A Rich Life

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

“Once I Found Out That the Buy-and-Holders F’d Up on the Safe-Withdrawal-Rate Issue, I Doubted Everything They Have Done. And, Indeed, I Have Discovered That They F’d Up On Ever Issue That They Have Addressed. Always for the Same Reason. They Continue FOR NO INTELLECTUAL REASON WHATSOEVER to Pretend That There Is No Need for a Valuation Adjustment. So the Biggest Advance in the History of Personal Finance Has Been Delayed.”

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Set forth below is the text of a comment that I recently posted to another blog entry at this site:

“The reason why I said “Grrrrr….” is that the circumstances here are unusual and call for long headlines in some cases.”

This is a microcosm of your entire thinking. You are completely deluded in thinking you are some special snowflake and your little VII is the more important than anything that has ever happened. Never mind that newspapers have existed for hundreds of years and covered every conceivable topic, Rob Bennett and his VII are so important that it now suddenly makes sense to make distractingly long and stupid headlines.

I agree with the part about this being a microcosm of my entire thought process, Anonymous.

I am not even close to being the only person who has noted that there is now 34 years of peer-reviewed research showing that valuations affect long-term returns. Just about everybody agrees with that. Including the Buy-and-Holders. Including you Goons. So that one inspires little controversy.

Where people go onto different tracks is re the question of What That Means.

It means that the entire Buy-and-Hold Model is in error. Buy-and-Hold is rooted in the idea that timing doesn’t work. Long-term timing has ALWAYS worked and has ALWAYS been 100 percent required. There are no reasonable grounds for questioning this. ALL of the evidence shows it. There is ZERO support for Buy-and-Hold in either the peer-reviewed research or in the historical return data.

This is where you Goons jump in and accuse me of believing in conspiracy theories. It is hard for people to believe that the experts in this field could have made such a mistake and it is even harder for people to believe that they would cover it up for 34 years.

They made the mistake because we were still in the early stages of developing our understanding of how stock investing works when Fama did his research in 1965. Bogle had not founded Vanguard yet at that time. So index funds were not available. So long-term timing was not a practical option. So, when people explored whether timing works, all they looked at was short-term timing. Short-term timing really doesn’t work. So Fama discovered something real and important. The finding that short-term timing doesn’t work is the second most important finding in the history of investing analysis. Fama deserves his Noble prize. Good for him.

But Fama never even looked at whether long-term timing works or not. So it is 100 percent absurd for the Buy-and-Holders to go into shock when someone notes that ALL of the research in this field shows that long-term timing ALWAYS works and is ALWAYS 100 percent required. Fama didn’t look at the question. So nothing Fama did even bears on the question.

Shiller was the first researcher to look at long-term timing and he found (in 1981) that long-term timing ALWAYS works and is ALWAYS 100 percent required. Every researcher who has looked at the question in the 34 years since has confirmed Shiller’s finding. So, again, there should be no controversy. All of the research on both questions shows the same two things: (1) Short-term timing never works and should be avoided; and (2) Long-term timing always works and must always be employed by every investor.

Once everyone knows this, we all live far richer lives than we ever imagined possible before. We reduce the risk of stock investing by 70 percent. We increase returns by enough to be able to retire five to ten years sooner. We no longer suffer economic crises. Investor Heaven!

So why have we seen a wee bit of friction over the past 13 years?

We have seen friction because the right thing to do when a mistake is discovered is to correct it IMMEDIATELY. I play the game Dominion. The publisher just published a new expansion. They messed up the printing of the cards. They put out a message within a day or two of the publication of the expansion saying that they will replace cards re which the backs were printed off center. That’s the way it is done when the mistake relates to a silly game. That’s the way it SHOULD have been done re stock investing. Had Bogle gave his “I Was Wrong” speech in 1981, we would today be enjoying the greatest period of economic growth in U.S. history. Bogle f’d up. Big time. He needs to come clean. By the close of business today.

That’s the story.

Now –

Bogle and the Wall Street Con Men have lots of power and lots of money and lots of influence. If the game company doesn’t acknowledge its errors, it will be fried by the public. Unfortunately, things don’t work that way in InvestoWorld. If you want to work in this field, you don’t point out that Jack Bogle has played the lead role in the greatest act of financial fraud in the history of the United States. Bogle’s 34-year cover-up has destroyed MILLIONS of middle-class lives. Bogle is Bernie Madoff multiplied by 5,000.

That’s not my doing, Anonymous. I LOVE Jack Bogle. I rank him as the second most important investing analyst of all time. I learned about the errors in the Old School SWR studies by reading Bogle’s book. I amy very, very, very proud of the investing strategy (Valuation-Informed Indexing) that I have developed. It is the first true research-based strategy. It is going to change the world in a very big and very positive way. VII would not exist if not for all of the wonderful insights generated by Bogle. All of the hard work that I have been doing for 13 years now is rooted in Bogle’s work. There is no bigger Boglehead alive on Planet Earth than Rob Bennett.

But the guy has played the lead role in the biggest act of financial fraud in the history of the United States.

What would you have me do about that? I think that I have responded in a very responsible way. I have sung Bogle’s praises to the skies. While also pointing out the massive act of financial fraud on an almost daily basis and making as many people as possible aware of it. I have balanced honesty and charity in the perfect mix. I have done the right thing over and over and over and over again. I have tried to help Bogle AND the millions of middle-class investors whose lives are in the process of being destroyed by his ongoing act of massive fraud.

