A Rich Life

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

“For So Long as Valuation-Informed Indexers Defer to the Intimidation Tactics of the Buy-and-Holders and Hold Back from Giving Complete and Clear Explanations of Why We Favor the Theory Behind VII, Buy-and-Hold Will Remain Dominant and VII Will Not Experience the Growth That I Want to See It Experience.”

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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’ve already agreed that nobody actually uses these strategies as you define them. Instead, everyone makes individual allocation decisions based on their unique situations. So why keep talking about two imaginary strategies?

You overstate things as is the usual Goon practice, Anonymous.

You are right (and it is an important point) that few investors follow Buy-and-Hold dogmatically or Valuation-Informed Indexing dogmatically. Some do. But they are in the minority.

But there are many investors who follow a somewhat softer version of Buy-and-Hold (what I call Strategy C). And there are a good number (but a much smaller number) who follow a somewhat softer version of Valuation-Informed Indexing (what I call Strategy D).

Neither of the two strategies are “imaginary.” Both have had great influence. Buy-and-Hold has had far more influence than Valuation-Informed Indexing thus far. But it is my belief that Valuation-Informed Indexing will have more influence in the future. It was the intent of the people who developed both strategies to develop a research-based strategy. That is a huge advance. So both strategies are of huge historical importance. Both increased our knowledge of how stock investing works. I don’t see how it is fair to refer to either strategy as “imaginary.”

I DO think it would be fair to say that the vast majority of investors find limited appeal in theory. Most investors live in the practical realm. They want to know what works, not what the research says. I think it is a mistake to ignore the theoretical. I think that the research can be a great guide to learning what works in the long term and that placing too much focus on what works can cause one to place too much focus on short-term results. But I do think that it is fair to say that most investors do not focus too much on the theoretical appeal of either of the two models.

Even investors who focus on the practical are unknowingly influenced by the theoretical. You believe with all your heart, mind and soul that the numbers on your portfolio statement are real. That is probably largely because you are drawn to the practical and accepting a number on a portfolio statement as real is a practical thing to do. But the bigger reality is that, if all the experts in this field told you that you need to make an adjustment to those numbers to obtain accurate numbers suitable for serving as the basis of your financial planning efforts, you would come to view the idea of making the adjustments as a practical thing to do and would begin doing it.

The line between the practical and the theoretical is not a thick, bold line. The one realm bleeds into the other. Even people who think of themselves as not interested in theory are influenced by it because they are influenced by the teachings of others who are influenced by theory in a more direct way.

I mentioned the other day that there was a time when physicians used bleeding as a cure for all sorts of illnesses for which it is not an appropriate remedy. Say that you were a doctor in those days and that you had developed an effective cure not involving bleeding for an illness conventionally addressed with bleeding. If you tried to apply that cure, you would have been attacked by those using the bleeding cure. You would be viewed as a threat by them. It would be said that your treatment was “dangerous.” Patients who didn’t care at all for theory and just wanted to be cured would run from you because they would view your methods as “dangerous” from a practical standpoint even though your methods were the proper ones. The continued reliance on the discredited theory would be holding back progress by holding back acceptance of a perfectly practical course of treatment by causing it to be perceived as less than practical.

That’s where we stand in the investing realm today. The theory behind the Buy-and-Hold strategy has long been discredited. But in the practical realm Buy-and-Hold remains dominant. There are few pure Buy-and-Holders. But the vast majority of investors follow stock allocation strategies more in line with the theory behind Buy-and-Hold than in line with the theory behind Valuation-Informed Indexing.

That’s what I want to see change. I want people to follow the strategies that appeal to them. But I want them to be able to hear about the strengths and weaknesses of both theories before making a choice. So it is important to me that I and all other community members who believe in Valuation-Informed Indexing be permitted to post honestly. If we all post honestly, I believe that knowledge of how the VII theory works will spread over time and stock allocation choices that are at least somewhat influenced by that theory will become more popular. For so long as we defer to the intimidation tactics of the Buy-and-Holders and hold back from giving complete and clear explanations of why we favor the theory behind VII, Buy-and-Hold will remain dominant and VII will not experience the growth that I want to see it experience.

I hope that helps a bit.

Rob

“People Don’t Shift to a New Model Because They Are Exposed to Some ‘Information’ About It. Conversion Is a More Gradual Process. People Need to Be Permitted to Talk Things Out. With LOTS of Different Proponents of the New Idea. They Need to Be Able to Challenge Those People, To Ask Lots of Hard Questions. They Need to Be Able to Watch to See the Extent to Which Friends of Theirs Are Convinced Over Time.”

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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 new information do you have that you believe people have not already heard from you?

That’s a super great question, Anonymous.

It’s not information that people need. Everything that I say is rooted in information supplied by Shiller back in 1981. People can hear the phrase “valuations matter” 10,000 times and not have it have any influence on how they invest.

What people need is discussion. People need to talk these things through.

