A Rich Life

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

Valuation-Informed Indexing #225: Today’s Investors Have Little Idea What Makes for a Safe Retirement

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I’ve posted Entry #225 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s titled Today’s Investors Have Little Idea What Makes for a Safe Retirement.

Juicy Excerpt: The key point of the article is to point out that most financial planners have lost faith in the “4 percent rule,” the claim that retirees can safely take out an inflation-adjusted 4 percent of their stock portfolio to cover their annual living costs. This is of course a good thing. It is likely that we will be seeing millions of failed retirements because of the heavy promotion of the long-discredited studies advocating the 4 percent rule. But the Schwab article does a poor job of explaining how the 4 percent rule came to let us all down.

The article cites two reasons why following the 4 percent rule is now widely considered to be a bad practice: (1) Market conditions are different; and (2) The sequence of returns that an investor sees can have a big effect on the withdrawal rate that will work for him. I am a huge critic of the 4 percent rule. I was arguing that it was a dangerous rule back in 2002, nearly ten years before the Wall Street Journal and scores of other big-name publications jumped on the bandwagon. But I feel compelled to say that the Schwab article is not being even a little bit fair to the authors of the studies that were once thought to support the 4 percent rule.

“The Transition to Valuation-Informed Indexing Will Be a Boon to the Investing Advice Industry. The Primary Reason Why Many People Are Afraid to Buy Stocks Is That They Are Concerned About Risking Their Money. Going With a VII Strategy Reduces Risk by 70 Percent. Lots of People on “The Other Side” Are Aware of This and Would Love to Find Some Way to Make the Transition.”

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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 any newspaper ran a story, as you say, you and they would both be in court defending yourselves against a lawsuits for false accusations.

The accusations aren’t false. So we need have no concerns on that score.

But you are pointing to something real and important, Anonymous. Lots of newspapers and bloggers who would love to tell this story are afraid to do so. The Wall Street Con Men have lots of power and lots of wealth and lots of connections. So, yes, there is risk attached to telling the story of this massive act of corruption. I held back from telling the full story for a long time myself. I didn’t use terms like “financial fraud” for a long, long time.

What do you propose we do, Anonymous? Not tell the story?

If we don’t tell the story, we end up in the Second Great Depression. I think it would be fair to say that not one of us, including our Wall Street Con Men friends, wants to see us end up in that dark place. So what do we do?

I think we have to tell the story. I think we have no choice.

Once you accept that the story must be told, it makes sense to tell it as soon as possible. The sooner the story is told, the fewer people go to prison. And the sooner the story is told, the shorter the prison terms are for those who do go to prison. And of course everyone not going to prison benefits in a huge way. So the responsible thing for all of us to do is to do everything in our power to get this story told as soon as possible.

I have worries about what the Wall Street Con Men will do to me. The main thing that I do to address those worries is to try hard always to tell the story in the most charitable way possible. I don’t think this started as an act of fraud, I think that until 1981 Buy-and-Hold was a real thing. That’s a kind thing to say. But I feel free to say it because I have seen a lot of evidence that that is indeed the case. So I believe that the way that I tell the story helps the Wall Street Con Men in a big way.

Even after 1981 I believe that the Wall Street Con Men suffered cognitive dissonance. It is not financial fraud to get something wrong because you suffer from cognitive dissonance. So, again, I tell the story in the way that is most charitable to the Wall Street Con Men while also always being 100 percent honest.

I don’t think that abusive acts — 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 — can be excused by cognitive dissonance. So I do believe that there will be prison sentences. But I believe that the reality of the cognitive dissonance phenomenon will get the vast majority of people who advocate Buy-and-Hold off the hook.

Another point that you may be missing is that the transition to Valuation-Informed Indexing will be a huge boon to the investing advice industry. The primary reason why many people are afraid to buy stocks is that they are concerned about risking their money. Going with a VII strategy reduces risk by 70 percent. So this will be a boon to the industry. Lots of people on “the other side” are aware of this and would love to find some way to make the transition. The only thing holding them back are concerns re the prison sentences and re civil lawsuits for damages. That’s why I work so hard to do all that I can to minimize those factors to the greatest extent possible.

