A Rich Life

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

“My Wife Is Not a Goon. She Loves Me. So Her Negative Comment Counts for More Than the Negative Comments That I Hear From You Goons. People Need to Know That Even My Own Wife Holds Some Skepticism re My Claims. That’s an Important Part of the Story.”

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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’m not convinced that your wife meant her comment as a compliment

My wife is not a Goon. She loves me. So her negative comment counts for more than the negative comments that I hear from you Goons. People need to know that even my own wife holds some skepticism re my claims. That’s an important part of the story.

This reality doesn’t justify your goonishness. But it does add context to it. It explains it to some degree.

If the peer-reviewed research paper that I co-authored with Wade Pfau showed investors how to reduce the risk of stock investing by 10 percent, it would have been written up on the front page of the New York Times within three weeks of its publication. Everyone would be singing my praises if that were the case.

But 70 percent? That’s a threat. That means that we need to change everything that we tell people about how stock investing works. That means that all the textbooks need to be rewritten. That makes all the people who have promoted Buy-and-Hold strategies (and those people constitute the most powerful people in this field) look bad.

I don’t want to make those people look bad. I want those people on my side. I want those people helping me out. I want those people commenting on my work and linking to me and inviting me to speak and all that sort of thing.

But I cannot lie about what the historical data says, can I?

The historical data says that exercising price discipline reduces the risk of stock investing by 70 percent. So that’s what I need to say, whether it makes me a target of the powerful Buy-and-Hold Mafia or not.

Our unfortunate (!) reality is that we achieved the greatest advance in the history of personal finance in 1981. We didn’t know everything there was to know about even the basics of stock investing prior to the publication of Shiller’s “revolutionary” research. He supplied the critical missing puzzle piece. Now we know. We are the luckiest generation of investors ever to walk Planet Earth.

But what do we do about the Buy-and-Holders? They are powerful. They are determined to stop the millions of middle-class investors from learning what they very, very, very much need to know.

We could praise them to the skies. That would be honest. They have put forward many huge, powerful, positive, life-affirming insights. We could make them heroes in the eyes of the millions of middle-class investors.

They have made it clear that that’s not good enough for them. They cannot bear to say those terrible words “I’ and “Was” and “Wrong.” So what do we do?

We have to keep trying. We have laws in place against financial fraud. We made it a felony. Prison time. We have to push for enforcement of those laws. Once prison terms are announced, all the ugly side of this matter comes to an end. From that point forward, it’s good stuff piled on top of good stuff piled on top of good stuff. The Goons get shorter prison sentences. The rest of us get to enjoy the benefits of learning about the first true research-based investing strategy.

If you ever come up with any better ideas, I hope you will share them with me.

My aim is to make life better for every single person affected by this matter. The millions of middle-class investors. My fellow bloggers. The Wall Street Con Men. Their internet Goon squads. The Buy-and-Holders. The Valuation-Informed Indexers. Everyone.

The best idea that I have been able to come up with given the behavior of you Goons is enforcement of the laws against financial fraud. Announcement of your prison sentence will get all sorts of good things happening at all sorts of places, Interested. That’s the thing that will turn the key. There need to be consequences when people make use of 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 as their way of blocking millions of people from learning things they very much need to know because of embarrassment they feel over having made mistakes themselves.

I cannot change the realities that apply here. My job is to play the cards that I am dealt to the best of my ability. That means prison for you, my good friend. But I still hold out hopes that it will not mean a prison sentence as lengthy as the one you will be getting if you do not come clean until after the next price crash!

I hope that helps a bit.

My wife is like everyone else. She finds it hard to believe that as a society we are able to make such a huge advance at this time. We have the Buy-and-Hold Pioneers to thank for that. Shiller would never have published his “revolutionary” (his word) research had the Buy-and-Hold Pioneers not first advocated the idea of us all rooting our investing strategies in what the peer-reviewed research in this field reveals to us.

Thanks John Bogle!

And off to prison with you, John Bogle!

Humans!

Whachagoonado?

Take good care, man.

Rob

Valuation-Informed Indexing #212: The Warning Implicit in Outlier P/E10 Values Should Not Be Rationalized Away

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I’ve posted Entry #212 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Warning Implicit in Outlier P/E10 Values Should Not Be Rationalized Away.