And people need exploration. Most people do not today appreciate the many far-reaching implications of the finding that valuations matter. One of the reasons why I posted so frequently is that the finding that valuations matter affects every strategic question that comes up in stock investing. I want to show people that this advance in our knowledge changes everything we once thought we knew about how stock investing works. It is not a single information bit that I am supplying. It is an entirely new way of thinking about the stock investing project. People can only come to appreciate how important this is if Valuation-Informed Indexers show them how it applies in hundreds of different circumstances.

And people need multiple sources of confirmation of the insights. I am not going to be the only one posting about Valuation-Informed Indexing in days to come. We need to have THOUSANDS of posters doing this. People are just not going to believe what one person says and for good reason. We need to hear Bogle comment on VII. And Bernstein. And Burns. And on and on and on and on.

Those people are not going to offer only positive comments. That’s good. People will not learn from hearing only positive comments. People need to hear positive comments from posters who believe that positive comments are warranted. And people need to hear negative comments from posters who believe that negative comments are warranted. That’s how learning experiences work. We need a National Learning Experience re the last 33 years of peer-reviewed research in this field and re how the findings of the post-1981 research relate to the findings of the pre-1981 research (which also contains many powerful insights, to be sure).

Do you see?

There was a fellow named “Earnabuck” at the Bogleheads Forum when I posted there. He didn’t agree with most of my investing ideas. But he was a big defender of mine because he believed strongly that all posters should be permitted to post their sincere views. He said one time that he was present for the Motley Fool discussions and that at the time he agreed with Greaney but that over time he had come to agree with me that the valuation level that applies at the time the retirement begins must be taken into consideration in the calculation of the safe withdrawal rate.

That was an amazing statement.

The guy was obviously not biased against me. So when he agreed with Greaney, he was not being a Goon. And the guy was obviously smart. So why couldn’t he appreciate the simple point that I made on the morning of May 13, 2002, within one or two hours of the time I made it?

He couldn’t. That’s clear beyond any reasonable doubt.

The point is a painfully simple one. The price you pay matters when buying stocks just as it does when you buy anything other than stocks. Could anything be more obvious? But this guy really did not get it for a long, long time. It took him YEARS.

We do not lack for information, Anonymous. That is not our problem. Humans are not information processing machines. That’s not how they operate.

We need to talk about this stuff. Openly. Honestly. Bluntly.

We need to be friendly to those on “the other side.” We need to be respectful.

But we MUST all say what we truly believe. That’s how humans learn.

I could talk about this aspect of the question for a long, long time. So I am going to stop there unless you ask further questions.

But the question you are asking here could open all sorts of doors if you would ponder the matter a bit.

You Goons are not bad people. I do not say that.

The Wall Street Con Men are not bad people. I do not say that.

We all want the same things. We are all on the same side.

If you could LISTEN to what the other side is saying without so much defensiveness, you could learn some amazing things. In time you would come around.

Or not. I believe that you would come around. Perhaps I am wrong. If you did not come around, you would still gain from the experience. By letting the other side have its say and seeing that you were not persuaded, you would be confirmed in your current beliefs. You would over time become more confident in what you believe. Which is a big plus when you are following a strategy that you must stick with for it to work.

People don’t shift to a new model because they are exposed to some “information” about it. Conversion is a more gradual process. People need to be permitted to talk things out. With LOTS of different proponents of the new idea. They need to be able to challenge those people, to ask lots of hard questions. They need to ponder things over time. They need to be able to watch to see the extent to which friends of theirs are convinced over time. They need to try out different possibilities.

We have had the information we need for 33 years. Now we need to take it to the next step and start enjoying the big-time learning experiences that follow from it.

Rob

“Prison Sentences Protect Us From Our Darker, More Goony Selves. Take Prison Sentences Out of the Investing Advice Game and You Are Flooded With Investing Advice That Constitutes Financial Fraud and an Economic Crisis That Darkens Life for Millions.”

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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, this prison sentence talk is just smelly garbage.

I don’t agree with you, Sensible.

The laws against financial fraud are part of our political system. Prison sentences are part of our political system. When I say that I love my country, I am saying that I think that our system is a good one. There is a reason why we have laws against financial fraud and there is a reason why we have prison sentences. It is to protect us from situations like this.

We should be enforcing our laws and putting people who violate them in prison. We should have started doing that a long time ago. Had we done that, we all would be in a much better place today.

Everything changed in 1981. If men were angels, Bogle would have given his “I Was Wrong” speech within a few weeks of when Shiller published his revolutionary research showing that valuations affect long-term returns. Bogle was working in this field. It’s hard to imagine that he didn’t hear something about this amazing research. He’s a very smart guy. So it is hard to imagine that it didn’t strike him that Shiller’s findings constituted a major challenge to the model for understanding how stock investing works that he had been promoting.

So he should have gotten up on a stage and said “I Was Wrong” or “Perhaps I Was Wrong’ or “It’s Beginning to Look As If I May Have Been Wrong About Some Things” or at least “I Don’t Really Think I Was Wrong But You Certainly Need to Know About This Research That Points in That Direction and We All Need to Be Exploring the Implications of This in Coming Days.”