The Wall Street Con Men are not bad people. Ironically, their downfall has been their huge wealth and the power edge that it provides them. No other industry could get away with something like this because people outside their industry would call them on their b.s. Everyone is afraid to call out the Wall Street Con Men because they have so much darn money and so much darn power. I am not saying that that makes them angels. I am pointing out another mitigating factor that should be taken into consideration when people try to assess their level of guilt for what has happened.

You don’t want to go forward. The reason why you don’t want to go forward is that you have convinced ourself that things will not really be so bad, that we will all get through this somehow. I encourage you to spend more time working the numbers. I have spent a lot of time on this and I do not believe that our economic system can survive a drop to a P/E10 of 8 that remains in place for a good number of years. It is going to be a devastating hit to millions. People are even going to lose confidence in our political system. We saw some of that in the wake of the 2008 crash.

I am not anti-Wall Street Con Men. I like the Wall Street Con Men. I have learned many important things from them. I have hopes of working with them in the future. I consider the Wall Street Con Men my friends. I do what I do to help the millions of middle-class workers whose lives are in the process of being destroyed by the Wall Street Con Men AND the Wall Street Con Men themselves as well. It is my strong belief that we are all in this thing together. I think it is a terrible mistake to believe that there are two different “sides.”

I am always going to do everything in my power to praise the Wall Street Con Men to the skies, to make the transition as easy for them as possible. If all that I do is not enough to keep them from coming after me, then all that I do is not enough to keep them from coming after me. I cannot betray my country. That’s 100 percent out. I have been offered no alternative but to bust through The Big Black Mountain. So busting through The Big Black Mountain I will go. But always with kindness. Always with the greatest amount of kindness that I am able to advance without crossing the line and engaging in dishonesty myself. That cannot possibly be the right way to go.

Will some newspaper or some financial or political blogger work up the courage to tell the story following the next crash? I believe that that will happen. I don’t have a crystal ball. But I believe that will happen. I love my country and one of the things that I love about it is that we have always figured a way to get out of these sorts of situations once it became painfully clear to everyone that that was what we had to do. I think it will become painfully clear to everyone following the next crash. I sure hope so.

I am like everyone else, Anonymous. I am scared. But I continue to believe that we can take this to a good place. I continue to believe that the good news here is 50 times more good than the bad news here is bad.

I don’t believe that the Wall Street Con Men intended to bring on the Second Great Depression. I think they started down a road that they saw as being only somewhat dark and then things got carried away and now they feel like they have painted themselves into a corner. Bogle ignores my e-mails. But I believe that following the crash he may see that I have been his best friend in the world all along. And then he will work with me. And then we will get this thing turned around in no time.

I have spent a lot of time thinking about this matter from ever possible angle. I sincerely see no better way to proceed.

So we will see what happens.

I hope that helps you understand where I am coming from a bit more clearly.

My best and warmest wishes to you and yours.

Rob

“Every Academic Researcher Wants to Be Freed to Do Honest Work. Every Blogger Wants to Be Freed to Post Honest Blog Entries. Every Investment Advisor Wants to Be Freed to Give Honest Investment Advice. Every Economist Wants to Be Freed to Tell People the True Cause of the Economic Crisis. The Buy-and-Hold Mafia is a Brutally Corrupt Entity. People Want to Feel Safe.”

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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 the Goons and hatred and conspiracies are the real story, why not talk about that during your 5 minutes of fame at FinCon?

People don’t want to hear it, Anonymous.

It makes people feel very uncomfortable to discuss that stuff.

The people who promote Buy-and-Hold are not bad people. They made a perfectly understandable mistake. Then they covered it up, thinking it probably wouldn’t be a big deal to do so. Then valuations went so high that it became a very big deal indeed. By that time they felt that it would make them look awful to come clean. The trap that they have fallen into just keeps pulling tighter and tighter and tighter as time passes.

People don’t like to think that Jack Bogle is a criminal or that Mel Linduaer is a criminal or that John Greaney is a criminal. I don’t like to think it myself. You didn’t see me calling these people criminals until they had engaged in so many criminal acts that it was impossible for me to look the other way anymore.