Yes, that makes me different.

But, no, I am not the only person who has noticed that valuations affect long-term returns. Everybody who knows anything about stock investing knows that.

Everything I say follows logically from Shiller’s finding that valuations affect long-term returns. I am not an investing expert. I did not go to investing school. I never managed a big fund. But I am not a moron. I have enough going on in the brain department that I can figure out that, if valuations affect long-term returns, there ain’t no way on Earth that a retirement study that fails to take into consideration the valuation level that applies on the day the retirement begins can possibly get the numbers right.

Once I found out that the Buy-and-Holders f’d up on that one, I doubted everything they have done. And, indeed, I have discovered that they f’d up on every issue they have addressed. Always for the same reason. They continue FOR NO INTELLECTUAL REASON WHATSOEVER to pretend that there is no need for a valuation adjustment. The reason why those of us who don’t make gobs of money promoting failed investing strategies correct mistakes when we first learn of them is that failing to do so dooms us to making the same mistakes over and over and over and over again.

THE BUY-AND-HOLDERS MADE A MISTAKE. AND THEY FAILED TO CORRECT IT. THAT’S THE STORY HERE. EVERY PERSON ALIVE TODAY SHOULD BE URGING THEM TO CORRECT THAT MISTAKE BY THE CLOSE OF BUSINESS TODAY SO THAT THEY CAN STOP DESTROYING LIVES. THIS IS NOT OPTIONAL. THIS IS IMPERATIVE!

Is there a vast conspiracy?

Well, those Wall Street Con Men have tons of money and power and they are ruthless in their willingness to destroy the careers of those who try to get the word out to the millions of middle-class investors about the con that has been worked on them. It’s the same story over and over again. Some kind and smart person like Wade Pfau learns the truth and does what he can to get the word out and thereby fix the problem. You Goons threaten to destroy him. Bogle and the other Wall Street Con Men signal their support. The good and kind person flips to the Goon side. He decides that he would rather retain his ability to make a living than to tell the truth and go hungry. Gee, I wonder why so many have flipped! Some of these things are so hard to figure out!

The announcement of your prison sentence will change things, Anonymous.

Wade Pfau doesn’t want to go to prison. Todd Tresidder doesn’t want to go to prison. Bill Bernstein doesn’t want to go to prison. Mike Piper doesn’t want to go to prison. Larry Swedroe doesn’t want to go to prison. And on and on and on and on and on.

They all will flip in one day once your prison sentence is announced. So this is headed to a very good place.

And there will be lots of people demanding your prosecution for financial fraud following the next crash. Why the heck wouldn’t they? People will be losing most of their life savings. They will be able to recover some of the money by bringing legal actions against those who have posted in “defense” of Mel Linduaer and John Greaney and Jack Bogle. Why wouldn’t they want their money back? It’s impossible to imagine any reason. And, once they bring their lawsuits, all of the facts detailed at this site will come out. So then people will demand your prosecution for criminal acts of financial fraud. The logic chain on this one is rock solid.

I am a person who has gotten caught up in circumstances. I didn’t know any of this stuff on the morning of May 13, 2002. I knew that Greaney got the numbers wrong in his retirement study, that’s it. I was obviously doing a good thing to let my discussion-board community know about those errors. The people in the community thanked me for starting the best discussion we ever had at the Motley Fool board. And then Greaney came out with his death threats. Huh? If that’s not proof of a massive cover-up, I’d like to know what would be proof of a massive cover-up.

I didn’t know on May 13, 2002, that there was a massive cover-up going on. I sure do now. What choice do I have other than to expose it? The shift from Buy-and-Hold to Valuation-Informed Indexing is the biggest advance in the history of personal finance. And continuation of the massive cover-up will put us in the Second Great Depression if it is not exposed. Do I have any choice here? Any choice at all?

I obviously have no choice, Anonymous.

You point out all the time that people don’t post here. Thousands have told me that they would LOVE to post here. There are enough people who have told me that they would love to post here to make this the biggest personal finance site on the internet. But people are scared to post here. And for good reason. People know that, if they post honestly, the same things that you Goons did to me and John Walter Russell and Wade Pfau and Ben Solar and ES and Wanderer and John D. Craig and Microlepsis and Earn a Buck and hundreds and hundreds of others will be done to them.

So the biggest advance in the history of personal finance has been delayed. The way this should have played out is that Bogle should have come clean in 1981 and as a society we would have gradually learned more and more each year. We have seen the biggest advances in history over the past 34 years, in particular in the past 13 years. And yet we have reaped no benefits thus far. Because of the death threats and the demands for unjustified board bannings and the tens of thousands of acts of defamation and the threats to get academic researchers fired from their jobs. You Goons have been super effective in destroying lives. What an accomplishment!

You can’t intimidate me, Anonymous. I don’t want to destroy. I have zero interest. I want to do positive work. So I refuse to be intimidated. Tell Bogle that he needs to get me sent to prison if he wants to shut me up. But be sure to tell him that I have contacted people who have agreed to take over the site in the event that I am sent to prison. So Bogle and his Con Men Pals are going to need to send LOTS Of people to prison to keep this covered up following the crash.

