do from time to time. And Greaney a number of years later elected to follow Bogle down the road of self-destruction. And of course Mel Lindauer eventually did the same.

When does the madness end, Laugh?

It ends when enough of us join together and form a resolve to send you Goons to prison. That’s my sincere take, in any event.

There is nothing whatsoever wrong with investing in stocks. The thing that is wrong is financial fraud. Those who report honestly what the last 35 years of peer-reviewed research says never feel the slightest temptation to commit financial fraud. Buy-and-Holders feel that temptation ALL THE TIME and give in to it over and over again when “forced” to do so by people like me who stubbornly continue to post honestly despite the many warnings dished out by their Buy-and-Hold friends re what will happen to them if they continue to do so.

I post honestly, Laugh.

That one is non-negotiable.

There is nothing whatsoever wrong with stocks. Stocks are wonderful. For all the reasons that both Buy-and-Holders and Valuation-Informed Indexers cite.

It is financial fraud that is not so wonderful. The financial fraud practiced by the Buy-and-Holders has caused a mountain of human misery over the past 35 years. I want no part of it. I have led the effort to EXPOSE the financial fraud of the Wall Street Con Men and their Internet Goon Squads for 14 years now. I intend to continue until we all achieve a second Independence Day and we all feel free to state our sincere beliefs re the last 35 years of peer-reviewed research at every investing discussion board and blog on the internet.

I hope that’s okay by you.

I intend to soldier on in either event.

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

Rob

Valuation-Informed Indexing #312: Was the 37 Percent Loss for U.S. Stocks in 2008 Mostly a Mirage?

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I’ve posted Entry #312 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Was the 37 Percent Loss for U.S. Stocks in 2008 Mostly a Mirage?

Juicy Excerpt: We see huge unforeseen negative developments in one year, followed by huge unforeseen positive developments in the following eight years. The net effect is that for the entire time period from January 2008 through July 2016, we saw an annualized real return of 5.7 percent, a number not too terribly far off from the 6.5 percent average long-term return that we would expect to see apply if there had been no particularly negative or positive economic developments at all.

My thought is that investors overshot the mark in their 2008 reassessment of the value of U.S. stocks. There really were serious economic negatives that turned up in the news in 2008. But they weren’t quite such the big deal as investors made them out to be in their first reaction to them.

And investors have overshot the mark on the up side in the years since. We were so frightened in 2008 that even average economic news would have come as a big relief. Perhaps the news was just average and the reason why we pushed stock prices up to a degree greater than average is that we were compensating for having pushed them down to an excessive extent in the overreaction of 2008.

Valuation-Informed Indexing #311: Buy-and-Hold Stopped Being Science When It Was Not Corrected to Reflect Shiller’s Findings on Valuations

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I’ve posted Entry #311 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Buy-and-Hold Stopped Being Science When It Was Not Corrected to Reflect Shiller’s Findings on Valuations.

Juicy Excerpt: Silver points to the flaw in human nature that caused the downfall not only of those who dismissed Trump’s chances of winning the Republican nomination but of those who grew so emotionally attached to the Buy-and-Hold dogmas that they became incapable of incorporating new insights into their thought processes when they were presented to them. “The distinguishing feature of the scientific method is not that it always gets the answer right, but that it fails forward by learning from its mistakes,” he says. The tragedy of the last 35 years is that the Buy-and-Holders stopped falling forward on the day in 1981 when Shiller showed them that it really is investor emotion that drives stock price changes rather than unforeseen economic developments….

A numbers-based model that is not corrected when found to be in error can no longer be said to be scientific. An uncorrected numbers-based model is the opposite of science. It has the appearance of science and thus possesses an unmerited credibility in the eyes of those making use of it (millions of middle-class investors!). But it no longer possesses the reliability of a model that is being corrected on an ongoing basis through regular application of the scientific check-and-correct process.

“The Buy-and-Holders Want to Have It Both Ways. They Want the Marketing Edge That Comes With Pushing a Get Rich Quick Approach. And They ALSO Want To Be Able To Say That There Is Peer-Reviewed Research Supporting Their Claims. Huh? There Is Zero Peer-Reviewed Research Supporting the Core Claim That It Is Not Necessary for Investors To Practice Price Discipline When Buying Stocks. At the Very Bare Minimum Fama and Bogle and All the Others Should Be Letting the Millions of Investors Following Their Advice Know That There Is 35 Years of Peer-Reviewed Research Telling a Very Different Story.”

