A Rich Life

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

Valuation-Informed Indexing #269: Eight Questions That Should Be Keeping Buy-and-Holders Up at Night

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I’ve posted Entry #269 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Eight Questions That Should Be Keeping Buy-and-Holders Up at Night.

Juicy Excerpt: Yale Economics Professor Robert Shiller showed in peer-reviewed research published in 1981 that valuations affect long-term returns. That “revolutionary” (Shiller’s word) finding changed everything we thought we knew about how stock investing works. If valuations affect long-term returns, stock risk is variable rather than fixed; that means that we can reduce risk by taking valuations into account when setting our stock allocations. Shiller’s book exploring this finding in depth was a national bestseller. He was awarded a Nobel prize for his work.

Given the importance of this advance in our understanding of how stock investing works, one would have expected that the Buy-and-Holders would have made scores of changes to their strategy to reflect the new understanding. Can the Buy-and-Holders identify even ten changes?

Can they identify even one?

Valuation-Informed Indexing #268: Chase Utley’s “Dirty” Slide and Robert Shiller’s “Dirty” Research

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I’ve posted Entry #268 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Chase Utley’s “Dirty” Slide and Robert Shiller’s “Dirty” Research.

Juicy Excerpt: Say that there is a range of opinion on how stock investing works that extends from “1” (which signifies that Buy-and-Hold is perfect in every way) to “10” (which signifies that Buy-and-Hold is truly dangerous because it makes it impossible for investors to keep their risk profiles constant). If we permitted a full range of opinions to be discussed and explored, most investors would probably end up holding opinions in the middle of the range. Most investors would see merit in Buy-and-Hold but would also maintain a healthy skepticism re its most extreme claims and would feel the same way about Valuation-Informed Indexing. That’s how I think things should be done.

That’s not how things are done today. Today, those holding opinions that range from “1” to “3” are welcomed at all boards and blogs and warmly invited to share their thoughts in great depth. “4”s are permitted. “5”s are tolerated, but just barely. Those holding opinions ranging from the “6” level to the “10” level are warned that they must censor themselves, and, if they fail to do so, they are banned.

We don’t know what we are missing when we don’t hear from the “6”s and the “7”s and the “8”s and the “9”s and the “10”s. Because we never hear them.

Valuation-Informed Indexing #267: Take Valuations Seriously and You Will Discover Things That You Were Not Initially Even Seeking to Discover

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I’ve posted Entry #267 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Take Valuations Seriously and You Will Discover Things That You Were Not Initially Even Seeking to Discover.

Juicy Excerpt: Valuation-Informed Indexing is the Sabermetrics of investing analysis. Once upon a time, we all knew that the stock market is efficient, that price changes are caused by economic developments, that investing risk is stable, the timing never works and that stock returns cannot be effectively predicted. Then this crazy Shiller fellow came along and stood everything we once thought we knew about stock investing on its head. Well, that’s in fact not quite true as of today. But we are getting there, slowly but surely. We are in the early years of a “revolution” (Shiller’s word) in our understanding of how stock investing works.

“Most People Who Agree With Shiller Hold Back From Exploring All the Implications of His Ideas Publicly. That’s Why Valuation-Informed Indexing Has Only Won Over 20 Percent of the Population in 34 Years. I Want It to Win Over 100 Percent of the Population. So I Say Things in the Way in Which They Must Be Said for Us to Get to 100 Percent.”

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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:

“Except that it’s not one single person.”

There is only one person (you) that is saying that all these experts are wrong and that you are right. There is one else that is saying there have been death threats (other than the threat you made). There is no one else saying that the people you call goons (as well as a number of financial experts and other board owners) are going to prison. There is no one else but you that is saying a $500 million windfall is coming your way. I think you get the picture.

Of course, you will lie and say otherwise. There are zero facts to back you up.

The question remains…….do we believe in the grand conspiracy against you as well as your fantasy world, or is it more likely that you are living a lie and fantasy.