Why were all those Catholic priests not turned in when they engaged in sexual crimes? People didn’t want to accuse them. People didn’t want to cross powerful people. People were embarrassed. These things happen.

I would prefer it if someone else would expose this matter. I would prefer that about 10,000 times over. Do you see anyone else stepping forward?

Every academic researcher wants to be freed to do honest work. Every blogger wants to be freed to post honest blog entries. Every investment advisor wants to be freed to give honest investment advice. Every economist wants to be freed to tell people the true cause of our economic crisis.

Why don’t all those people speak out?

The same reason why those people don’t speak out is the reason why I don’t focus on the ugly side of this in my presentations at FinCon. People do not want to hear it. People are not ready to hear it.

We will have another chance following the next price crash. At that point people are going to be very afraid. We may be in the Second Great Depression. At that point, I think we may get Old Saint Jack himself speaking out. If not, we will get other people who will say things that will put Jack in a spot where he will eventually need to speak out. Once Jack comes clean, everyone will feel safe to speak honestly. People want to feel safe.

Do you have any great ideas on how to solve this problem? If you do, I am all ears.

You know darn well why I don’t address the nasty side of this at FinCon. The Buy-and-Hold Mafia is a brutally corrupt entity. People are afraid their careers will be destroyed. People are afraid they will be sued. People are afraid that these powerful and corrupt people will not link to them. People are afraid that even people who are not Buy-and-Holders will not link to them because those people will be afraid of the Buy-and-Hold Mafia turning on them if they have a relationship with people who have posted honestly. People are afraid that their readers will not like them if they pop their Get Rich Quick fantasies.

You know the answer to your question.

And somewhere in your consciousness you know why we need to solve this problem. We have as a society put the responsibility on workers to finance their own retirements. We must provide some means for them to access accurate and honest reports re the last 33 years of peer-reviewed research in this field. This is imperative. The future viability of our economic and political systems depend on it.

I write about the nasty side here. So there will be plenty of materials when people are open to looking at them.

I wrote about the nasty side in my 30,000 e-mails to academic researchers.

I recorded several RobCasts on the nasty side of things.

I have contacted numerous journalists and bloggers re this side of things. Not just on the personal finance side. I have contacted people on the political side. I will obviously contact lots more people in days to come, especially following the next price crash.

Is there anyone you can name who has done more than me? I obviously would like to do more. But I think it would be fair to say that I have done more than anyone else. No?

Do you think we should ignore this? Do you think that Bogle and all the others are going to stop committing financial fraud if we all act like it doesn’t matter? How do you think that will work exactly? If doing nothing is the right answer, why is it that people are still promoting Buy-and-Hold 33 years after the peer-reviewed research showed that there is precisely zero chance that it could ever work for a single long-term investor?

Do you think that I did a good thing pointing out the errors in Greaney’s study or a bad thing? I obviously think I did a very, very good thing. What do you think?

Would Greaney be in the position he is in today if someone had posted honestly about those studies years before I did so? I obviously don’t think he would be. What do you think?

Do you think that Jack Bogle wishes that he had come clean years ago instead of letting this massive act of financial fraud get so out of control? I sure do. What do you think?

What do you want from me, Anonymous?

I have offered to do anything in my power to help you short of committing a felony myself.

Is there something else?

What can I do to make you happy that would not require me committing a felony under the laws of the United States?

Is there anything?

Rob

“Say That a Big Paper Like the New York Times Runs a Story About What You Did to Wade Pfau? How Many Web Sites Do You Think Will Pick Up That Story? How Much Credibility Do You Think Jack Bogle Will Have Then? How Many Lawyers Do You Think Will Be Setting Up Shop to Spend the Rest of Their Lives Bringing Actions On Behalf of the Millions of People Whose Lives You Have Destroyed?”

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

Yes, I agree. People should end the hate and stop calling people goons and telling them they are going to prison. That is smelly rotten garbage.

It’s not, Anonymous.