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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:

Taking 30-35 years to build a retirement nest egg is hardly “get rich quick”.

I appreciate what you are saying and to a large extent I agree with what you are saying. The Buy-and-Holders relentlessly stress the need to focus on the long-term. They are 100 percent sincere about this and they have had a positive influence in this area. The percentage of investors who believe that it is important to focus on the long-term is much higher as a result of the work that the Buy-and-Holders have done and because of the advice that the Buy-and-Holders have given.

You can tell that there’s a “but” coming, right?

I don’t call the Buy-and-Holders “Get Rich Quickers” because I am trying to take a dig at them, Anonymous. I have spent a lot of time trying to understand why the Buy-and-Holders are so hostile to the message that Shiller conveys in his research and in his writings. Something that Shiller says bugs them on a very deep level. It is my job to figure out what that something is. I have come to the conclusion that the problem lies in a different understanding of what the term “long term” means.

The reason why the Buy-and-Holders came to the conclusion that market timing is a bad thing is that Fama did research showing that short-term timing never works. That settled the matter, in the eyes of the Buy-and-Holders. They adopted the phrase “timing never works” as a dogma and have stuck with it ever since and have been unwilling even to question the merit of the idea ever since. Shiller showed that long-term timing ALWAYS works and is ALWAYS 100 percent required. The Buy-and Holders have never even tried to dispute Shiller’s findings. They declared the idea that “timing is required” as out of bounds and therefore IGNORED Shiller’s revolutionary findings for the 35 years since he published them.

So the question of “How long is long-term?” is the key to the entire dispute.

The Buy-and-Holders really do reject the idea of looking only six months out or one year out or two years out when making investing decisions. Good for them. They are right on re that one, in my assessment.

But the Buy-and-Holders ALSO dismiss the idea of looking 10 years out or 15 years out or 20 years out or 30 years out or 60 years out. And they don’t just casually dismiss this idea. They HATE the idea of looking out more than five years (at five years out, timing really does not work — it is after five years out that timing begins to work a bit and then of course it becomes more and more critical to engage in timing (price discipline) as the time-period grows longer and longer.

“Quick” is a relative term. The Buy-and-Holders are certainly not Get Rich Quickers compared to day traders. That’s to their credit.

But the Buy-and-Holders are very much Get Rich Quickers compared to Valuation-Informed Indexers. Valuation-Informed Indexers advise investors to consider how their strategies will work over the course of an entire investing lifetime. Valuation-Informed Indexing is ALWAYS far superior to Buy-and-Hold over 60-year time-periods. There has never been a single exception in 145 years of stock market history.

So why do the Buy-and-Holders so much hate the idea of permitting investors to learn this reality? They hate it because they don’t think it is good marketing to tell investors the truth re these matters. Get Rich Quick strategies have huge marketing pull. We all have a Get Rich Quick urge within us. Those who push investing strategies rooted in Get Rich Quick thinking have a huge marketing edge over those pushing research-based strategies.

This all wouldn’t be such a big deal if the Buy-and-Holders didn’t object to others pointing out what the last 35 years of peer-reviewed research says. Many investors LOVE Buy-and-Hold. Many investors do not want to wait 10 or 15 or 20 years to see their strategies pay off. There is no reason why the Buy-and-Hold advocates shouldn’t be able to promote Buy-and-Hold to that group of investors. So long as they limit themselves to that, everyone is happy and there is no problem.

But the Buy-and-Holders want to have it both ways. They want the marketing edge that comes with pushing a Get Rich Quick approach. And they ALSO want to be able to say that there is peer-reviewed research supporting their claims. Huh? There is zero peer-reviewed research supporting the core claim that it is not necessary for investors to practice price discipline when buying stocks. That is the core Buy-and-Hold Lie. It is that particular lie that played the primary role in bringing on the economic crisis. Wade Pfau spent months checking all of the literature in this field to make 100 percent sure that there is not a single study supporting the key Buy-and-Hold Lie. There is not one. All people who love this country need to call out the Buy-and-Holders when they push this dangerous untruth.