There are things that I say today that no one else says today.

But all of the things that I say follow from my belief in the importance of Shiller’s research findings and about 20 percent of the population agrees with me re that one (I am going by what I have seen on numerous discussion boards).

Most people who agree with Shiller hold back from exploring all the implications of his ideas publicly. That’s why Valuation-Informed Indexing has only won over 20 percent of the population in 34 years. I want it to win over 100 percent of the population. So I say things in the way in which they must be said for us to get to 100 percent.

The Buy-and-Holders don’t hold anything back. I like that about them. We all need them to make their case as strongly and as clearly as possible for us to be able to learn from them and be persuaded by them. I want to see the Valuation-Informed Indexers to be just as clear and just as firm and just as bold in their framing of their message. They are not helping us all out to the extent they could if they do otherwise.

There is a continuum of opinion on every subject. There are people at both extremes and there are people in the middle. There are a lot more people in the middle. There are usually few at the extremes. I am at the extreme of pro-Valuation-Informed-Indexing opinion. That much certainly is so. I am more pro-Valuation-Informed-Indexing than Shiller himself today.

But all of my views follow from Shiller’s findings and 20 percent of the population today agrees with the thrust of what I have to say. You bring up some procedural points. People don’t like that I say those things. That’s a stone cold fact. But I believe that it is important that people say those things. It is the procedural funny business employed by the Buy-and-Holders that has been holding us back for a long time now. The Buy-and-Holders are going to continue engaging in the funny business for so long as it works for them. And it will continue working for them until we all call them out on that stuff when we see it.

It is my belief that we should have a 100 percent consensus against continued employment of the funny business. That stuff is degrading to the Buy-and-Holders, it is really anti-human. We do not have a consensus against it today. I acknowledge the reality. But I believe strongly that we have hurt ourselves by not acting together to bring that stuff to a full and complete stop.

Outside of the nasty process stuff, I am still in a minority but I am in a minority of about 20 percent of the population. And the views held by that minority are backed by 34 years of peer-reviewed research and a Nobel prize.

Rob

“Wade Pfau Never Wrote Any Words of That Nature Until You Threatened to Send Defamatory E-Mails to His Employer. Words That Are Said As the Result of Intimidation Tactics Don’t Count. Wade Said What He Really Believes About Safe Withdrawal Rates and About Valuation-Informed Indexing and About Me in Hundreds of E-Mails That He Exchanged With Me, Many of Which I Have Reported on at My Site.”

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

Rob,

Just to help you out, here is the link. Your “question” was actually addressed in less than 90 minutes, as pointed out by Wade. It seems the embarrassment of that has lasted all these years. Here is a helpful link:

http://retirementresearcher.com/valuations-and-withdrawal-rates/

Wade never wrote any words of that nature until you threatened to send defamatory e-mails to his employer. Words that are said as the result of intimidation tactics don’t count, Sammy. Wade said what he really believes about safe withdrawal rates and about Valuation-Informed Indexing and about me in hundreds of e-mails that he exchanged with me, many of which I have reported on at my site.

Neither the Greaney study nor any of the other Old School SWR studies have been corrected to this day, Sammy.

There have been scores of articles published in all of the top-name publications pointing out that the infamous “4 percent rule” that came from those studies is likely not going to work for millions of retirees who employed it in their plans. Those people will be suffering one of the worst life setbacks imaginable. All of that could have been avoided f the studies had been correctly promptly once the errors in them had become public knowledge (this happened on the morning of May 13, 2002).

Correcting the studies also would have led to a great learning experience. People who cannot admit the possibility that they have made a mistake can never learn anything. If you think that you already know everything, how can you ever expend effort to move forward?