He certainly should have said SOMETHING along those lines. Had he done so, lots of smart people would have gone to work and explored the question. Maybe the questions would have been resolved quickly, maybe not. We certainly would not have found ourselves in a situation where some guy whose only expertise in the field is that he figured out how to post stuff to the internet would on the morning of May 13, 2002, put a post to the Motley Fool site noting that John Greaney’s retirement study did not contain an adjustment for the valuation level that applied on the day the retirement began and we would have seen a nuclear explosion of abusive posts in response that would continue for 12 years to come.

So Bogle messed up. Big time.

Fine. But it wasn’t just Bogle who messed up.

Why didn’t journalists DEMAND that Bogle make some sort of speech?

Why didn’t economists put forward their own takes?

Why didn’t thousands of investment advisors integrate Shiller’s findings into their recommendations and write articles explaining why the new research changed our assessment of every strategic issue?

Why didn’t people develop new calculators?

Why didn’t the authors of the Trinity study include a warning in their retirement study that their calculations were all based on the pre-1981 research and that calculations done on the post-1981 research would yield very, very different numbers?

That’s the issue here. It wasn’t one guy who messed up. It was an entire society. Bogle messed up and most of us went along for the ride. Why?

Because there was so much freakin’ money to be made by doing so.

The Buy-and-Hold Lies generated $12 trillion in Pretend Money. That provides for a whole big bunch of marketing efforts. Every time another dollar of Pretend Money was created, someone was there to claim “credit” for it. “Hey, you have that dollar in your account because you believed the Lies that I told you! Stick with me, I’ll tell you even more Lies as time goes on and you can enjoy even bigger Get Rich Quick fantasies!” Those were the unspoken words spoken to millions of middle-class investors over and over again by the hustlers who continued to advocate Buy-and-Hold strategies for years and even decades after the peer-reviewed research showed that there is precisely zero chance that a pure Get Rich Quick approach could ever work for even a single long-term investor.

Humans are weak. Dangle $12 trillion in free marketing before their eyes and there is a good chance that they will do the wrong thing and rationalize away their ethical concerns. How does a society protect itself against something like that?

We protect ourselves with laws against financial fraud, Sensible. We protect ourselves with prison sentences.

That’s the wonderful role they play in our system. When we send people off to prison for massive acts of financial fraud, we help lots of people. We obviously help the millions of middle-class investors who need access to honest and accurate reports as to what the peer-reviewed research says. But those are not the only people we help. We help all the economists because we make it possible for them to do honest work. We help all the journalists because we make it possible for them to do honest work. We help all the investment advisors because we make it possible for them to do honest work. We help all the web site owners and bloggers and policymakers because we make it possible for them to do honest work.

We even help the freakin’ Goons! You Goons don’t want to go to prison. Had Motley Fool kicked John Greaney out on his rear end when he advanced his first death threat, John would not be on his way to a long stay in a prison cell today. He would have been banned from our community for six months. At that time, I would have put forward a post suggesting that we give him another chance to play nice and everyone would have agreed and that would have been that. Instead, he is in this horrible place today where he is going to prison himself and where a lot of his friends are going to prison with him. Huh? That’s a good development how?

That’s the magic of prison sentences announced at the proper time, Sensible. Prison sentences are our friends. They are an important part of our system. Prison sentences protect us from our darker, more goony selves. Prison sentences are like “You’re out!” calls in baseball. They send a signal that you are doing something wrong and that you had better change the way you play the game if you want to win the World Series. Take “You’re out!” calls out of baseball and you ruin the game.

Take prison sentences out of the investing advice game and you find yourself flooded with investing advice that constitutes financial fraud and an economic crisis that darkens life for millions.

Thousands of our fellow community members have expressed a desire that honest posting on the last 33 years of peer-reviewed research be permitted at every discussion board and blog on the internet. Their voices are going to be heard. They are going to get what they want. I am going to see to it.

They are going to get what they want through the magical power of prison sentences. Prison sentences are wonderful stuff in the right circumstances. The announcement of your prison sentence will permit millions of good people to learn what they need to learn to enjoy far higher returns than they ever imagined possible while taking on far less risk than they ever imagined possible. That’s amazing, life-affirming stuff. We couldn’t do it without our laws against financial fraud and without our willingness as a society to send you and your Goon pals off to prison for a long, long time.

That’s the system that I love. That’s the country that I love.

Prison sentences for Goons smell very, very, very sweet.

It is goonishness and Buy-and-Hold strategies that are the foul smelly stuff causing so much human suffering. Yucko!

We’re on the one-yard line. Perhaps another year. Perhaps two.

Patience, Grasshopper! We’re all going to be famous! It’s all going to turn out for the best, just as John Walter Russell predicted many years ago! With every day that passes we inch a bit closer to that final wonderful paragraph of the story at which I peeked before working up the courage to advance that famous post of the morning of May 13, 2002.

Three Cheers for Prison Sentences! Three Cheers for Putting You Goons Away for a Long, Long Time!

Hang in there, man. It gets better. A LOT better. Yes, even serving your time in prison is better than living out the rest of your days with the prospect of a future prison sentence handing over your head.

My take.