Get Rich Quick strategies do not help investors. They help the people who sell stocks, not the people who buy them. My job is to help the people who buy stocks, not the people who sell them. So I have no choice but to call out my Buy-and-Hold friends when they tell this horrible and irresponsible lie that is today believed by so many (I believed it myself for a time).

There is a sense in which the key Buy-and-Hold Lie makes Buy-and-Hold even more dangerous than day trading. It is a limited segment of the population that finds appeal in day trading. Most middle-class people are just not interested in taking on the sort of risk involved in following such strategies. But Buy-and-Hold is presented as a respectable investing strategy. The claim is made that there is research supporting Buy-and-Hold and most investors never take the time to research the question; they assume that there must be at least some truth to the claim given that there are so many “experts” (experts in marketing!) repeating it. The trickery of the Buy-and-Holders has caused millions of people who want to be responsible in their investing choices to follow an approach with a heavy Get Rich Quick component to it.

So I think that it is fair to describe Buy-and-Hold as the purest and most dangerous Get Rich Quick strategy ever concocted by the human mind. I do not believe that it was the intent of the Buy-and-Hold pioneers to create a Get Rich Quick approach. It is important to remember that index funds were not available at the time that the Buy-and-Hold concept was being developed. So Fama had no way of knowing how important it was to check out whether long-term timing works before declaring that timing in general either does not work or is not required. Fama made a mistake, he did not engage in deliberate fraud in the early years. The same is true of Bogle.

But 35 years have passed since that mistake was revealed by the peer-reviewed research in this field. People of Fama’s stature and of Bogle’s stature obviously have a responsibility to stay on top of the peer-reviewed research before shooting their mouths off about what works in stock investing; millions of investors take what these two men say seriously and have put their financial futures at risk on a belief that these two are telling them the straight story. They are not telling the straight story when they repeat findings that were discredited 35 years ago. At the very bare minimum Fama and Bogle and all the others should be letting the millions of investors following their advice know that there is 35 years of peer-reviewed research telling a very different story than the story that they are telling.

Or so it seems to Rob Bennett, in any event.

I hope that helps a bit, old friend.

Please take good care.

Rob

“The Buy-and-Holders Got to the Top of the Hill First and Have for the Past 35 Years Used Their Dominance to Block Millions of Investors From Learning About the Other Universe of Stock Investing Strategies. If the Buy-and-Holders Are Wrong About Their Core Belief (That Is, If the Market Really Is Not Efficient and If Valuations Really Do Affect Long-Term Returns), 95 Percent of the Stock Investing Advice That Millions of People Have Heard Over the Past 35 Years Is in Error. We Learned 35 Years Ago That Everything That We Once Thought We Knew About How Stock Investing Works Is Wrong and the Buy-and-Holders Have Intimidated Into Silence Those Trying to Get the Word Out. Yowsa!”

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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:

You remind me of the George Costanza character from the Seinfeld show. Maybe you could do what George did, which is doing the opposite of what you are thinking and then that will help you become successful.

I understand that you mean that as a put-down, Sammy. The curious reality is that, looking at things from the perspective of a Buy-and-Holder, Valuation-Informed Indexers really do live in Opposite World.

It is the core beliefs of the two models that are different. When you start from a different core belief, every strategic decision ends up in a different place.

Buy-and-Holders believe that the market is efficient. It follows that the idea that the market could ever be mispriced is pure silliness. Thus, stocks offer the same value proposition at all times. Timing can never work. That all follows.

Valuation-Informed Indexers believe that valuations affect long-term returns. It follow that stock investing risk is not static but variable. Investors MUST practice long-term timing to have any hope whatsoever of keeping their risk profiles roughly constant.

We live in opposite worlds. In ordinary circumstances, that would be fine. But in this case, the Buy-and-Holders got to the top of the hill first and have for the past 35 years used their dominance to block millions of investors from learning about the other universe of stock investing strategies.

If the Buy-and-Holders are wrong about their core belief (that is, if the market really is not efficient and if valuations really do affect long-term returns), 95 percent of the stock investing advice that millions of people have heard over the past 35 years is in error.

Imagine what would happen if this were the case in any other field. If doctors were still bleeding patients today, the medical field would be a big mess.