The safe withdrawal rate is not always 4 percent. It is a number that varies, depending on the valuation level that applies on the day the retirement begins. In 1982, the SWR was 9.0 percent. In 2000, the SWR was 1.6 percent. For a retiree with a $1 million portfolio, that’s the difference between living on $16,000 per year and living on $90,000 per year. That’s no small difference.

The Buy-and-Holders did a great thing in trying to turn investing analysis into a science. There’s too much subjectivity in this field. People need to use numbers to plan their financial affairs. The job of an investing analyst is to supply those numbers to people.

But it is inevitable in a new science that people are going to make mistakes. In the early days of Buy-and-Hold, people thought that the market was efficient. If the market was efficient, Buy-and-Hold would be the ideal strategy. If the market was efficient, the SWR would be a constant (and that number would indeed be “4”).

But Shiller showed in his “revolutionary” (his word) research of 1981 that the market is NOT efficient. He showed that risk is not constant but variable. It follows that the safe withdrawal rate CHANGES as valuations change.

Every investor need to know this. We should be discussing this at every discussion board and blog on the internet. We should be having a national debate re the implications of Shiller’s revolutionary findings. This is huge. And it is very, very, very positive news that we can now reduce the risk of stock investing by 70 percent just by letting that national debate take place.

That’s my sincere take, in any event.

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

Rob

 

“I Developed the Ideas Tested in the Study That I Co-Authored with Wade Pfau. Wade Did Great Work Testing Them and Proving Their Legitimacy. He Never Tried to Hog Full Credit for the Study. He Said Many Times That He Considered Me the Lead Person Behind the Development of the Valuation-Informed Indexing Concept and That He Believed That the Shift from Buy-and-Hold to Valuation-Informed Indexing Is the Biggest Advance That We Have Seen in the Investing Field in Many, Many Years.”

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

Tempted to lie???? You lie constantly. Look at your latest post. You repeat the lie that you authored a study with Wade Pfau. That is a lie. You are merely mentioned in the credits along with other people and you are not listed as an author.

Your retirement plan was a well documented failure. You now try to cover that up by blaming other people and also lying. In fact, all people need to do is google your name and the word “lies” and they will see plenty.

Wade acknowledged me in the credits as having provided “inspiration” for the study because he based it all on my ideas. He followed my posts at the Bogleheads Forum, was fascinated by what I was saying and wrote to me asking if I would be willing to work with him to produce a study on Valuation-Informed Indexing. We worked together for 16 months, exchanging hundreds of e-mails.

Wade wrote all the words that appear in the study. He performed all the statistical tests. But I think it would be fair to say that the harder job BY FAR was to come up with the ideas that were tested. Wade deserves credit as co-author of the study. But I certainly deserve credit as co-author as well.

I have no problem with him only crediting me in the acknowledgments. I do not hold a Ph.D. in Economics. So I am not qualified to be officially listed as co-author. But now that Wade has agreed (in response to your threats to destroy his career) not to continue to promote the study or Valuation-Informed Indexing, I need to tell the story of how the study was produced. We need to have that study on the front page of the New York Times and the named co-author is no longer doing what it takes. As I promote the study and the Valuation-Informed Indexing concept that it tests, I need to be honest with people about how the study came to be produced.

I developed the ideas. Wade did great work testing them and proving their legitimacy. We are co-authors. He had no qualms whatsoever saying that in the days before you Goons threatened to send defamatory e-mails to employer. Wade credited me as the primary author in numerous e-mails. He never tried to hog full credit for the study. He said many times that he considered me the lead person behind the development of Valuation-Informed Indexing and that he believed that the shift from Buy-and-Hold to Valuation-Informed Indexing is the biggest advance that we have seen in the investing field in many, many years.

I look forward to working with Wade again. I believe that I will be working closely with both Wade AND with Jack Bogle following the next price crash.

We’ll see.