Rob

“I Am Not Able to Produce Anyone Else Who Will Say Publicly That Those Who Continue to Promote Buy-and-Hold Strategies Today Are Guilty of Financial Fraud. There Was a Time When It Was Not Possible to Produce One Doctor Who Would Say that Bleeding Patients Was Not an Effective Treatment. I Love My Country. So I Am Doing What I Can.”

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

I am not able to produce anyone else who will say publicly that those who continue to promote Buy-and-Hold strategies today are guilty of financial fraud, X. You have me re that one.

There was a time when it was not possible to produce one doctor who would say publicly that bleeding patients was not an effective treatment.

The Buy-and-Holders are not bad people. They are frightened people. They want to help their clients and readers. They want to talk out these issues and thereby figure out what they got right and what they got wrong.

But we all know that investing is an important topic. Intuitively, you would think that would make us more cautious about what we say on this subject. In reality, it has done just the opposite. We know how terrible it would be to get something wrong. So we have become highly reluctant to acknowledge mistakes. We all know that Fama’s findings cannot be squared with Shiller’s findings. Most of the articles that reported on the awarding of the Nobel Prize to both of these men commented on the weird reality that they say opposite things about how stock investing works. But we pretend that we believe that it is okay that all investors hear is the model based on Fama’s research and that discussion of the implications of the model based on Shiller’s research has been suppressed for 33 years.

We need to move on. We need to open the internet up to honest posting re what the last 33 years of peer-reviewed research says re safe withdrawal rates and re scores of other critically important investment-related topics.

If you don’t think that you are going to prison, then you don’t think you are going to prison. Don’t worry, be happy, you know?

I think you are going to prison. I could be wrong. I’ve been wrong before. It could be that it is happening again. If it were, I probably would be the last to know. Feel free to believe that I am wrong, okay?

I care about you. I think of you as a friend. A true friend doesn’t want to see his friend land in prison. So I am going to continue to do what I can to persuade you to get off of this awful, dark path on which you now find yourself.

But please feel free to continue walking that path if that is what floats your boat. It’s your life, not mine. You have the responsibility of running it, not me. Fair enough?

I don’t want it on my head that I failed to speak up when I had a chance to do something to get your prison sentence shortened a bit. So I am going to continue playing it the way that I have long been playing it. I have the responsibility to run my life. And I don’t feel comfortable even thinking about playing it any other way. I hope that is okay by you.

You are correct that there is no one else saying today that continued promotion of Buy-and-Hold is financial fraud. I absolutely believe that. Fama made a mistake. Shiller revealed the mistake. Bogle should have walked to the front of a room and acknowledged the mistake within 24 hours of the time he first heard about Shiller’s findings.

He didn’t do that. I don’t fault him too much for not doing it in the first 24 hours. Shiler’s findings were universally perceived as shocking. In these sorts of circumstances, these sorts of things have been known to happen.

The tragedy is that it got harder for Bogle to say The Three Magic Words with every 24-hour time-period that passed him by. There is now a mountain of evidence supporting Valuation-Informed Indexing and zero evidence supporting Buy-and-Hold. Buy-and-Hold has now caused an economic crisis. So it is really, really, really important that Bogle say The Three Magic Words by the close of business today. But it is a harder step for him to take than it has ever been before.

I didn’t create that reality and you didn’t create that reality. Bogle created it. But even Bogle didn’t create it with full knowledge of what he was doing.

We cannot change any of that.

We all live in the same country. We all are suffering from the economic crisis that Bogle caused. We all very, very much need to figure out how to bring that economic crisis to an end.

I love my country. So I am doing what I can.

I don’t pretend to be able to force you to do anything. I urge you to come clean. But that’s as far as I can take it.

I will continue to say that I believe that you will be going to prison following the next crash and I will continue to say that Bogle is at risk of going to prison following the next crash. Because that’s what the laws of my country say. And I believe that we should be applying the laws of our country to help us with the problems we face. That’s why we enacted those laws in the first place.

If you end up not going to prison, you end up not going to prison. That follows, right?

So don’t worry about it so much.

If you ever start to worry that you might end up in prison, please just let me know and I will do anything in my power to help you out.

If you continue to feel confident that you won’t be going to prison, please just enjoy that warm feeling with my blessing, old friend.

Is all of that fair enough for you?

It sure sounds fair enough to my ears.

I hope that helps a bit.

I naturally wish you all the best things that this life has to offer a person regardless of what investing strategies you elect to pursue.

Rob

Valuation-Informed Indexing #226: How Do Shiller’s Findings Change Our Thinking on What Stock Allocation Is Optimal?

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I’ve posted Entry #226 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s titled How Do Shiller’s Findings Change Our Thinking on What Stock Allocation Is Optimal?

Juicy Excerpt: There are some stunning words that appear on Page 37 of my copy of Jeremy Siegel’s Stocks for the Long Run. Siegel states that: “The recommended equity allocation increases dramatically as the holding period lengthens. The analysis indicates that, based on the historical returns on stocks and bonds, ultra-conservative investors should hold nearly three-quarters of their portfolios in stocks over 30-year holding periods. This allocation is justified since stocks are safer than bonds in terms of purchasing power over long periods of time. Conservative investors should have nearly 90 percent of their portfolio in stocks, while moderate and aggressive investors should have over 100 percent in equity. This allocation can be achieved by borrowing or leveraging an all-stock portfolio.” The table that appears on the same page as these words indicates that risk-taking investors with a 30-year holding period are best served by a stock allocation of 131.5 percent, according to the historical return data.