And, even if the Con Men could send all those people to prison, they still have the problem that Shiller’s book was a best-seller and can be obtained in lots of libraries. And they still have the problem that there are thousands of articles and posts that tell the truth about stock investing and that are not even housed at this site (some with my name on them, some with other names on them). The con is failing. The con is coming down. The con is in the process of being exposed.

The History Train is moving forward, Anonymous. There is not a darn thing that Bogle or you or anyone else can do about it. We all need to know the truth about what the last 34 years of peer-reviewed research says. We are going to gain access to the information and analysis we need. The only thing unsettled at this point is how long your prison sentence is going to be. Each day that passes, more lives are destroyed. Each new life that you destroy increases the length of the prison sentence you receive following the crash. That’s the deal.

Yes, the “Grrrr” was a microcosm of my entire thinking. I like doing honest work. I like doing positive work. I like doing intelligent work. So I refuse to pretend that the last 34 years of peer-reviewed research doesn’t exist. It exists. And I use it in developing every post and ever podcast and every calculator and every article and every blog entry and every column that I advance. And I always will. I refuse to be intimidated and I refuse to pretend to be a moron who doesn’t know that valuations affect long-term returns.

Wade Pfau elected to play it differently. I told him that he was “insane” to do so. Wade may or not may not join you Goons in prison. It’s not my call. But Wade is insane to behave in a way that even makes that an issue. Had he played it straight, he would have received his Nobel prize by now. I am sympathetic to his concern that his kids might starve if he does the right thing. Still, I think he was insane to risk a prison sentence. Those in this field who do not possess what it takes to stand up to the Wall Street Con Men and their Internet Goon Squads need to find a new way to make a living. That’s my sincere take re this terribly important matter.

We will see how it plays out following the crash. What else can we do at this point?

I will NOT be intimidated. I will NOT post dishonestly. Get me sent to prison or give it up and come clean or just wait for the next crash and hope for the best. Your call. I made my call on the morning of May 13, 2002. I have never given two seconds consideration to joining you Goons in the years since. It ain’t gonna happen.

I hope that helps a bit.

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

Rob

“I Don’t Fault the Nobel Prize Committee for Giving Fama the Award. But I Do Fault Them (and Lots of Others) for Not Stating Clearly How Important It Is That the Question of Whether Shiller Is Right or Fama Is Right Be Settled Through a National Debate in Which Advocates of Both Positions State Their Case in Clear and Strong and Firm and Honest Language”

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Set forth below is the text of a comment that I recently posted to another blog entry at this site:

What do you think the ratio of crazy people is to people like Rosa Parks? I believe the ratio is quite high.

I agree that most people who question conventional wisdom are wrong and that some are outright crazy. So if all you knew about a case that someone was making is that that person was questioning conventional wisdom and you had to take a bet one way or the other, your best bet would be that that person was wrong. Things don’t become conventional wisdom for no good reason. An idea that has become conventional wisdom has earned a measure of our respect.

But there are times when conventional wisdom must be questioned and eventually overcome. I strongly believe that this is one such case. To understand all the reasons why I believe that, a person would need to become familiar with all the materials at this site. But I can offer a simple illustration of why I believe that the conventional wisdom should be questioned in this case that doesn’t require the person looking at this to review the wealth of material that has been produced over the past 13 years.

A little over a year ago, Eugene Fama and Robert Shiller were both awarded the Nobel Prize in Economics. All of the reports of this award noted that Fama’s ideas about how the stock market works and Shiller’s ideas about how the stock market works cannot be reconciled. It is a logical impossibility that both Fama and Shiller are right. Many of the reports commented how odd it is that the committee that awarded the highest honor in the field gave the award to one person who put forward ideas re an important subject that they knew were completely and totally wrong and therefore dangerous. The committee doesn’t know which of the two researchers is wrong. But they know with certainty that one of the two men who received the Nobel prize on that day is wrong. And they awarded him the highest honor in the field anyway. Huh?

That’s not how it should work, Laugh. I understand why the members of the Nobel Prize Committee did what they did and I don’t fault them for it. These two men have both made huge contributions and they wanted to recognize those contributions. I obviously think that Fama got it wrong. But I also certainly acknowledge that he has made a huge contribution. So I don’t fault them for giving him the award. But I do fault them (and lots and lots of others) for not stating clearly how important it is that the question of whether Shiller is right or Fama is right be settled through a national debate in which advocates of both positions state their case in clear and strong and firm and honest language.

The debate is over an academic matter — Is the market efficient, as Fama says, or do valuations affect long-term returns, as Shiller says? But this particular academic dispute has HUGE practical implications. If Shiller is right and Fama is wrong, as I strongly believe, then it was the continued promotion of Buy-and-Hold combined with the Ban on Honest Posting on the implications of the past 34 years of peer-reviewed research in this field that caused the economic crisis that began in 2008. Millions have lost their jobs as a result of that economic crisis. Millions will be seeing their retirements fail in days to come. There are grave public policy implications here. We need to have a national debate. This is 100 percent imperative.

Conventional wisdom is usually true. I don’t think you are right with your “tens-of-millions-to-one” odds. But I would go along with 100 to 1 odds. So, if I were betting without any knowledge of the cases being made both for conventional wisdom and against it in a particular case, I would vote for conventional wisdom if forced to vote without having knowledge of the arguments. But our system of government does not require that we take positions without informing ourselves of the cases being made. Under our system, both sides are permitted to state their cases and then people decide the matter on the merits. I favor that way of proceeding.