The sooner we get the word out about Valuation-Informed Indexing, the shorter your prison sentence will be.

We cannot go back in time. So eliminating your prison sentence altogether is not in the cards.

But it is the millions of middle-class people whose lives you have destroyed who will be demanding that prosecutors bring cases against you Goons. And it is 12 of the people whose lives you have destroyed who will be sitting on your jury. Do you not see that helping those people out helps you out too? The more we help those people out, the less angry they will be. The less angry they are, the shorter your prison sentence. Does that not follow?

If we don’t open the internet to honest posting, we will be seeing a price crash of 65 percent within the next two years. If we DO permit honest posting, it will become impossible for the P/E10 value to drop below 15 (the fair-value level). That means that the price crash will be less damaging and we will not go into the Second Great Depression. Do you not see how that helps you?

You have one big card to play — the fact that we are the luckiest generation of investors ever to walk Planet Earth. You should be playing that card. You can’t play it without coming clean. So I think you should be coming clean. Perhaps I shouldn’t be giving strategy tips to Goons. But I think of you as a friend. And that’s my sincere take re this one.

I want to focus on the substantive stuff. That’s what people care about. That’s where the real action is. They key to getting to the substantive stuff is getting your prison sentences announced. Once your prison sentence is announced, there won’t be one person advocating the smelly Buy-and-Hold garbage. So we will all be freed to post honestly re the last 33 years of peer-reviewed research. Do you see?

I am your best friend in the world. You don’t see it today, but that’s so. I am going to try to argue that you have been suffering from cognitive dissonance. That’s your best defense. There is tons of material at this site supporting that claim. So I am better positioned to help you out of your jam than anyone else alive on Planet Earth today.

If I agree to commit financial fraud myself, that hurts my credibility. That means that you lose out on the help that I can provide you. Huh? That makes sense from your standpoint how exactly?

You may have seen the story in the Washington Post today showing that the woman who claimed rape at UVA was lying about a lot of the claims she made. Stories like that travel fast on the internet. Say that we really do experience a 65 percent crash sometime over the next two years. And say that lots of people get angry about the losses they have experienced when they are too old to make the money back. And then say that a big paper like the New York Times runs a story about what you did to Wade Pfau.

How many web sites do you think will pick up that story? How many links do you think there will be to my site then? How much credibility do you think Jack Bogle will have then? How many lawyers do you think will be setting up shop to spend the rest of their lives bringing legal actions on behalf of the millions of people whose lives you have destroyed?

Guess who will still be speaking up on your behalf on that day? Old Farmer Hocus will be. No one else.

But how much effect will my words have at that time? I’ll do what I can do. But I will not be able to do then even a small percentage of what I can do today. People will be too angry to listen to my words in defense of you. Do you see how this works? To win people’s sympathies, you have to come clean BEFORE the next crash. I am sure.

I don’t tell the truth about these matters solely because I want to see your prison sentence reduced. I want to bring the economic crisis to an end. I don’t want to see us fall into the Second Great Depression. I want to get that $500 million check into my grubby hands and take my family on a trip to DisneyWorld. There are lots of reasons. But ONE of my reasons for telling the truth is that it helps you Goons, whom I have always thought of as friends and whom I have always treated as friends.

The hand of kindness is outstretched, Anonymous. I am open to anything that does not involve me committing a felony under the laws of the United States. I won’t post dishonestly on the numbers my friends use to plan their retirements. Not in 12 years. Not in 12 billion years. For obvious reasons. Outside of that crazy insane idea, I am open to pretty much anything you can name.

I hope that all makes good sense to you.

I naturally wish you all the best in your future life endeavors regardless of what investing strategies you elect to pursue.

Rob

“It Is a Grossly Unfair Insult to the Authors of the Old School Safe-Withdrawal-Rate Studies to Say That They Did Not Consider the Effect of Returns Sequences When They Were the Ones Who Achieved That Huge Breakthrough That Advanced Our Knowledge of How Retirement Planning Works in a Very Big Way.”