This is why we are all enduring an economic crisis today. We learned 35 years ago that everything that we once thought we knew about how stock investing works is wrong and the Buy-and-Holders have intimidated into silence those trying to get the word out.

Yowsa!

Rob

“If the Normal Order of Things Applied in This Context, Thousands of People Smarter Than Me Would Have Jumped in 35 Years Ago and All of the Insights That I Developed and Wrote About Over the Past 14 Years Ago Would Have Been Thoroughly Explored Long Before I Came on the Scene. I Didn’t Back Down in the Face of the Intimidation. I Saw That Intimidation As Creating an Opportunity for Someone Like Me. You Were Able to Pummel Me Because No One Else Had Explored the Implications of Shiller’s Research in Depth and Communicated Them Effectively to the Millions of Investors Who Need to Know About Them. Okay, Then, I Would Do It!”

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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:

And there goes the hocomania we see on a daily basis over at your website, complete with the whole fraud and prison insanity.

I find your first line to be hilarious as you give a you speak it, but don’t follow it.

I don’t see it the way you do, Sammy.

Your view is that my 14-year effort to get every investing site on the internet discussing the far-reaching implications of Shiller’s “revolutionary” (his word) findings has been a failure because I have not been able to make a dime in those 14 years and because I have been banned at so many sites and because you Goons are the only ones posting comments at my own site. I view the 14-year effort as a huge success.

Making money and being popular are not the only things that matter. I like making money and I expect to make tons of it once the internet is opened up to honest posting on the last 35 years of peer-reviewed research in this field. And while I would not describe myself as popular today, I have had hundreds of people praise me to the skies, saying that my site is the most important investing site on the internet; even a good number of the site owners who banned me wrote me e-mails when they did so apologizing for it and telling me that they personally believe that my work has huge value and that the only reason why they banned me is that they would lose money themselves if they continued to permit someone to tell the research-based realities at their sites (as it upsets investors who have bought into the Buy-and-Hold Model to learn that the numbers on their portfolio statements do not reflect the long-term realities).

I also want to help people. I want to make money and be popular and also help people. I want it all! I think that I am going to be able to get it all in the days following the next price crash. I believe that Buy-and-Hold is the past and that Valuation-Informed Indexing is the future. I know that millions of investors want to know more about what Shiller’s research teaches us because thousands have told me so and those thousands came from only the sites that I have visited and translate into millions once you open up discussion of these ideas to the full universe of investors. So I will in days to come be paid millions while also doing a lot of good for a lot of people. If that’s failure, please bring on more failure for this guy!

We all want the same thing, Sammy. I want to know what works in investing and you want to know what works in investing. Jack Bogle wants to know what works in investing and Robert Shiller wants to know what works in investing. Millions of investors want to know what works in investing. Some are able to ask for what they want today — that’s why I have been gratified to hear thousands of investors tell me that they love my stuff. Others are in pain because they have planned their futures around the Buy-and-Hold claims and cannot bear to hear that they are not in as good shape as they were led to believe they were in. We all come at things from our own perspectives. But we all deep down inside want the same thing.

If Shiller is right (the guy was awarded a Nobel prize for his work so I believe that there is a darn good chance that he is on to something), we are going to see another price crash in the next year or two or three. At that time, the disincentive that exists today for investors to listen to Shiller’s message — that he is telling them that they need to divide their stated portfolio value by two to know the true long-term value of their holdings — goes away. At that time, I believe that we will all be united in wanting to achieve the huge advance in our understanding of how stock investing works that Shiller’s research and the mountain of amazing follow-up research that has been done over the past 35 years provides us. All of the nastiness that we have seen from the Buy-and-Holders over the past 35 years is properly seen as part of a process that over time is taking us to a much, much better place.

I have been exploring those advances in this column for six years now. And I have over 200 podcasts exploring those advances available at my web site. And I have five unique calculators there. And I have hundreds of in-depth articles there exploring every aspect of this new model for understanding how stock investing works. And I have thousands of blog entries. And I have hundreds of thousands of discussion-board posts placed all over the internet and available for retrieval at any time. And I have videos of the speeches that I have given at the financial bloggers conferences. And on and on and on.