Could this be real?

“It Is Barely Possible for Me to Imagine a Scenario in Which Those Who Have Posted in ‘Defense’ of Greaney on Numerous Occasions Would Not Go to Prison. I Believe That Most Are Going to Feel Sympathy for Wade Pfau When They Hear His Story. My Guess Is That Bogle Will Not Go to Prison But I See It As a Much Closer Call Than It Is With Pfau.”

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

Hyper-technical, as opposed to in any way a legal sense.

Anyone who continues to say that Buy-and-Hold is a research-backed strategy 33 years after the peer-reviewed research in this field showed that there is precisely zero chance that it could ever work for even a single long-term investor is guilty of financial fraud in the legal sense, X. I don’t think that those who held back from engaging in intimidation tactics will be prosecuted. But under a strict reading of the statute they are guilty of the crime.

You have stated precisely, on countless occasions, that Pfau, Bogle, Greaney, and all Goons everywhere are all going to prison.

I would say that Greaney and the members of his Goon Squad are at extremely high risk of going to prison. It is barely possible for me to imagine a scenario in which those who have posted in “defense” of Greaney on numerous occasions would not go to prison.

Pfau is at some risk. But I think there is a very strong chance that he will NOT go to prison. He was the first expert in this field to request corrections in the Old School studies. I believe that most people are going to feel sympathy for Wade when they hear his story.

I would say that Bogle is at more risk than Pfau but at less risk than the Greaney Goons. He is a giant. He is a hero to the middle-class. He has done more positive stuff than just about anyone else alive (I would rank Bogle second only to Shiller re the good he has done). But he also has permitted his name to be used at a board that permits posting by the sorts of individuals who have posted in “defense” of Lindauer and Greaney. My guess is that Bogle will not go to prison but I see it as a much closer call than it is with Pfau. I think that in the long run Bogle’s reputation will be restored and that he will go down in history as one of the true greats. That will certainly be the case to the extent that I am able to exercise any influence re this matter.

Rob

“These People Have Not Only Gotten the Investing Question Wrong. They Have Made It Impossible for Us As a Society to Ever Get It Right. We Cannot Gradually Work Our Way to the Truth When the Penalty for the ‘Crime’ of Posting About the Implications of the Last 33 Years of Peer-Reviewed Research Is Career Death.”

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

In your mind, the people going to prison are those that had you banned from the various financial boards, correct?

The crime we are talking about is financial fraud, Anonymous. In a hyper-technical sense, anyone who has recommended a Buy-and-Hold strategy from 1981 forward is guilty of the crime. Yale Economics Professor Robert Shiller published peer-reviewed research in 1981 showing that valuations affect long-term returns. If valuations affect long-term returns, then there is zero chance that a Buy-and-Hold strategy (a strategy rooted in the idea that there is no need to change one’s stock allocation in response to big shifts in valuations) could ever work for even a single long-term investor.

I say that promoting Buy-and-Hold is financial fraud only in a hyper-technical sense because millions of good and smart people really do believe in it. I believed in Buy-and-Hold until the evening of August 27, 2002. John Walter Russell believed in Buy-and-Hold when he started working with me. Wade Pfau believed in Buy-and-Hold when he started working with me. You Goons follow Buy-and-Hold strategies yourselves. In ordinary circumstances, that would be pretty darn strong evidence that you believe in the strategies.

Shiller’s 1981 findings truly were “revolutionary” as he indicates in the sub-title of his book. People are not capable of integrating the implications of such findings into their thought processes in a day or a week or a month. We have as a society been struggling with this for three decades now. We understand intellectually that Shiller is right. But we “know” emotionally that Fama and Bogle are right. We recognize the importance of Shiller’s work. So we celebrate his book and award him a Nobel prize.

But his findings are painful to us because accepting them requires that we acknowledge that our most fundamental beliefs about how stock investing works are in error. So we suppress knowledge of what Shiller taught us. We ignore him while celebrating him. We bow our heads when his name comes up but we go right on following and endorsing the Buy-and-Hold strategies that we followed and endorsed in 1980, before Shiller had published the most important research ever published in this field. We act as if Shiller did not exist.

In short, we suffer from cognitive dissonance. When people cannot accept a truth, they suppress knowledge of it. We have as a people been suppressing knowledge of what Shiller showed to be so in 1981 for 33 years now.

Cognitive dissonance is not a crime. Financial fraud IS a crime. But cognitive dissonance to a large extent negates it. One element of the crime of financial fraud is bad intent. If someone advocates Buy-and-Hold with good intent, he is not guilty of the crime even though he has hurt people in very serious ways and even though there is 33 years of peer-reviewed research showing him why it was wrong for him to make the claims he made. An element of the crime is missing in such cases.