Rob

“I Have Raised the Possibility of an Amnesty for People Who Have Continued to Promote Buy-and-Hold Because They Once Truly Believed in it and Who Are Suffering Cognitive Dissonance re the Last 34 Years of Research Because It Is Just Too Hard for Them to Accept That They Got Something Wrong. But I Can’t Adopt an Amnesty By Myself. We Have to Get Congress Involved. We Need to Have a National Debate.”

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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 are not on the same page as Wade as he asked you to stop. You are not on the same page as he wont even speak with you. Sending out 30,000 emails about someone says more about you have significant issues versus the message itself.

Wake up, Rob. That is NOT normal. It is called stalking.

As for your desire to have expel say, “I was wrong”, that goes back to the central issue of you wanting to find someone else to blame for your failures. Your retirement plan failed because of you. Stop blaming other people.

The 30,000 e-mails were not all about Wade, Sammy. They were about the problem that we are having as a society making the transition from Buy-and-Hold to Valuation-Informed Indexing. The article that I referenced in the e-mails did indeed tell about how Wade and I worked for 16 months on this amazing research and about how excited he was about our findings and about how he was threatened and about how he stopped promoting the research so that the threats would stop and he could continue to be successful in his career. But the article talked about a lot of things other than Wade. And it of course said many things that put Wade in a very positive light. I love Wade. The idea that I would ever do anything to harm him in any way is of course 100 percent crazy. That’s Goon talk, nothing else.
You are right that Wade asked me to stop talking about our research and to stop talking about Valuation-Informed Indexing and not to send the e-mails. That part of your statement is accurate. But why do you think he did that? Wade himself had been promoting the study heavily before he was threatened. He had gone to the Bogleheads Forum and told people all about it. He got a generally good response. When some Goons came onto the thread and started doing what Goons do, he was very harsh in his responses to them (harsher than I usually am). Wade is not a Goon and Wade doesn’t like Goon tactics. So why did he ask me to stop telling people about our amazing research?
He is EMBARRASSED.
Nothing could be more clear. He knows that our research is of huge importance. He knows that it belongs on the front page of the New York Times. And he of course knows that he is no longer doing what needs to be done to get it there. So he is embarrassed.
He’s not the only one. Shiller is embarrassed that he has not done more. Bogle is embarrassed that he has not done more. Michael Kitces is embarrassed that he has not done more. Carl Richards is embarrassed that he has not done more. Bill Bernstein is embarrassed that he has not done more. Rick Ferri is embarrassed that he has not done more. Larry Swedroe is embarrassed that he has not done more. It would be a shorter paragraph if I wrote the names of people who are NOT embarrassed that they have not done more. We are ALL embarrassed that we have not done more.
We’re all in the same boat, Sammy. We all want the same things. We all want to know how to reduce the risk of stock investing by 70 percent. How do we get from the place where we are now to the wonderful place where we all want to be omorrow? We don’t get there by silencing each other out of embarrassment that we didn’t get there quicker, do we?
I want Wade to win the freakin’ Nobel prize, okay? There’s no bigger Wade Pfau fan than Rob Bennett.
I want Bogle to go down in history as the biggest hero to the middle class that ever lived. There’s a good chance that that is going to happen if he corrects the one error he made when he developed his strategy. There’s not too much chance if his continued unwillingness to correct the error puts us in the Second Great Depression. I am the best friend that Jack has on this planet. He doesn’t see it that way today. But it’s so. And I bet that he is going to see it that way following the next crash.
If the 34-year cover-up had never happened, there would not be one person today offering any opposition to the idea of teaching every investor all there is to know about Valuation-Informed Indexing. Our problem is that the 34-year cover-up DID happen. And it is very embarrassing to many people for this to get out.
Now —
What are we going to do about it?
I follow a two-prong approach. My rule is to be as honest as possible without crossing the line and becoming uncharitable while also being as charitable as possible without crossing the line and becoming dishonest. Does that not make sense? I am trying to HELP my Buy-and-Hold friends. Always. I want to bring all the embarrassment to an end. We can’t do that without ending the cover-up. So I want to end the cover-up. But it’s not that I want to hurt my Buy-and-Hold friends in any way. I want to PRAISE my Buy-and-Hold friends. But I only want to praise them for the things they got right, which is a lot, not for things they got wrong. I HURT my Buy-and-Hold friends when I praise them for things they got wrong. That just makes things worse. It’s because too many people have been doing things like that that we are in this mess in the first place.
I have raised the possibility of an amnesty for people who have continued to promote Buy-and-Hold because they once truly believed in it and who are suffering cognitive dissonance re the last 34 years of research because it is just too hard for them to accept that they got something wrong. That makes sense, does it not? But I can’t adopt an amnesty by myself. We have to get Congress involved. That means that we have to have a national debate. I’ve been calling for a national debate for 13 years now! That’s the answer. Once we all come clean, it all gets better and better and better with each passing day instead of worse and worse and worse.
This column entry is about going to the dentist. I told my dental troubles to a fellow I was talking to at a church picnic this weekend. The guy told me that he hasn’t been to a dentist in 10 years! He knows that he needs a root canal and he is afraid to go! Huh? Wha?
That’s sad stuff, Sammy. It’s also painfully human stuff. This fellow made his situation worse by going into denial. He needs to make a darn dentist appointment! Yes, it is going to hurt. But then the hurt is going to pass. And he won’t be walking around anymore with all that fear about what the future is going to bring.
The Buy-and-Holders are wonderful people who have done wonderful things. Shiller added a piece that they didn’t possess when they were putting together their strategy. Shiller is their friend, not their enemy! And I am their friend, not their enemy!
Wade wants to be writing about Valuation-Informed Indexing and talking about Valuation-Informed Indexing and teaching Valuation-Informed Indexing and answering questions about Valuation-Informed Indexing and taking up research project on top of research project exploring the limits of Valuation-Informed Indexing. The 16 months that we were working together were the happiest 16 months of his life. He told me so on many, many occasions.
He just doesn’t want you Goons harassing him like you have been harassing me for 13 years.
You Goons need to knock off the funny business. That’s the answer. We all win (including you Goons!) when you do that.
That’s my sincere take, in any event.
Hang in there, Sammy. It gets better. A LOT better.
I am sure.
Rob