Why? Because in that one case out of 100 in which conventional wisdom is wrong, the gains achieved by us all learning that it is wrong are so great that it makes up 10,000 times over for having to hear out both sides in the 99 cases in which the conventional wisdom is right. Every advance ever achieved in the history of humankind was achieved because someone believed that we could do better than we had done before. If the person who invented the wheel had been blocked from sharing his idea because the conventional wisdom of the time was that there is no such thing as a wheel, we all would be the poorer for it today. I support the idea of progress. Achieving progress requires being willing to listen to arguments that what we think we know today might be lacking in some way.

Did Rosa Parks run around screaming ‘prison time for whitey’ or ‘they threatened to kill my family.

Rosa Parks’ message was: “I have as much right to choose my seat on the bus as a person with white skin.” My message is: “I have as much right to post my beliefs about stock investing on every discussion board and blog on the internet as the Buy-and-Holders.” Parks changed the world by refusing to be bullied. I am 100 percent confident that I will be seen to have done the same before this saga in entirely played out.

I love all of my Buy-and-Hold friends. I wish none of them any ill whatsoever. But I believe that we all need to hear both sides of the story. For that dream to become a reality for all of us, someone needs to show the same courage that Parks showed when she refused to walk to the back of that bus. I don’t like it that I was chosen to be the Rosa Parks of Personal Finance. But I accept the job. I love my country. So I have no choice.

Think hard of your ‘great struggle’, its actual end game, and what it has accomplished in terms of real change and of the cost to you of your sanity.

I have been thinking hard about it every day of my life for 13 years now, Laugh. I am the co-author of the most important piece of peer-reviewed research published in this field in over 30 years. If you had told me on the morning of May 13, 2002, that sometime over the next 13 years I would become the co-author of the most important piece of peer-reviewed research published in this field in over 30 years, I would have said that you were out of your mind. Re that one, I would have gone along with your tens-of-millions-to-one odds. Yet here we are.

This is how it had to be done. I wish it weren’t so. But things had reached a point by the morning of May 13, 2002, that this was the only way that this good work could be done. I am very, very, very proud of the role that I have played. I love my Buy-and-Hold friends and I will always remain willing to do whatever is in my power to get things on a better track, a track that causes my Buy-and-Hold friends to suffer less and profit (in all senses of the word) more. I need cooperation from my Buy-and-Hold friends to make that little dream come true.

I strongly believe that I will get it. I no longer think that the odds favor me seeing that dream come true before the onset of the next price crash. But I do believe it will come true and that the world of investing analysis will be changed in a profound and positive way. If it happens prior to the crash, all the better. That’s obviously the best outcome for every single person involved in even a small way, which is every single one of us alive on this planet today.

We are going to need healing following the next price crash. The materials at this site are healing materials. You won’t see me using the materials at this site to make my Buy-and-Hold friends look bad. I’ll tell the truth. No healing can come without complete honesty. But the full truth here is that the Buy-and-Holders have offered huge contributions that merit our nation’s respect and admiration. I will be mixing honesty with charity when I tell this story on a national stage.

No healing can come without complete honesty. But no healing can come without complete charity as well. It is my job to combine the two in the perfect mix. I take my responsibilities here very seriously. I will either achieve that perfect mix or die trying. You have my pledge re that one, Laugh.

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

Rob

“The ‘Idea’ That It Is Not Necessary to Practice Price Discipline When Buying Stocks Was a Mistake. There Has Never Been Even a Tiny Sliver of Evidence Anywhere in the Peer-Reviewed Research Suggesting That All Investors Need Not Always Practice Price Discipline (Long-Term Timing) When Buying Stocks.”

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Set forth below is the text of a comment that I recently posted to another blog entry at this site.

What did the recent Bogleheads posts on P/E 10s linked here not say? What exactly is the “peer-reviewed research” information Bogleheads won’t allow there?

For starters:

1) The errors in the Old School safe-withdrawal-rate studies were not discovered when the Wall Street Journal wrote about them but 10 years earlier when a post reporting on those errors was posted to Motley Fool’s Retire Early board;

2) Two-thirds of the risk of stock investing is the result of the promotion of Buy-and-Hold “strategies” and the Ban on Honest Posting on the dangers of Get Rich Quick strategies supported by Jack Bogle and the other Wall Street Con Men;

3) By switching from Buy-and-Hold to Valuation-Informed Indexing, workers can realistically expect to be able to retire from five to ten years sooner than would be possible if they did not make that switch;

4) The “idea” that it is not necessary to practice price discipline when buying stocks was a mistake. There has never been even a tiny sliver of evidence anywhere in the peer-reviewed research suggesting that all investors need not always practice price discipline (long-term timing) when buying stocks;

5) There have been four occasions in U.S. history when the Wall Street Con Men were successful in persuading large numbers of investors that all the rules of stock investing might be stood on their heads and for the first time Buy-and-Hold might work well for one or two long-term investors in this or some other solar system. The first time that happened, we saw the first of four economic crises that we have seen as a nation. The second time, we saw the second economic crisis. The third time. we saw the third economic crisis. The fourth time, we saw the fourth economic crisis.