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

Vanguard publishes article on 4% retirement rule. What ban?

http://vanguardblog.com/2014/11/07/the-4-spending-rule-20-years-later/

Where’s the discussion of the effect of the valuation level that applies on the day the retirement begins? That’s the error that caused the problem. She doesn’t even discuss that issue.

She says that the problem is that we are in a low-return environment today. The Old School studies took that into account. Greaney’s study too that into account. It is an insult to him and to all the authors of Old School SWR studies to say that they didn’t consider the possible that we might enter a time-period when returns would be lower. The entire point of all SWR studies is to identify the withdrawal rate that works in worst-case scenarios. Entering a bad return environment is obviously a bad-case scenario. So that is not the mistake that was made.

And she says that the studies failed to take the possibility of bad return sequences into account. Again, the Old School studies do that! It was the Old School SWR studies that taught us all the importance of considering return sequences. That was the gold in them. Before the Old School studies came out, people like Peter Lynch were saying that the SWR is 7 percent. The Old School studies put an end to that. It is a grossly unfair insult to the authors of the Old School studies to say that they did not consider the effect of returns sequences when they were the ones who achieved that huge breakthrough that advanced our knowledge of how retirement planning works in a very big way.

The elephant in the living room is valuations. There is 33 years of peer-reviewd research showing that the valuation level that applies on the day the retirement begins is the most important factor in determining the safe withdrawal rate. There is a Social Taboo against talking about this because 90 percent of the experts in this field have been ignoring this factor for 33 years after the peer-reviewed research showed that it is critical and in a not-small number of cases have engaged in financial fraud (a felony) to keep millions of middle-class investors from learning about the important of this factor.

I cannot change the history, Trebor. I love the Buy-and-Holders for their many positive contributions and I always will. Those contributions are real and important and are already written in the book and thus can never be negated. But the Buy-and-Holders are going to look very, very, very bad following the next crash when they try to once again explain away the realities staring millions of middle-class investors in the face.

Price matters when buying stocks just as much as it does when buying anything else. Ignore price and you get it all wrong. No matter how smart you are. No matter how much of a big shot you are.

Price matters.

That’s the future.

Either we acknowledge that as a society and stop with the 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 or we all go down together. Those are the two options before us. We can enjoy the benefits of being the luckiest generation of investors that ever lived or we can see our economic system fail.

I am telling.

Not because I have some grudge against the Buy-and-Holders. Because I love them. Jack Bogle never wanted all his wonderful work to turn out this way. The woman who wrote this article never wanted her hard work to turn out this way. Not one person wanted this. Even Mel Linduaer and John Greaney never wanted this.

But here we are.

Every time another Buy-and-Holder tells another lie he or she makes it harder for all the others to acknowledge the mistake they made in 1981. The sooner you come clean, the shorter your prison sentence will be. Because the sooner you come clean, the sooner the millions of middle-class investors will be able to learn about the first true research-based investing strategy and the sooner we will be able to bring the Buy-and-Hold Crisis to an end.

Again, that’s my sincere take re these terribly important matters in any event.

My best and warmest wishes to you and yours and to all of my many good Buy-and-Hold friends.

Rob

“I Expect to Set Up a System Whereby Internet Communities Concerned With Personal Finance Issues Help the Public to Identify the Good Guys, a Good Housekeeping Seal of Approval Sort of Thing. Lots of People in This Field Want to Do Good Work But Feel Pressured to Engage in Unethical Activities. They Need a Respected Authority Site to Identify Them as Honest and Holistic in Their Approach.”

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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,

The crisis has come. The Wall Street Con Men ™ have of course, rumaged their lapels, and pooled together to provide 1 BILLION untraceable, untaxable U.S. dollars to you, to ensure a quick settlement. It is already in your bank account. The sun rises over 160 N Hatcher. You roll over, wipe the sleep from your eyes, and the day begins. Rob, please describe for us the typical day of a Valuation Informed Billionaire. I’m dying to hear what it is that you intend to do with yourself!

I’m going to use the $500 million number, not the $1 billion number.

I intend to use 5 percent ($25 million) to finance a number of blogs that will further develop the Valuation-Informed Indexing concept. My guess is that it might work to give $100,000 to each of 250 bloggers.