Someone in my circumstances (I never studied investing in a formal way and I never managed a big fund) should not be able to produce such a wealth of extremely valuable material. Shiller is the leader of this movement. But you know what? Even Shiller holds back from addressing the how-to aspects of investing according to the new model; there is not one word about how to invest in his book — it’s all theory. I have been advancing the world’s knowledge re the how-to aspects of Valuation-Informed Indexing for 14 years now. In this sense, I am 14 years ahead of Shiller himself! Holy moly! Like I said above, please bring on more failures for this boy!

I obviously would not be 14 years ahead of Shiller if circumstances were different. If the normal order of things applied in this context, thousands of people smarter than me would have jumped in 35 years ago and all of the insights that I developed and wrote about over the past 14 years ago would have been thoroughly explored long before I came on the scene. You Goons started destroying my reputation on the morning when I put up my famous post pointing out the errors in the Old School safe withdrawal rate studies. I didn’t like it. But I didn’t back down in the face of the intimidation. I saw that intimidation as creating an opportunity for someone like me. You were able to pummel me because no one else had explored the implications of Shiller’s research in depth and communicated them effectively to the millions of investors who need to know about them. Okay, then, I would do it!

So I did.

You can call me a failure if you like. I cannot stop you. And you are entitled to your opinion.

But the story isn’t over until the next price crash arrives and we see how millions of investors respond to seeing most of their life savings washed away in the economic crisis that always follows a time-period in which the Wall Street Con Men are successful in persuading large numbers to follow a Buy-and-Hold strategy. I am humbled by the opportunity that was presented to me when I learned that no one had explored these ideas in depth and by the success that I have had in doing so for 14 years now. I love my country. I love the feedback that I have gotten from those who have read my words, both from the kind-hearted normals and from the not-so-kind-hearted Goons who have taught me many important things about how investing works despite their lack of charity.

You think you have won. I think that the American people have won and that I will be richly rewarded for having played a big role in helping to bring their victory to fruition. I believe that the materials available at my site will help us to recover from the economic and political crisis that we will all be enduring following the next price crash.

And I believe that my chronicles of the process by which we over time lost confidence in the long-discredited Buy-and-Hold Model and gained confidence in the somewhat counter-intutive but highly promising and highly exciting Valuation-Informed Indexing Model will help us all out too. We are going to need to put all this nastiness in perspective to be able to move on as a nation to a far better understanding of how stock investing works in the real world. I believe that the kindness that I have shown toward you Goons (in trying to understand what drives you and how your inner demons really live in a less intense form within all of us, including yours truly) will make a difference.

The game isn’t over, Sammy. It’s too early to be declaring winners and losers re this matter. I believe that we are living through a very important transition in humankind’s understanding of how stock investing works. My most important job is to bring us all together so that we all see the benefits that follow from permitting honest and open and frank and respectful discussions. The motto that I consider before pushing the “Submit” button on every post that I advance is: Be as honest as you can possibly be without crossing the line and becoming uncharitable while also being as charitable as you can possibly be without crossing the line and becoming dishonest.” I sincerely and strongly believe that that is the formulation that is going to win the day in the end because that is the formulation that is most in tune with the beliefs that made this country so dynamic and enriching for so many people for so many years.

But I don’t know it all. I could be wrong. We are both just going to have to exercise a wee bit of patience and watch to see how it all plays out in the days to come. While we are waiting for the final curtain to fall on this amazing saga, please know that I wish you all the best that this life has to offer a person regardless of any differences that we have re how stock investing works in the real world.

Hang in there, man. Don’t let the bad guys get you down.

Rob

“You Have Yourself to Blame for Your Prison Sentence. You Are Responsible for Your Own Actions. Or You Can Blame All the Journalists and Investing Experts and Economists and Researchers and Policymakers That Have Kept This Matter Hushed Up for 35 Years Now. They All Played a Role (This Group Includes Me — I Held Back on Posting That Motley Fool Post for Three Years Because I Was Afraid of What the Buy-and-Holders Would Do to Me If I Spilled the Beans). But Placing Blame Doesn’t Solve the Problem. Only Coming Clean Solves the Problem. Only Getting Everything Out in the Open Solves the Problem.”

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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:

I guess you are holding back on the usual comments of goons and prison threats that you liberally use on your own site.