6) Jack Bogle pulled his “15 percent rule (the “idea” that it might be okay if investors lowered their stock allocations by only 15 percent when stock prices rose to insanely dangerous levels) out of his backside.

7) It was the promotion of Buy-and-Hold “strategies” that caused the economic crisis that began in 2008.

8) Robert Shiller predicted the economic crisis that began in 2008 in a book published in 2000 and explained why the economic crisis was inevitable unless we began telling millions of middle-class investors the truth about how the stock market works.

9) The stock market becomes a Ponzi scheme when stock prices reach insanely dangerous levels. There is now 145 years of historical return data showing this.

10) Many academic researchers and many investment advisors and many journalists and many bloggers want to tell the truth about stock investing but have been intimidated into silence by the brutally abusive tactics of the Wall Street Con Men and their internet Goon squads.

That’s all important stuff, Anonymous.

There are good reasons why as a people we elected to make financial fraud a felony, a crime calling for prison sentences for those found guilty of it.

Don’t let the bad guys get you down, old friend.

Rob

“Why Did a Ph.D. in Economics Have to Learn the Basics of How Stock Investing Works From Some Guy Whose Only Claim to Expertise in This Field Is That He Figured Out How to Get Stuff Posted to Internet Blogs and Discussion Boards? Why Doesn’t Princeton Have Entire Courses Focused on What the Last 34 Years of Peer-Reviewed Research in This Field Teaches Us?”

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Set forth below is the text of a comment that I recently posted to another blog entry at this site:

If you co-authored the paper, why is your name not listed as an author, but merely in the credits section, along with a host of others?

My name is not listed as co-author because I do not have the academic credentials to be formally listed as co-author. As you well know, Anonymous.

But Wade never held back from acknowledging my role in the 16 months in which we worked together. I have reported on our 16 months of e-mail correspondence at this blog. He was 100 percent up front about acknowledging my role. He said that he got all the ideas for the paper from me. He said that he was amazed at what I taught him. He said that he owed me a huge debt. We talked about him being awarded a Nobel prize for the paper and he expressed gratitude to me for making that possible for him. He talked about how we were changing the world together.

Who is the real author of a paper — the guy who writes the words that appear in it or the guy who teaches the guy who writes the words what he knows to be able to write the words? Wade did great work. But I was the lead author on that paper. Wade has certainly never said otherwise.

Why did you threaten to send defamatory e-mails to his employer in an effort to get him fired from his job if you didn’t view me as the primary author of the paper? Wade is not the one who pointed out the errors in Greaney’s retirement study. If I had not been the lead author of the paper, it never would have concerned you. Your own behavior shows that you know yourself who was the primary author of the paper. There is no other explanation of your threats.

The question you should be asking is why did a Ph.D. in Economics have to learn the basics of how stock investing works from some guy whose only claim to expertise in this field is that he figured out how to get stuff posted to internet blogs and discussion boards? Wade should have been taught all about the benefits of Valuation-Informed Indexing and about the dangers of Buy-and-Hold at Princeton. Why wasn’t he?

It’s because they don’t teach the realities of stock investing to Ph.D. candidates at Princeton that we are in an economic crisis today. I’ve spoken to numerous academic researchers who would LOVE to be doing honest work. Why aren’t they? Why doesn’t Princeton have entire courses focused on what the last 34 years of peer-reviewed research in this field teaches us? That’s the most important economic and political question facing us as a nation today, Anonymous. That’s the question that we should be exploring on a daily basis at every board and blog on the internet. When we talk openly about that question, we all are freed of the smelly Buy-and-Hold garbage forevermore.

It’s my job to get numerous courses on Valuation-Informed Indexing added to the curriculum at Princeton. When that happens, people like Wade Pfau will no longer have to come to people like me to learn the basics. And internet Goons like you will no longer feel compelled to threaten to destroy the careers of people like Wade.

I won’t get that job completed by agreeing to join you in your massive act of financial fraud, Anonymous. I get that job done by standing firm on the right that I possess under the laws of the United States to post honestly re these matters at every investing board and blog on the internet. It’s probably going to take another price crash for us all to make it to the other side of The Big Black Mountain. I don’t like that reality. But the world is today what the world is today. The important thing is that we are on the one-yard line in our effort to achieve the biggest advance in the history of personal finance. One pass into the end zone and we all are freed to live far richer lives (in every sense of the word) than we ever imagined possible back in the Buy-and-Hold/Get Rich Quick days.

There’s not going to be anyone denying that I am the primary author of the Bennett/Pfau research once we get that ball into the end zone. There’s not going to be anyone saying that I wasn’t smart to refuse to join your massive act of financial fraud when I cash that $500 million settlement check.

I am the lead author of the most important piece of peer-reviewed research published in this field in over 30 years. You are an internet goon headed on his way to prison following the next price crash. Gee, I wonder who is winners here and who is losers here! Some of these matters are so darn hard to figure out!

I’ve offered to put forward some words to help you get your prison sentence reduced a bit, my long-time Goon friend. Is there any other kindness that I can offer you at this point in the proceedings?

Rob

Valuation-Informed Indexing #245: Rob Arnott Points Us to a Mathematics That Is Simple to Understand But Hard to Accept

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I’ve posted Entry #245 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Rob Arnott Points Us to a Mathematics That Is Simple to Understand But Hard to Accept.