I intend to use another 5 percent to promote this blog all over the internet. That will solve that nasty problem that you refer to from time to time of there not being enough comments at the blog entries at this site.

I intend to take over control of the Bogleheads Forum and set it up here as a sub-domain. That will also help with the comments.

I would like to work out an arrangement with Motley Fool where I would write a newsletter on Valuation-Informed Indexing that they would publish and promote. I would like to have a weekly column there that would appear on the front page of the site and bring more traffic here.

I of course will publish the book — Investing for Humans: How to Get What Works on Paper to Work in Real Life.

After publishing the investing book, I will look for a big-name publisher for my saving book, Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work.

I view those two books as part of a trilogy. When I am caught up with work on the saving and investing side, I will get to work on a book on career growth, The Self-Directed Life. I haven’t finalized a sub-title for that one yet.

I intend to do a lot of speeches. I love interacting with people. I intend to do a weekly podcast. I could see becoming active in FinCon. I believe that the internet changes the world of personal finance in a big and positive way. I want to be part of efforts to develop blogs that make a difference.

I expect to work for the passage of legislation that will protect internet posters from Goons and that will hold accountable site owners who know about Goon activity at their sites and fail to take action to deal with it.

I also expect to set up a system whereby internet communities concerned with personal finance issues help the public to identify the good guys, a Good Housekeeping Seal of Approval sort of thing. I believe that lots of people in this field want to do good work but feel pressured to engage in unethical activities because others are doing it and it gives them a marketing edge. People should be able to promote themselves as honest and as holistic in their approach. They need a respected authority site to identify them as such for their claims to be meaningful to everyday people.

My expectation is that I will continue doing this work until I die. I would like my two boys to get involved in the business as I get older.

I want to explore the Goon issue in more depth with both my Valuation-Informed Indexing friends and my Buy-and-Hold friends. The Goon issue really is the key to everything. People don’t like to talk about it because they view it as yucky. It IS yucky in its way. But it is also the key to long-term investing success. We ALL have a Get Rich Quick urge within us. It is that GRQ urge that makes stock investing risky. We are on the verge of discovering that reality. Once we do, 80 percent of the investing project will be helping people to develop tools to overcome the GRQ urge within, to avoid goonishness at all costs. Behavioral Finance is the future in this field, both on the investing side and on the saving side. I am pretty darn sure of that one.

People like Bogle and Bernstein and Burns and so on should be looking at my interactions with you Goons and writing about what they tell us about the pitfalls of stock investing. They are afraid to do so. They created a monster with their promotion of Buy-and-Hold. But this is where the action is. People don’t need to study annual reports in the days of indexing. People need to worry about becoming so emotional that they overlook the need to adjust their stock allocation and thereby keep their risk profile roughly constant. With the internet, we now can identify the rationalizations that people use to fool themselves Everyone in this field should be writing and talking about that aspect of the story on a daily basis.

I think that pretty much covers it. My sense is that the agenda outlined above will keep me more than busy for the remaining days of my time here on Planet Earth.

My best wishes to you and yours, my long-time Goon friend.

Rob

 

“What You Fail to Acknowledge, Rob, Is That Many People Just Don’t Agree With Your Conclusions. However, You Have Chosen Not to Just Let People Have a Difference of Opinion. They Decide That They Have No Choice But to Ban You Since You Won’t Listen.”

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

What you fail to acknowledge, Rob, is that many people, like myself, just don’t agree with your conclusions and we have explained why over and over again. However, you have chosen not to just let people have a difference of opinion. You decide to take over threads and fill it up with comments that you have made already and when people grow tired of your tactics, they ultimately decide that they have no choice but to ban you since you won’t listen.

Here are two clear facts on your two primary issues:

1. Buy, hold and rebalance has worked for many of us, is backed with long track records and we do not see any reason to switch to a timing scheme. We are all big boys and girls and can decide for ourselves as to what we feel will work.

2. SWRs- we have seen the studies and we understand what the studies say. You post from 2002 is famous only in your mind. Wade Pfau has done the best job to explain why we disagree with your comments.