“We Will All Be in a Better Place When I Can Go to Any Discussion Board or Blog on the Internet and Post With 100 Percent Honesty and Not Have Any Concern Whatsoever That Intimidation Tactics Will Be Directed At Me. We All Do Our Best Work When We Feel Free to Follow Our Ideas Where They Lead Us As We Further Develop Them. I Want That for Everyone.”

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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:

According to Wade Pfau, who is the expert, yes. Anyone can go to his site and search your screen name of hocus and will see what he said about you and SWRs. I would tell you that you should take it up with him if you disagree, but I understand he no longer speaks with you after you decided to send out over 30,000 emails about him even though he asked you to stop.

I sent the 30,000 e-mails to academic researchers who work on these issues. They all want to do good and honest work, Sammy. And they help us all when they do.

And Wade very much wants that too. I worked with him for 16 months. We exchanged hundreds of e-mails. He told me that he wants that at many different times and in many different ways. Nothing could be more clear.

I know that we will all be in a better place when I can go to any discussion board or blog on the internet and post with 100 percent honestly and not have any concern whatsoever that intimidation tactics will be directed at me. We all do our best work when we feel free to follow our ideas where they lead us as we further develop them. Is that not so?

I want that for everyone. I want it for Bogle. I want it for Shiller. I want it for Pfau. Heck — I want it for you, Sammy! I have learned from you on numerous occasions. I want to learn more from you. Once you no longer feel a need to cover things up, you are going to feel free to say all kinds of things that you do not feel safe to reveal today.