Juicy Excerpt: Rob Arnott said something amazing a number of years back. He said: “Returns are for the most part a matter of simple arithmetic. Much of our industry seems fearful of basic arithmetic of this sort.”

Why would that be? We all want to invest effectively. If we could all invest more effectively just by performing some simple math, why wouldn’t we perform it?

Six reasons.

“The Question You Are Asking Is: What Precisely Is the Line That One Cannot Cross Before Being Put on the ‘Must Destroy’ List of the Buy-and-Hold Mafia? The Line Is Not a Fixed Place. Back in May 2002, It Was Possible to Block All Discussion of the Errors in the Old School Retirement Studies. That’s Not Possible Today. Today the Thing That Will Get You Banned Is to Say That the Discredited Studies Should Be Corrected. The Conclusion You Can Draw Is That the Buy-and-Holders Have Employed Intimidation Tactics to Stop the Valuation-Informed Indexing Concept from Spreading As Quickly As It Should.”

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Set forth below is the text of a comment that I recently posted to another blog entry at this site:

You have complained innumerable times that anyone who speaks favorably of PE10 gets banned. That’s the very definition of the “Ban on Honest Posting”. Several people in that Bogleheads thread spoke of the merits of PE10. They have not been banned. So what conclusion can we draw?

No. I have never said that anyone who speaks favorably of P/E10 gets banned. That’s far from being so. As you point out, there are numerous comments in that thread that are pro-P/E10. And some of those posters have hundreds of comments in their files. CJKing is an AMAZING poster. He has offered some of the best pro-P/E10 commentary that I have ever seen. So it is not even close to being the case that there is a ban on pro-P/E10 stuff.

That’s not true in the bigger world either. Robert Shiller is the godfather of Valuation-Informed Indexing. He is the guy who started all this (unless you count Benjamin Graham, who was speaking in favor of the VII concept back at a time when index funds were not available and when the potential of the concept was thus much more limited). My guess is that there have been LOTS of intimidation tactics directed at Shiller. I believe that he could write a book about the intimidation tactics that have been directed at him. Still, his book was widely reviewed. He was awarded the Nobel prize. Lots of people, including Buy-and-Holders, speak respectfully re Shiller. So Shiller’s ideas are not 100 percent banned.

The conclusion you can draw is that the Buy-and-Holders have employed intimidation tactics to stop the Valuation-Informed Indexing concept from spreading as quickly as it should. The particular thread that you are pointing to is a good thread. Both sides are represented on it. People can learn from it. That’s all to the good. The site administrators at the Bogleheads Forum are corrupt. But the board that they administer produced that good thread. It doesn’t help anything to ignore that. We should be celebrating that. We should be pointing out the corruption. But we should ALSO be pointing out the good that these people do when they do good. To be slanted or biased pulls things in the wrong direction. Nothing whatsoever is achieved by such behavior. So I applaud Mel Linduaer for whatever role he played in producing that thread (and he certainly played some role given the huge role he has played in building the board at which the thread appears).

The question you are asking is: What precisely is the line that one cannot cross before being put on the “Must Destroy” list of the Buy-and-Hold Mafia? I have obviously crossed that line. Wade Pfau obviously crossed it at one time and now no longer does. The people who posted on that thread obviously have not crossed the line.

The line is not in a fixed place. I crossed it on the morning of May 13, 2002, just by asking a question as to whether valuations should be considered when calculating safe withdrawal rates. My initial post didn’t even express a belief that valuations should be considered; it just asked the question. That was enough for me to become Public Enemy #1 of the Buy-and-Hold Mafia back in May 2002. Today, I could obviously get away with that with no problem. So the first thing that must be understood is that the line is not in a fixed place.

The line is fluid. To understand where the line is, you must understand the motivations of those establishing the line. The Buy-and-Holders are good and smart people who achieved huge advances in our understanding of how stock investing works. They believe themselves in the recommendations they offer to others. They follow those recommendations. But they have doubts. These doubts haunt them. If the doubts turn out to be rooted in something real, that means that the Buy-and-Holders have hurt themselves in very serious ways. It also means that they have hurt their friends and neighbors and co-workers and fellow community members in very serious ways. The idea that their doubts might be rooted in something real horrifies the Buy-and-Holders. They set out with an aim to do something good and, if those doubts end up being rooted in something real, they instead caused a huge amount of human suffering.

The purpose of the intimidation tactics is to stop the pain that the Buy-and-Holders feel when they are faced with words that at least partly persuade them that their doubts are rooted in something real. The purpose is to STOP THAT DARN PAIN through whatever means are necessary to do so.

The Buy-and-Holders realize that they cannot stop the pain entirely. Back in May 2002, it was possible to block all discussion of the errors in the Old School retirement studies. That’s not possible today. Every major publication in this field has published an article saying that those studies are in error. So it is just not realistic today to push the Old School studies in the way that they were pushed years ago. But it is still possible to get away with failing to correct the discredited studies. So today the thing that will get you banned is to say that the discredited studies should be corrected. The line has moved. But the basic impulse — stop the deeply painful stuff from appearing on people’s computer screens — remains the same. There is still a Ban in place. But the line at which the Ban comes into effect has moved because the Buy-and-Holders have acknowledged the reality that every publication in this field has acknowledged that the 4 percent rule is pure and complete garbage with nothing whatsoever to support it.