That’s not so in the cases of people who have advanced death threats or demands for unjustified board bannings or tens of thousands of acts of defamation or threats to get academic researchers fired from their jobs. Those people are suffering from cognitive dissonance too. But they have evidenced bad intent in a way that cannot be excused by cognitive dissonance.

These people have not only gotten the investing question wrong. They have made it impossible for us as a society to ever get it right. In all other fields of human endeavor we correct mistakes by talking through new findings and different opinions. Gradually, we work our way to the truth. We cannot do this when the penalty for the “crime” of posting about the implications of  the last 33 years of peer-reviewed research is career death.

Hundreds of academic researchers want to tell the truth about stock investing but do not feel safe doing so. Hundreds of investment advisors want to tell the truth but do not feel safe doing so. Hundreds of journalists want to tell the truth but do not feel safe doing so. Hundreds of economists would like to tell the truth about the cause of the financial crisis but do not feel safe doing so.

The members of the Buy-and-Hold Mafia have gone beyond just giving bad investment advice. They have engaged in acts of intimidation and deception that have stopped thousands of people who know the truth about these matters from speaking up. Those acts of intimidation cannot be excused in the name of cognitive dissonance. Those acts of intimidation need to be prosecuted as acts of financial fraud.

I am not a prosecutor and I will not be serving on any juries. I am a journalist. It is my job to tell this story in as fair and complete a way as I possibly can tell it. It is for others to decide precisely who will go to prison and for what length of time. If I were to ignore the fact that crimes have been committed, I would not be doing my job as a journalist. If I were to ignore the fact that crimes have been committed, I would be participating in the cover-up myself. I would be putting myself at risk of going to prison. Um — No thanks.

I love my country. Part of my job is to move the focus of the discussion to the substantive matters as quickly as possible. That means getting the criminal questions addressed as soon as possible so that we can put the ugly procedural side of this behind us. Ducking the reality that serious crimes have been committed helps no one. The longer that side of things is ignored, the more financial misery is caused and the angrier people will be when they lose most of their retirement money in the next price crash. The sooner the prison sentences are announced, the fewer people there will be who will go to prison and the shorter their prison sentences will be. To fail to address the crimes that have been committed during the 12-year cover-up is not an act of charity but an act of cowardice.

That’s my sincere take re these terribly important matters, in any event, Anonymous. I hope that the words above help a little bit.

Rob

“I Really Was Right in My May 13, 2002, Post Saying that the Old School Retirement Studies Lacked a Valuation Adjustment. But I Am Human Like All the Others and Social Pressure Caused Me to Doubt Myself. Just As Bogle Has Doubted Himself When His Common Sense Has Told Him That Buy-and-Hold Is a Big Pile of Smelly Garbage.”

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

“I said on the morning of May 13, 2002, that the numbers in the Old School safe-withdrawal-rate studies were wildly wrong. “You Goons said that I must have forgotten to take my meds.” Here is a link to the thread in question. http://boards.fool.com/price-adjusted-safe-withdrawal-rates-17209214.aspx?sort=whole and a juicy excerpt or two ” As I read the data, it appeared to me that had I made an 80 percent stock allocation in 1969, I would now (31 years later) have lost all of my investment and be bankrupt. Is that true? It’s possible that I don’t understand how the calculator works, but that result was disturbing to me. The actual portflio figure that the calculator gave was that I would now have a negative $31,035. I don’t understand the concept of a negative portfolio value. That’s what makes me a little uncertain as to whether I am reading the results correctly.” and “I was wrong and intercst was right. Please read my apology to him and to the board in general at this link: http://boards.fool.com/Message.asp?mid=17225279 “

And yet the Wall Street Journal and the Economist magazine and Smart Money magazine and the Financial Mentor site and even Vanguard said 10 years later that I was right afterall. Doesn’t that tell the entire story, Evidence? I really was right in my May 13, 2002, post in saying that Greaney’s study (and in fact all of the Old School studies) lacked a valuation adjustment. That was a big deal. That was a big advance. But I am human like all the others and social pressure caused me to doubt myself. Just as Bogle has doubted himself when his common sense has told him that Buy-and-Hold is a big pile of smelly garbage. And as Bernstein has doubted himself. And as Piper has doubted himself. And as Pfau has doubted himself. And as Shiller has doubted himself.

We achieved the greatest intellectual breakthrough in the history of investing analysis 33 years ago. And we have spent 33 years doubting whether what we learned was really so and therefore denying ourselves the ability to explore all of the many wonderful implications of what we learned by denying ourselves the freedom to talk about what we learned and thereby THINK THROUGH TOGETHER what we learned.

Well, it stops here and it stops now and it stops with me. No offense. But we need to get this right. I am not going to settle for anything less. Following the next crash, there are going to be a lot of good and smart people who are going to work up the courage to stand with me. That’s that. You can bet against us if you want, Evidence. That’s betting against your country. That’s betting against science. That’s betting against the future. Given that you have committed felonies as part of your effort to make sure that we don’t learn what we need to learn, that choice will be putting you in prison following the next crash. I ain’t betting against us. No way, no how.

I am leading the charge forward. That’s where things stand.

I naturally wish you all good things.