The natural order of things is that we all learn new things over the course of time. In the investing realm, we learned something very important in 1981. We learned that valuations affect long-term returns. That is, that the market is not efficient, that risk is variable rather than static, that a Buy-and-Hold strategy can never work. We should have been using the past 35 years to explore all of the many far-reaching implications of that “revolutionary” (Shiller’s word) finding.

It didn’t happen. The advance was so big and the subject matter so important to so many people that cognitive dissonance stepped in to delay our ability as a society to process this new knowledge. As time went on, it got harder and harder to acknowledge the mistake because it was hurting more and more people. Eventually, valuations rose to levels never seen before. So the damage resulting from our failure to teach investors the importance of practicing price discipline grew to levels never seen before too. Eight years ago, we experienced the second biggest economic crisis we have ever seen. And still valuations are at insanely high levels. So those who understand what the new research says are expecting another huge price drop in days to come.

What do you think is going to happen when millions of retirements are wiped out, Sammy?

I didn’t cause any of this to happen. I pointed out the problem in a post that I put to a Motley Fool discussion board on the morning of May 13, 2002. Hundreds of my fellow community members applauded me, saying that my post kicked off the most important discussion ever held at that forum. But you Goons stepped in with your nastiness and your trickery to block the discussions. Then you followed me to scores of other places to do the same.

I don’t have any special knowledge of whether there are going to be prisons sentences or not. I certainly believe that there will be. There were prison sentences in the Bernie Madoff case. This case of financial fraud affects 500 times more people. How could there not be prison sentences when this all comes out? It all happened on the internet, so there are time-stamped Post Archives documenting every one of the many hundreds of thousands of posts.

I want there to be as few prison sentences as possible and I want whatever number of prison sentences there are to be as short as possible. So I want to see this matter brought to a close as soon as possible. I want this written up on the front page of the New York Times so that we can put all the nasty stuff behind us and get about the business of exploring all of the many truly exciting implications of Shiller’s work.

How do propose that we go about getting to that magic place, the place where deep in our hearts we all want to be? If I could sign a piece of paper getting us all to that place without there being any prison sentences at all, I would sign it in two seconds. I know that you would too. But I do not have access to a time machine and neither do you. So we are left with the prospect of seeing whatever prison sentence you will get if you come clean today or whatever prison sentence we will see if you come clean or are exposed at some point later than today.

The logical choice for every single person concerned is that you come clean today. But you do not want to come clean today. So you are going to continue with your nasty garbage. And there is not a thing in the world that I can do about it.

You have yourself to blame for your prison sentence. You are responsible for your own actions. Or you can blame all the journalists and investing experts and economists and researchers and policymakers that have kept this matter hushed up for 35 years now. They all played a role (this group includes me — I held back on posting that Motley Fool post for three years because I was afraid of what the Buy-and-Holders would do to me if I spilled the beans). But placing blame doesn’t solve the problem. Only coming clean solves the problem. Only getting everything out in the open solves the problem.

I am doing what I can. I do not want to see you spend one day more in prison than what is absolutely necessary at this point in the proceedings. But I cannot change things that have already happened. I have offered to write any words that I am able to write to get your prison sentence reduced or, if it is possible, to get it eliminated altogether. It is up to the people of the United States and ultimately to the members of your jury to determine the length of your prison sentence. I am happy to use any persuasion skills that I possess to make the case that they should go easy on you because of the amazingly unique set of circumstances that applies here. I have been saying all along that I am happy to do that.

What else can I do? What do you want from me?

To say nothing, to do nothing, makes matters worse. That’s the one thing that I cannot do in good conscience. I want to help the millions of middle-class investors who need to know how to invest according to the last 35 years of peer-reviewed research. I want to free the academic researchers who have told me that they would like to be able to prepare honest research without seeing their careers destroyed. I would like to see the journalists who would like to tell this amazing and exciting and life-affirming (there is 50 times more good here than bad) story without seeing their readers become enraged with them for doing so (it upsets people to learn that their portfolios are not worth what they believed they were worth, and that is what Shiller’s research is telling us is the case at times of overvaluation). I want to help you Goons avoid prison or at least avoid very long prison sentences. I want to help everyone.

Please tell me what you would have me do to help everyone. Please do not say that I should let the 35-year cover-up extend to 36 years. I know with absolute certainty that that is not the answer. As you of course know as well when you are being even a tiny bit honest with yourself.