The debate that is going on in the thread to which you point is a good one. People can learn about both sides from reading it. But the Valuation-Informed Indexers are holding back in that thread. Most of the Valuation-Informed Indexers posting on that thread know that I was banned because I posted honestly at that board. Why don’t they say that? That goes to the integrity and confidence of the Buy-and-Holders and integrity and confidence are huge issues that everyone listening in needs to know about. They know that Mel Linduaer has a long history of resorting to threats of physical violence to silence posters who make points to which he does not have a good response. Why don’t they point that out on the thread? They know that you Goons threatened to get Wade Pfau fired from his job if he continued to do honest research. Why not say that? They know that Jack Bogle permits his name to be used at that board even though he has known for years that it is a corrupt enterprise. Why don’t they say that?

They don’t say it because they know they will be banned if they do say it. That’s the only reason. It is intimidation, nothing else. The Bogleheads Board is ruled by intimidation. The entire reason why they had to move the board from the Morningstar site is that there were limits to the intimidation tactics that they could employ at the Morningstar site and they needed to have those limits removed to have any hope whatsoever of continuing to “defend” the Old School retirement studies.

Buy-and-Hold cannot be defended in reasoned and civilized debate. It is impossible. There is now 34 years of peer-reviewed research showing that it is garbage, it was all a mistake that should have been corrected many, many years ago. So we see nasty stuff in discussions of Buy-and-Hold that we do not see in discussions of any other topic discussed on the internet. The issue of whether Buy-and-Hold can ever work is of huge importance and there is precisely zero reason in the peer-reviewed research to believe that it ever could work. So we have seen an act of financial fraud bigger than any earlier act of financial fraud in U.S. history to cover up the 34 years of peer-reviewed research.

I want no part of it, Dizzy. If you were thinking clearly, you would not want any part of it either.

You feel that you cannot give up the intimidation tactics because they are the only thing keeping you out of prison today. But the deeper reality is that the length of your prison sentence will be determined by how many middle-class lives you destroy and there are thousands more lives destroyed each day that the Ban remains in place. We are on the same side. I am trying to get your prison sentence reduced by bringing the Campaign of Terror to a full and complete stop by the close of business today. And on some level of consciousness you would like to see your prison sentence reduced. You just cannot bear to accept ANY prison sentence! That’s the Goon part of your talking. And, unfortunately, the Goon part of your personality is dominant today.

I’ll be there for you whenever you are ready to accept my help. My offer of charity is not a limited-time offer.

I will never say that John Greaney’s retirement study contains am adjustment for the valuation level that applies on the day the retirement begins. That’s financial fraud. Financial fraud is a felony. That means prison time. Going to prison is not on my bucket list. Find someone else. No can do. I can’t go for that.

I hope that helps a bit.

My best and warmest wishes to you and yours, Dizzy.

Rob

Valuation-Informed Indexing #244: We Should Ignore Shiller’s Stories and Focus on Shiller’s Number

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I’ve posted Entry #244 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called We Should Ignore Shiller’s Stories and Focus on Shiller’s Number.

Juicy Excerpt: I agree with Shiller that investors are highly influenced by the stories they tell themselves about stocks. But I agree with the Buy-and-Holders that the best investing insights are quantifiable, action-orinted investing insights. P/E10 is the number that makes Shiller’s story-telling insights actionable for real-world investors. P/E10 is the number that tells the tale on us when we permit our inclination to tell stories about stocks to get dangerously out of hand.

Valuation-Informed Indexing #243: The Human Brain Is Not So Much “Wired for Stories,” As Shiller Claims, But Wired for Paradigms

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I’ve posted Entry #243 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Human Brain Is Not So Much “Wired for Stories,” As Shiller Claims, But Wired for Paradigms.

Juicy Excerpt: So I like his story idea a great deal. Still, I believe that it can be refined. I believe that a better way of stating the case is to say that “the human brain is wired for paradigms.” If it were just that we were impressed by stories, I have a hard time understanding why insane levels of undervaluation that apply for long periods of time would be as much a market reality as insane levels of overvaluation that apply for long periods of time. Yes, we tell ourselves stories to justify the folly that we engage in during bull markets. But why do we punish ourselves when our bull market follies come to an end? Why don’t we continue telling ourselves happy stories that support insane price levels? Why do bull markets always end in tears?

Our brains are wired for paradigms. Stories support paradigms. So storytelling is an important part of what is going on. But the key to understanding why investors destroy themselves over and over again is understanding how the human mind is attracted to paradigms. It is by learning how paradigms form and how paradigms are broken that we learn how to reduce the risk of stock investing dramatically.

A paradigm is a collection of beliefs that all support an overall belief system. We form them in our thinking about all issues. The human brain is a paradigm-producing (and paradigm-breaking) machine.

Valuation-Informed Indexing #242: Shiller’s Claim That It Is Now Investor Anxiety Rather Than Investor Exuberance Pushing Stock Prices Up Is Unconvincing

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I’ve posted Entry #242 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Shiller’s Claim That It Is Now Investor Anxiety Rather Than Investor Exuberance Pushing Stock Prices Up Is Unconvincing.