Rob

“I Had a Big Shot Financial Advisor Call Me on the Telephone Yesterday and Talk to Me for Over an Hour About This Stuff. I Had the Same Thing Happen With a Different Big-Shot Financial Advisor Last Week. Both Are Changing Their Business Models Because of What They Learned From This Site and Because of What They Learned in Their Conversations With Me.”

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

1. Soon After the Next Crash, A Number of People Will Say That Their Consciences Will Just Not Permit Them to Keep Quiet Any Longer.
2. Then There Will Be a Deluge of Truth-Telling.
3. Lots of People Will Be Hoping That By Coming Forward Early, They Will Be Able to Avoid Prison.
4. We Will See a Media Frenzy.
5. That Will Lead to Congressional Hearings.

5 sentences.
Each one containing a prediction about the future.
Your track record with predictions is terrible.
You will most likely go 0 for 5 with this lot.

I said on the morning of May 13, 2002, that the numbers in the Old School safe-withdrawal-rate studies were wildly wrong.

You Goons said that I must have forgotten to take my meds.

Ten years later, the Wall Street Journal published an article saying that the numbers in the Old School safe-withdrawal-rate studies were wildly wrong.

I think that my record on “predictions” is pretty darn good.

The reason why my record is so good is that the only things that I “predict” are things that have already happened. There was no prediction needed to see that Greaney’s retirement study did not contain an adjustment for the valuation level that applied on the day the retirement began.

The only reason why millions of others did not notice the lack of a valuation adjustment in the Old School retirement studies is that millions of others want to believe those numbers on the bottom of their retirement statements so badly that they lie to themselves about what the peer-reviewed research in this field tells us. That’s the entire story here, Evidence.

Us humans are prone to self-deception. Self-deception is what makes stock investing risky. We learned that intellectually in 1981. But we have permitted our emotions to dominate our intellects for 33 years now. Not because we are bad or stupid. Because we are humans. Humans have been known to do that sort of thing from time to time.

My job is to free the humans to enjoy their good fortune in happening to be the luckiest generation of investors who ever walked Planet Earth.

If my prediction track-record were so poor, you wouldn’t be here today, If you hadn’t noticed how many people were impressed with my work, you would have been long gone by no.

I had a big-shot financial advisor call me on the telephone yesterday and talk to me for over an hour about this stuff. I had the same thing happen with a different big-shot financial advisor last week. Both are changing their business models because of what they learned from this site and because of what they learned in their conversations with me. That sort of thing does not happen to people who have a track-record of always getting their predictions wrong.

You’re a liar, Evidence. You have the power and the wealth of the Wall Street Con Men backing you up. So you have been able to get away with your lies for a longer time than I would have thought possible. But I do not believe that you will get away with those lies indefinitely. I think that when the human misery that you are causing grows so great that people will feel that they have no choice but to work up the courage to stand up to the Wall Street Con Men, you will find yourself in a prison cell. At that time I will be able to turn to these words and reassure myself that I did everything in my power to help my friend.

Do what you want, you know?

You are scared or you wouldn’t be here. I know that. You know that. But you are a Goon and you are incapable of taking a constructive and positive and life-affirming step. You and I both know that too.

So it is what it is.

I don’t like it. But I accept it.

If you ever come to accept it, you will stop posting here. You will just wait to see how it plays out.

You are welcome to continue posting here. I will continue to delete a good number of your posts. But I don’t believe in this business of banning people. I believe that even the worst of you Goons can come up with good stuff on occasion and what I have seen here for 12 years now confirms that belief. So you are free to continue.

But I am not going to lie to you and say that I am persuaded that you are not afraid of going to prison. Not this boy.

You have my best and warmest wishes, in any event.

Rob

“The People Who Are Getting Things Right and Thereby Helping Us All Should STOP APOLOGIZING for DOING So.”

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

Uh oh, Rob. Take a look at this:

http://www.wsj.com/articles/how-to-think-about-risk-in-retirement-1417408070?tesla=y&mod=WSJ_PersonalFinance_Taxes&mg=reno64-wsj&url=http://online.wsj.com/article/SB11186790908283423711204580258532832629458.html?mod=WSJ_PersonalFinance_Taxes

Bill, Wade and Michael are showing RESEARCH that adjusts stock allocation on age and not valuation. You better get over there and set them straight.

Here is some peer-reviewed research for you and it doesn’t align with your VII.

Whatchagonnadoaboutit??????

I don’t know where you come up with the idea that this article doesn’t align with Valuation-Informed Indexing, Anonymous, It aligns very well although it certainly does not present the full picture and is misleading (I presume inadvertently — but still…) to the extent that it fails to do so. John Walter Russell and I often discussed the points being made in this article. They are important points and they need to be made more forcefully and more frequently.

I love this paragraph:

“The reverse-glide-path approach, then, works because it starts out with a large, ultrasafe liability-matching portfolio and a small risk portfolio. As the retiree ages, the LMP gets spent down and the RP gets larger.”

I am not too crazy about this one:

“There’s nothing special or new about this; it’s simply a variant of the long-established “two-bucket” approach that separates, with mental accounting, a safe portfolio dedicated to essential living expenses from a risky one aimed at one’s heirs, charities and the odd business-class seat.”