Rob

 

“I View It As a National Tragedy That As an Entire Society Advances in Our Understanding of the Realities of Stock Investing Have Been Delayed for 35 Years Now. I Have Taken on as My Life’s Work the Project of Doing All That I Can to Create Safe Places for People of All Investing Persuasions (Buy-and-Holders and Valuation-Informed Indexers Alike) to Express Their Sincere Views on the Many Far-Reaching Implications of Shiller’s Powerful Research-Based Insights.”

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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:

Buy and hold what, Rob? You just use it as a label. If you go to the Boglehead forum (which is your stated nemesis, the portfolios vary greatly and there is the common practice of rebalancing. Meanwhile, your plan crashed and burned a long time ago.

Your emotions (most notably, your envy) comes through loud and clear.

When I say “Buy-and-Hold,” I am referring to the investing strategy advocated by Jack Bogle by which investors are advised to stick with the same stock allocation regardless of the valuation level that applies for stocks. I believe in Valuation-Informed Indexing, which incorporates all of the many powerful insights advanced by the Buy-and-Holders over the years but which also incorporates the peer-reviewed research from 1981 forward by Robert Shiller and others showing that valuations affect long-term returns and that therefore stock investing risk is variable rather than static and that investors thus MUST be willing to adjust their stock allocations in response to big valuation shifts to have any hope whatsoever of keeping their risk profiles roughly stable.

I view the strategy known as “Buy-and-Hold” as a first-draft effort at developing a research-based model for understanding how stock investing works. I LOVE the idea of following a research-based model for guidance on how to invest (not surprisingly, I was once a proud Buy-and-Holder myself). But I HATE the idea that there can ever be any idea that is so well proven that it can no longer be subject to questioning and challenges. I believe that Shiller’s “revolutionary” (his word) research of 1981 discredited the fundamental belief on which the Buy-and-Hold Model was constructed, the idea that the market is efficient and that thus valuations (prices) do not need to be taken into consideration in all investing decisions.

I have spoken to hundreds of people in this field who hold varying degrees of doubt re the merit of the idea of ignoring valuations when setting one’s stock allocation but who decline to express those doubts as strongly as they feel them because they have seen the abusive practices followed by the more dogmatic advocates of the Buy-and-Hold strategy and don’t want to see their personal lives or their careers destroyed because they hold these beliefs. I view it as a national tragedy that as an entire society advances in our understanding of the realities of stock investing have been delayed for 35 years now as a result.

I have taken on as my life’s work the project of doing all that I can to create safe places for people of all investing persuasions (Buy-and-Holders and Valuation-Informed Indexers alike) to express their sincere views on the many far-reaching implications of Shiller’s powerful research-based insights.

Rebalancing is the thing I oppose. To rebalance is to return to the same stock allocation that one held before a price change caused one’s stock allocation to change. I believe that investors should go with higher stock allocations when valuations are low and with lower stock allocations when prices are high. It is only by encouraging investors to exercise price discipline that we can prevent bull markets.

If investors sell every time prices get too high and the long-term value proposition of stocks diminishes enough to make stocks unappealing relative to other investment options, stocks will never get too overpriced and we will not again see the sorts of insane overpricing that led to the 2008 price crash and the economic crisis that followed. Teaching investors that it is not necessary to change their allocations in response to big price changes is the most dangerous advice imaginable, in my assessment (and it is my further assessment that there is strong support for this view in the last 35 years of peer-reviewed research in this field).

We all have emotions. I aim to keep mine in check. But the brutal reality is that, if I have at times failed to do so, I would probably be the last to notice this. Because of my flawed human nature, I am possibly every bit as biased against Buy-and-Hold as the Buy-and-Holders are biased against Valuation-Informed Indexing. I wish that I could change that, but I cannot. The best that I can do is to warn all who read my words that they are reading one person’s opinion and that they would be fools to make any investing decisions based solely on that one person’s views.

I don’t entirely agree that the Bogleheads Forum is my “nemesis.” I can see why some would put it that way. I posted at that forum for about 20 months. I loved the experience; there are more smart people there than at any other forum I have visited. And the feeling was mutual. There were a large number of posters there who identified me as one of their favorite posters of all time. However, I am today banned for life at that forum. Even posters who have spoken up in my defense or who have requested that I be readmitted have been banned. Amazingly enough, the entire board was moved from the Morningstar site because the owners of the Morningstar site refused to follow the demands of a few of the “leaders” of the board to ban me. Those leaders have made clear that they hate me with a burning hate.