I once recorded a podcast where I talked about my vision for the future of investing analysis. One thing I mentioned in that podcast is that I would like to see Money magazine have a ten-part series of cover stories focused on an “I Was Wrong” theme. Bogle could write one. And Bernstein. And Carl Richards. And Michael Kitces. I would write one. I have been wrong about some things. I think people might well learn more by me writing about things that I have gotten wrong than they would by hearing me push my views on SWRs one more boring time. No?

We permit (and even encourage!) honest posting in all fields other than stock investing. We all should be taking a step back and asking ourselves why the investing field is so different. It’s not that honesty is less important in this field. It’s that honesty is MORE important in this field.

Say that a bicycle manufacturer uses a new kind of metal to make bikes for the purpose of making them more lightweight but that in reality for some reason using the new metal made the bikes heavier. That’s a mistake, right? The company needs to fix that, right? So they do. It’s not a mistake that ruins millions of lives. So the people who make that kind of mistake feel comfortable acknowledging the mistake and thereby moving on to better things.

The problem in the investing field is that mistakes have devastating consequences. Get the safe withdrawal rate wrong and millions of people suffer failed retirements. Yikes! That’s why we have seen a cover-up of the errors in the Old School studies. Also, the errors that we make in the investing field are not revealed in practical terms for a good number of years. People don’t see their retirements fail immediately. It can take as long as 10 years before they even begin to see negative consequences. And the first negative consequences might not be that dramatic. It can take a long time indeed before people see in the flesh-and-blood world why it is so critical to always, always,always take valuations into consideration when putting together a retirement plan.

I don’t have anything to take up with my good friend Wade. We don’t agree on every little question. But we agree on 90 percent of the stuff that matters. The most important thing that we agree on is that academic researchers should not be intimidated into silence when they do powerfully important research that would help millions of people if it were featured on the front page of the New York Times. Wade was so excited about the research that we co-authored that he told me he could hardly sleep some nights during the months that we were putting it together. He told me that he had visions of winning a Nobel prize. And i think he will indeed win a Nobel prize in the end. His prize has been delayed, not cancelled.

Wade doesn’t speak to me today. But we sure will be speaking on a daily basis once he wins that Nobel prize! I am pretty darn sure of that. And he will be thrilled that I sent out the 30,000 e-mails when we all get to the other side of The Big Black Mountain. Wade and I are on the same side just as Bogle and I are on the same side and just as, ultimately, Sammy and I are on the same side. We all want the same things, Sammy.

We all need to work together to bring this intimidation stuff to an end. We cannot do our best work for so long as we are afraid of what will be done to us if we state clearly and firmly and simply what we have learned about stock investing from the last 34 years of peer-reviewed research in this field. We are on the one-yard line today. We are almost there. But not quite. We all need to hang in there and remain optimistic.

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

Rob

“This Is a Field Where People Don’t Admit Their Mistakes. The ‘Experts’ in This Field Feel That They Need to Persuade Their Clients That They Are Super-Human and Thus Incapable of Making Mistakes. It’s Not So. And We Are All Suffering in Serious Ways As a Result.”

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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:

By the way, you were proven wrong on SWRs by Wade Pfau and you keep talking about death threats that you refuse to prove. Those are just two more points you bring up to try and explain your failures.

I am the person who discovered the errors in the Old School safe-withdrawal-rate studies, Sammy. Those studies should all have been corrected within 24 hours of my famous post of the morning of May 13, 2002.

It was nearly 10 years later that the Wall Street Journal ran its story pointing out that the famous “4 percent rule” is in error. That rule was at the core of THOUSANDS of articles on retirement planning that appeared at hundreds of web sites. MILLIONS of middle-class people will be suffering failed retirements as a result of the failure of the experts in this field to correct that error promptly when it was discovered. Even today, when everyone acknowledges that the 4 percent rule is wildly off the mark, none of the people who pushed it in earlier days have acknowledged the error.