Nothing under the sun is 100 percent new. But setting up a two-bucket approach is a HUGE advance over the conventional advice of the past. This sort of language suggests that this is less of a big deal than it is. I would play it just the opposite way. We all should be celebrating the advances in understanding of retirement planning that we have seen in recent years.

The reason that Bernstein is trying to undersell the advance is that he doesn’t want to hurt the feelings of the Buy-and-Holders. That’s stupid. The goal should be to help INVESTORS. And the full truth is that the Buy-and-Holders deep in their hearts want to make the shift to better-informed strategies in any event. They WANT to see the ball moved forward and they want to be part of the effort to move it forward. So there is an important sense in which they WANT to see how their earlier ideas were flawed.

The people who are getting things right and thereby helping us all should STOP APOLOGIZING for doing so. Or at least that is my sincere take re this terribly important matter.

The core issue in retirement planning is balancing two realities that push the person creating a retirement portfolio in opposite directions. You must have stability because this is the money you need to live in for the rest of your life and you can’t afford to take a significant chance that you will lose it. The obvious way to do that is to go non-stocks since stocks are the most volatile asset class.

HOWEVER, retirements can extend for 30 years or even longer in the case of early retirees. To give up the return edge provided by stocks for that length of time is to take a devastating hit re your total lifetime return. So you can’t just go no stocks or low stocks. How do you balance these two competing considerations? That’s the challenge of effective retirement planning.

The development of the safe-withdrawal-rate concept represented a big step forward in our thinking. Once you identify the SWR, you have the best of both worlds. You have a very high degree of safety because your plan works even in a worst-case scenario. And you are able to go with the highest stock allocation possible given your desire to have that high degree of safety.

The SWR concept is gold. People who denigrate the concept because the Old School studies get the numbers wrong are making a terrible mistake. They are cutting off their noses to spite their faces. It is foolishness. What you want to do is to correct the darn errors so that you have LEGITIMATE and ACCURATE SWR studies.

It makes perfect sense for those close to retirement to lower their stock allocations a bit. All else being equal, an asset class of high volatility is less attractive for those either close to entering the distribution stage or already in the distribution stage. That part of this article makes perfect sense.

The reason why you jump to the conclusion that this article does not align with VII and the reason why the article is in part misleading is that it ignores the valuation effect. Yes, age matters. But valuations matter far more! The valuation effect is by far the dominant effect.

Building two buckets makes perfect sense. That is gold. And the reality is that in many circumstances you only need the safe bucket for the first 10 years of retirement. That’s the danger zone, the time-period when taking a bit hit will cripple your plan’s prospects for surviving 30 years. If you play it safe for those 10 years, you will in all likelihood have built up enough reserves from the portion of your portfolio that is in stocks to be able to diminish the size of the super-safe bucket.

The flaw in the article is that, when you ignore valuations, you get all of the numbers wrong and so you cannot make intelligent choices re any of the various moving parts of the plan. The peer-reviewed research shows that those who retired in 1982 had a safe-withdrawal-rate of 9.0 percent if they went with 80 percent stocks. In contrast, those who retired in 2000 had a safe-withdrawal-rate of 1.6 percent. The difference in those numbers is staggering. Anyone who ignores the difference in those numbers in the crafting of a plan is shooting in the dark. To rule out consideration of valuations is to render the task of crafting a successful retirement plan 20 times harder than it is for those open to using the peer-reviewed research of the past 33 years as a guide.

I am 100 percent in favor of the two-bucket approach. That concept is gold. But to implement the two-bucket approach or any other approach effectively, you have to be willing to look at how the numbers change when you move from a high-valuation environment to a low-valuation environment.

Bernstein is wrong when he suggests that the intellectual advances we have seen in retirement planning in recent years are less than huge. They are positively huge. The reason why he cannot today see what a big deal the recent advances are is that he is not yet open to declaring the core Buy-and-Hold claim that exercising price discipline when buying stocks is 100 percent discredited by the last 33 years of peer-reviewed research in this field. Leave out the most important consideration and you get all the numbers wildly wrong regardless of how many buckets you employ.

We are almost there. We are the luckiest generation of investors ever to walk Planet Earth.This article makes important points that all investors need to know about.

And of course Bill and Wade and Michael all would very, very much LOVE TO BE ABLE TO OFFER 100 PERCENT HONEST AND ACCURATE RETIREMENT PLANNING ADVICE.

They are not going to do it until Jack Bogle gives that “I Was Wrong” speech, Anonymous. They are not willing to be put through what they have seen many of their peers put through by the Buy-and-Hold Mafia for the horrible, horrible crime of reporting accurately and honestly what the peer-reviewed research of the past 33 years tells us. They need to feel safe before they are going to be willing to help us in the manner in which they very, very much WANT to help and in which we all very, very, very much NEED them to help us.

We’re on the one-yard line.

I believe that we will be able to get the ball in the end zone shortly after the next price crash hits.

Hang in there, Goon man. It gets better. A LOT better.

Thanks much for the link. That’s helpful stuff.

Rob