My view is that the forum as it exists today should be called the “Lindauerheads Forum” rather than the “Bogleheads Forum” because Bogle at least publicly supports the idea of looking to the peer-reviewed research for guidance on how to invest and Valuation-Informed Indexing is the first true research-based strategy (Buy-and-Hold was intended to be a research-based strategy but Shiller’s research showed that the first draft approach was rooted in error).

Valuation-Informed Indexing could properly be called “Buy-and-Hold 2.0.” It is what Buy-and-Hold would be today if Bogle had followed his own advice of staying on top of the peer-reviewed research and had updated Buy-and-Hold when Shiller’s revolutionary findings were published. It is my intent to take Bogle’s ideas in the direction in which he himself would have taken them a long time ago had only he not gotten caught up in the cognitive dissonance that all of us humans are prone to fall victim to when we become too emotionally attached to one way of thinking about a subject important to us.

I don’t envy the Buy-and-Holders. I love them. They have taught me many important things. I naturally regret the stubbornness with which SOME Buy-and-Holders have responded to my pleas to incorporate the lessons of the last 35 years of peer-reviewed research in this field into their thinking and to the willingness of a much larger group of Buy-and-Holders to tolerate the insanely abusive practices that the small group has employed to block the millions of middle-class investors who have both a desire and a need to learn more about the many far-reaching implications of Shiller’s findings from doing so.

I hope that helps a bit, my old friend.

Rob

Buy-and-Hold Goon to Rob: “Something Totally Unrelated Has Just Happened in My Life That Made It Clear How Petty It Has Been to Hold a Running Anonymous Argument With Someone on the Internet for a Decade About Personal Choices on Approaches to Retirement Funding! You Have a Right To Be Wrong, and To Still State Your Views All You Want. I’ll Give You This, Rob, You Are One Exasperating Son of a Gun.”

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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,
I have left you a lot of caustic response messages over the years. While I still feel you are wrong about so much, mostly your approach to them but also on the facts, something totally unrelated has just happened in my life that made it clear how petty it has been to hold a running anonymous argument with someone on the internet for a decade about personal choices on approaches to retirement funding! You have a right to be wrong, and to still state your views all you want. Always have, of course. But I do hope you find the peace that would almost certainly come from not having this crazy obsession in your life any longer. Anyway, while I do think your claims of illegality for those who wrote in opposition to your claims, snarkily or not, politely or not, are not just unsupportable but ridiculous, I would like to offer you an apology for any psychic pain my own barbs might have caused you. I’ll give you this, Rob, you are one exasperating son of a gun, but after all that, I still do hope you find your own personal peace and happiness. I’m going to go seek to perfect my own, now. Take care.

I am grateful to you for posting those words, Anonymous. I knew all along that you had a soft spot hidden away somewhere deep inside of you!

You are an exasperating son of a gun as well! I mean that in the way that I believe you meant it when you directed those words to me. You believe in what you are saying and you believe that you are helping by making the strongest possible case for what you believe. I have learned important things as a result of your persistence in making your case and I am grateful.

I am being entirely sincere when I say that I wish you the best of luck in all your future life endeavors, my old friend.

Rob

Valuation-Informed Indexing #310: Once There Is a Bubble, It’s Too Late to Do Anything About It

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I’ve posted Entry #310 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Once There Is a Bubble, It’s Too Late to Do Anything About It.

Juicy Excerpt: But the problem of a lack of price discipline can be addressed through education. The reality is that all overvaluation is a bad thing; small amounts of overvaluation lessen the value proposition in the same way as the large amounts of overvaluation that are referred to as “bubbles,” just to a lesser degree. Investors taught to object to all overpricing (as the participants in all markets other than the stock market have been taught to object to all overpricing) will tap the brakes each time a little bubble-generating irrational exuberance is applied to the engine.

Bubble cannot be prevented in markets lacking price discipline and cannot develop in markets possessing price discipline. Talk about bubbles wastes our time. Our focus should be on educating investors on the need to always exercise price discipline so that bubbles become a thing of the past.