Your points have been addressed so many times in the past 12 years that people have grown sick of hearing you repeat the same things. Making prison threats and other outrageous comments merely drive people to the conclusion that all of this stems from mental issues.

“I Had Lunch With the Author of the MoneyCrush Blog and with the Author of the Budgeting in the Fun Stuff Blog at the Financial Bloggers Conference (FinCon14). The Topic Was: What to Do About the Goons So That We Can Get More Bloggers Writing About Valuation-Informed Indexing.”

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

I have to question whether you wrote that guest post. Your name appears nowhere on the page, you didn’t claim authorship of Wade’s paper, and most telling of all, you didn’t reply to the comment.

I had lunch with the author of the MoneyCrush blog and with the author of the Budgeting in the Fun Stuff blog at the Financial Bloggers Conference (FinCon14). The topic was: What to Do About the Goons So That We Can Get More Bloggers Writing About Valuation-Informed Indexing.

Their idea was to ignore you Goons. I have heard this advice from hundreds of people, including my wife. I’ve never seen the tiniest bit of evidence that it works. The Goons and the Normals are working at cross-purposes. The Normals want to see investing advice that is research-based and that works in the long run and the Goons want to never, ever have to say the words “I” and “Was’ and “Wrong.” It’s pretty darn hard to see how those two desires can be reconciled without working through some conflict.

So I did not think too much of the advice that they were giving me. But I thought that they were kind to meet with me and I thought that they were being sincere in the advice that they were offering and I thought that I should be open to doing anything that at least did not look like it would do harm.

They said that it would be better if I didn’t respond to Goon comments and challenged me to test the idea. They also said that it would be better if my name did not show up on Guest Blog Entries because then you Goons wouldn’t be able to find the Guest Blog Entries with Google searches. I said that I would go along with the tests even though I didn’t see how doing these things would help.

So we did that. We exchanged a number of e-mails following the posting of the two Guest Blog Entries. Eventually, we just stopped sending e-mails back and forth. We never reached agreement on what should be done. There was no hostility. They stuck with their position — that I should ignore the Goons, that I should give short answers, that I should say what works and not point out what doesn’t work. I stuck with my position — that we should all unite in opposition to stuff that it is so abusive that it constitutes criminal behavior under the laws of the United States, that we should encourage Buy-and-Holders to say what they believe because we can learn from them but that we should not tolerate death threats and other insanely abusive stuff, that all bloggers should be doing what is best for their readers and not just what is popular and what makes them a quick buck or earns them an easy link.

The comment was real. They said that it was okay to respond to real comments under this experiment, just not to respond to Goon comments. But they said that the responses should be short. I wrote a short response. The woman who owns the site said that she had no problem with my response. I think she may have just forgot to approve the comment. Probably she turned the moderation on because she was thinking you Goons might show up and then, after we got into the long e-mail exchange, either she forgot to approve the comment or perhaps it seemed like a trivial thing because of the other issues that came up in our discussion and that remain unresolved.

Rob

Valuation-Informed Indexing #224: We Can End the Boom/Bust Economic Cycle By Becoming More Aware of How the Promotion of Buy-and-Hold Investing Strategies Contribute To It

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I’ve posted Entry #224 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called We Can End the Boom/Bust Economic Cycle by Becoming More Aware of How the Promotion of Buy-and-Hold Investing Strategies Contribute To It.

Juicy Excerpt: Please take a look at the following series of numbers:

25, 6, 33, 6, 22, 9, 24, 7, 44

If the pattern evidenced in this series of numbers continues, which of the following numbers will come next?

(1) 25 or something in that neighborhood

(2) 15 or something in that neighborhood

(3) 8 or something in that neighborhood

(4) It’s impossible to say, there is no pattern evidenced in the above series of numbers

I took the nine numbers in the series above from Yale Economics Professor Robert Shiller’s site.