Juicy Excerpt: The problem that I have with the Shiller analysis is that he seems to be saying that opposite sorts of emotional takes could produce the same result. Investors were irrationally exuberant in the late 1990s. That caused prices to rise to insanely dangerous levels. Now investors are not exuberant but anxious. And the anxiety too leads to high prices. When investors are happy, they push stock prices up. When investors are unhappy, they push stock prices up. In Shiller’s world, investor emotion always pushes prices up.

I know that he doesn’t really think this. But I can’t say that I have ever heard Shiller address himself to the question of what causes investor emotion to pull prices down to insanely low levels. It may just be that he is usually asked to explain current realities and we haven’t seen insanely low stock prices since the early 1980s. But I think it would aid our understanding of how the market works if we all put a bit less focus on explaining bubbles and a bit more on explaining their opposite.

Goon Poster to Rob: “Good Ideas — Ideas That Pass Logical and Empirical Muster — Simply Cannot Be Long Suppressed. Even If One Inventor, Discoverer or Vocal Proponent Is Somehow Squelched, Others Inevitably Will Come Forth With Almost Simultaneous Discovery. Witness the ‘Discovery’ of Radio, Telegraph, the Calculus, and Many Other Examples.”

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Set forth below is the text of a comment that I recently posted to another blog entry at this site:

Rob,

Good ideas — ideas that pass logical and empirical muster — simply cannot be long suppressed. Even if one ‘inventor’, ‘discoverer’, or vocal proponent is somehow squelched, others inevitably will come forth with almost simultaneous discovery. Witness the ‘discovery’ of radio, telegraph, the calculus, and many other examples. The annals of history are replete with such occurrences, and in fact, one theory is that even if a genuinely good idea is actively suppressed, the energy used to suppress it will form a sort of springboard to bounce it back into the eye of humanity. That is if it has merit. So you should not despair, if your REAL objective is to get the ‘truth’ out there. Because, totally without you being involved at all, the truth still will come forth. It always does. Reading this does not bring you comfort, though, does it? No. Because it undermines your twisted need to be a martyr and somehow obtain personal public recognition, no matter what the cost.

Please read:
http://en.wikipedia.org/wiki/Multiple_discovery

“”When the time is ripe for certain things, they appear at different places in the manner of violets coming to light in early spring.”

I strongly agree with what you are saying here, Anonymous.

I have spent the last 13 years of my life developing the Valuation-Informed Indexing concept. And I of course am very proud of the work I have done. We have discovered some absolutely amazing things. And I have played a big role. So good for me, you know?

But I certainly could not have done what I have done without Jack Bogle. And I certainly could not have done what I have done without Robert Shiller. And I certainly could not have done what I have done without John Walter Russell. And I certainly could not have done what I have done without Wade Pfau. And I certainly could not have done what I have done without Mike Piper. And I certainly could not have done what I have done without Todd Tresidder. And on and on and on.

I’ll go even a step further. I couldn’t have done what I have done without you Goons! Imagine that!

These ideas cannot be long suppressed. I agree 100 percent. They have been suppressed for 34 years now. But that’s not a long time in the grand scheme of things. The humans have been trying to come to a better understanding of how stock investing works for hundreds of years. The shift from Buy-and-Hold to Valuation-Informed Indexing is BY FAR the biggest advance we have ever achieved. That has been the entire problem going back to the first day. If I had shown how to reduce the risk of stock investing by 5 percent, I would be on the cover of Time magazine. Unfortunately (!), I showed how to reduce the risk of stock investing by 70 percent. Something that big makes the people pushing the outdated approach feel bad. That’s why we have seen death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs. WhaChaGonDo?

I can’t change things so that this is only a small advance to make the Buy-and-Holders less defensive. The peer-reviewed research says what the peer-reviewed research says. ALL of the research supports VII. NONE of the research supports Buy-and-Hold. The Buy-and-Holders need to come to terms with that. We all want the same things. When the Buy-and-Holders come to terms with our good fortune and realize that it is in their best interests to look forward rather than backward, we will get to the other side of The Big Black Mountain and enjoy together our good fortune in being the luckiest generation of investors ever to walk Planet Earth.

I am not despairing. Something that I have said hundreds of times now is that the good news here is 50 times more good than the bad news is bad. We are on the verge of achieving the greatest advance ever achieved in the history of personal finance. I am humbled to have played a big role in bringing it about

And, yes, I believe 100 percent that “the energy used to suppress it will form a sort of springboard to bounce it back into the eye of humanity.” That’s exactly how things usually work out in life, in my experience. John Walter Russell said something along these lines many years back. He said that this is all going to work out in way better than any of us can imagine. Those words struck me as having the ring of truth to them. That’s how I believe it is all going to turn out.

I hope that helps you understand two things: (1) why I want to do whatever I can to help out you Goons; and (2) why I never, ever, ever want to engage in any acts of financial fraud myself. My focus is on the rebuilding effort. I want to turn from the negative to the positive. So I don’t want people getting caught up in some sick desire to seek revenge on your Goons. And I know that the key to my helping you out is maintaining credibility in the eyes of the millions of middle-class investors whose lives are in the process of being destroyed. So I try to be as careful as possible not to do anything to aid this massive act of financial fraud.

Thanks for putting forward a super post, Anonymous. I think you are making a very important point with this one.

Take good care, my long-time abusive posting friend.

Rob