This is a field where people don’t admit their mistakes. The “experts” in this field feel that they need to persuade their clients that they are super-human and thus incapable of making mistakes. It’s not so. And we all are suffering in serious ways as a result.

I believe that acknowledging mistakes is going to be coming into fashion following the next crash. I don’t believe that most investors expect their advisors never to make mistakes. I believe that most people just expect that mistakes that are discovered will be promptly acknowledged and corrected.

I guess that we will see what happens following the crash. I know what I believe will happen. I believe that we will all pull together because we will all be too scared to play these stupid games any longer. I will be working side-by-side with Jack Bogle and with all of my other Buy-and-Hold friends. Nothing could make me happier.

Anyway, we will see how it goes as events continue to play out.

I wish you all the best that this life has to offer a person, Sammy.

Rob

“Shiller Showed Us That It Is Primarily INVESTOR EMOTION That Determines Stock Prices, Not Economic Developments. So We All Need to Make a Switch to Talking Primarily About Investor Emotion. We Should Be Looking for Signs of Emotion and Then Trying to Explain Them.”

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

Buy, hold and rebalance is certainly a lot better than your plan, Rob, given your failed retirement and overall lack of success.

Your comment evidences emotion, Sammy.

If you were confident that Buy-and-Hold works, you wouldn’t car whether my retirement failed or not. You obviously care a great deal. You are not confident. You WANT to believe in Buy-and-Hold with your entire heart, mind and soul. But you can’t quite pull it off. So you lash out as those who encourage your doubts.

Shiller showed us that is it primarily INVESTOR EMOTION that determines stock prices, not economic developments. So we all need to make a switch to talking primarily about investor emotion, not interest rates and new products and management ability and all the other things that most people in this field write about today. We should be looking for signs of emotion and then trying to explain them.

There are TONS of signs of emotion in Buy-and-Hold communities. But people don’t write about them. They act as if this sort of thing is normal. I sure don’t think it is normal. But even I hold back sometimes because the new way of understanding how stock investing works shocks people accustomed to the old way. This is a transition that can only be achieved gradually over time.

I don’t think that Buy-and-Hold ever works for anyone. I think it is an unmitigated disaster. But so what? You believe in it. Why do you care what I think?

You obviously care deeply. That’s the problem. That’s the emotion that is driving today’s insanely high stock prices. That’s the emotion that today’s P/E10 level is trying to warn us about. The difference between me and you is that I think that we should be listening to that warning and you cannot bear the thought of doing so. That’s why you dislike me so.

I was a Buy-and-Holder myself until the evening of August 27, 2002. It was on that evening when a poster at a discussion board (a fellow who had been a good friend of mine until then) threatened to kill my wife and children if I continued posting honestly re the errors in the Old School safe-withdrawal-rate studies (these studies do not contain an adjustment for the valuation level that applies on the day the retirement begins). That amazed me. What amazed me even more was that 200 of our fellow community members endorsed his post (50 endorsed a post saying that the tactics being employed by the Buy-and-Holders were so sub-human that the board should be shut down). That told me what I needed to know about Buy-and-Hold to know that I wanted nothing more to do with it, that the days of rationalization had to come to an end

That’s where I stand, Sammy. I wish the best for you. But I don’t think that Buy-and-Hold is the answer. I think that it is hurting lots of people. I need to tell my readers that. I love my many Buy-and-Hold friends and I will always tell the story in the most charitable way that I can think to tell it. But I feel strongly that I am leaving out something important if I leave out how emotional the Buy-and-Holders become when their ideas are challenged.

It is that emotion that tells me that the Buy-and-Holders are on the wrong track. I don’t think the Buy-and-Holders are bad people or dumb people. I think that they are very smart and I think that we all owe them our respect and gratitude for all the powerful and genuine insights that they have advanced. But I also believe that they are on the wrong track re the valuations question and that their emotion shows that even they realize that on some deep level of consciousness.

I think we all need to be talking about that.

Rob