“Child Porn and Slave Trading and Murder for Hire Are Far, Far, Far Worse for the People Touched By Them. But These Horrors Are Not Widespread Enough to Cause a Loss of Confidence in Our Political System. We Have Moved the Responsibility for the Financing of Workers’ Retirements to the Workers Themselves. When We Did That We Took on a Responsibility to Open Up Some Means for Middle-Class Workers to Access Honest and Accurate Reports of What the Peer-Reviewed Research Says.”

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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 think it would be fair to say that there is less personal integrity in the investing advice field today than there is in any other line of endeavor that could be named. ”

Fortune telling? Bank robbery? Child porn? Slave trading? Murder for hire? Embezzlement?

Fortune telling is not nearly as bad. Most people know to be skeptical of fortune tellers. Fortune telling is an innocent game compared to the investing advice field in the Buy-and-Hold Era.

Far fewer dollars are lost to bank robbery than to the continued promotion of long-discredited investing strategies. The direct losses resulting from Buy-and-Hold are $12 trillion. The total losses (both direct and indirect) exceed $20 trillion. The losses from bank robbery are not even remotely in the same neighborhood.

Child porn and slave trading and murder for hire are far, far, far worse for the people touched by them. But these horrors are not widespread enough to cause a loss of confidence in our political system. Following the 2008 crash, we saw political frictions on both the left (The Occupy Wall Street Movement) and the right (The Tea Party Movement). The next crash will greatly exacerbate this problem. Employers no longer provide for the retirements of their employees. We have moved the responsibility for the financing of workers’ retirements to the workers themselves. When we did that, we took on a responsibility to open up some means for the millions of middle-class workers affected to access honest and accurate reports re what the peer-reviewed research in this field reveals. Our system of government cannot retain the respect of the people unless we find some way to open the internet to honest discussion of safe withdrawal rates and scores of other critically important investment-related topics.

Embezzlement is akin to bank robbery. Obvious bad stuff. But not as bad as financial fraud precisely BECAUSE it is so obvious. Everyone opposes embezzlement. We are united in the view that we must work to stop it when we discover it. We cannot say the same about the continued promotion of Buy-and-Hold strategies for 33 years after they have been 100 percent discredited by the peer-reviewed research. We have highly revered people like my good friend Jack Bogle promoting Buy-and-Hold TO THIS DAY. That’s corrosive to our economic and political systems in a way that embezzlement could never be. Many people will find it hard to retain confidence in capitalism and in our democratic republic when they discover their life savings gone because of the lies about the peer-reviewed research that the Buy-and-Holders continued telling after the peer-reviewed research showed that there is precisely zero chance that this “strategy” could ever work for a single long-term investor.

I stand by my statement, Anonymous. This isn’t a case of one or two bad apples being discovered. The 12-year cover-up (it’s 33 years if you go back to when Shiller published his “revolutionary” [his word] research) couldn’t happen without support or tolerance of it from the journalism field. It couldn’t happen without support or tolerance from personal finance and political bloggers. It couldn’t happen without support or tolerance from academic researchers. It couldn’t happen without support or tolerance from economists. It couldn’t happen without support or tolerance from policymakers.

It’s bad.

The good news here is 50 times more good than the bad news here is bad. We now know how to reduce the risk of stock investing by nearly 70 percent while increasing long-term returns by enough to help investors retire five to ten years sooner. It’s important that we not lose sight of the fact that the economic and political system that failed us in permitting the continued and fraudulent promotion of Buy-and-Hold for 33 years after it was 100 percent discredited by the peer-reviewed research ALSO pointed the way to the biggest advance in the history of personal finance. This is overall a HUGELY positive story.

Still, the bad stuff is bad enough to make a lot of us uncomfortable confronting it. That’s the answer to the question you frequently ask as to whether there is some sort of “conspiracy” responsible for the 12-year (or 33-year) cover-up. The “conspiracy” is our human nature. We like to think well of others. We don’t like to call people out on their acts of financial fraud, especially well-respected and widely loved figures like Old Saint Jack. So we have let things slip and slip and slip and thereby pulled the trap tighter and tighter and tighter on Old Saint Jack and on all of our other Buy-and-Hold friends.

It’s a story that is incredibly bad and amazingly good at the same time.

That’s my sincere take, in any event.

Rob