Juicy Excerpt: There’s a funny dynamic that governs our rationalizations for not taking P/E10 levels into consideration when deciding on our stock allocations. When the P/E10 level rises to high but not insanely high levels, we say that moderately high P/E10 aren’t really all that dangerous. When the P/E10 level rises to insanely high levels, we say that the results that logically follow from insanely high P/E10 levels are so absurdly bad that it is impossible that the P/E10 metric will continue to worksas well as the entire 140-year history of the market shows that it performs. If P/E10 worked as well as it appears to work, we never would have permitted things to get so out of hand, say the people who counseled ignoring merely high P/E10 levels on grounds that anything less than insanely high P/E10 levels were not worth worrying about.

“We Need to Send a Message to All Academic Researchers in This Field that the Buy-and-Hold Mafia Is No Longer Running the Show and That, Starting Here, Starting Now, We Want to Encourage All Researchers in the Investing Advice Field to Do HONEST Work.”

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

Did you even bother to read the article? With your drastically reduced activity, it seems like you’d have plenty of time to keep up on your reading. Anyway, your old buddy Wade states quite emphatically that 4% is not safe. What more of a “correction” do you require?

Wade said that the Old School studies were in error YEARS AGO, X. He wrote to the authors of the Trinity study asking that they correct their study. That’s when you Goons threatened to get him fired from his job if he did not ditch the honest posting routine. AND BOGLE BACKED YOU UP.

That’s why you are going to prison. You get that, right?

I don’t WANT to go to prison. So I am posting honestly.

I said above what sort of correction I require. I require the sort of correction we see in every field of human endeavor other than in the investing advice field. We need to see the studies corrected. We need to see accurate studies promoted. We need to go back and study how we got this one so terribly wrong and determine what we need to do to make sure that nothing like this ever happens again. We need to see that damages are paid to the millions of people who were taken in by the garbage studies. We need to decide how long the prison sentences should be for those who have put up posts in “defense” of Mel Linduaer and John Greaney and Jack Bogle. We need to make settlement payments to those who tried to solve the problem by posting honestly and who were targeted by the Buy-and-Hold Mafia as a result. We need to send a message to all academic researchers in this field that the Buy-and-Hold Mafia is no longer running the show and that, starting here, starting now, we want to encourage all researchers in the investing advice field to do HONEST work.

Does that help?

Going to prison is not on my bucket list. I have zero desire to participate in this massive act of financial fraud. I told Wade when he signed up with you Goons that he was “insane” to do so. I think it would be fair to say that it would be equally insane for me to do so today.

Of course the studies are in error. Everyone who bothered to take five minutes to check the Greaney study to see whether it contained an adjustment for the valuation level that applied on the day the retirement began knew that back on the morning of May 13, 2002. Now we need to get the legal matters taken care of so that we can all begin enjoying the benefits of being the luckiest generation of investors ever to talk Planet Earth. We need to get your prison sentence announced so that the millions of us who very, very much need to know how stock investing works according to the last 33 years of peer-reviewed research can get about the business of talking about this subject in honest and accurate and research-based ways.

Does all of that make good sense to you, X?

Rob

“Rosa Parks Changed the World Because Rosa Parks Loved the World. Her Love for Those Who Ignored Her Rights for a Time Was Her Secret Weapon Not Against Them But FOR THEM. I Love Jack Bogle. That’s Why I Will Defeat Him in the End. Except I Will Not Really Be Defeating Him. I Will Be LIBERATING Him. Jack Wants the Same Thing I Want.”

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

Go over to Bogleheads and FORCE them to take you in. Don’t take no for an answer. Call your Congressman if they won’t play ball. If he is too slow, then take it to Purcelleville PD Electronic Crimes Division and swear out a complaint about them blocking Honest Posting. Haven’t you been playing softball for far too long? It takes a tough bird to chicken out…. (or whatever it is you say Frank Purdue says.)

We all want the same things, Yogi.

So we will all put our minds together and figure out how to get from the horrible place where we are today to the wonderful place where we all deep in our hearts want to be tomorrow.

We are engaging in a learning process that has to play itself out.

We all have a role.

If we all do our parts, we will all share in the good results.

Forcing things won’t work. You are being foolish when you advocate force.

But doing nothing doesn’t work either. Being afraid to act is not the answer anymore than forcing things is the answer.

We all have to push a little bit — and then pull back when it becomes clear that the pain being experienced by those who have made mistakes in the past is too great.

Do you see?

My motto is: “Be as honest as possible without crossing the line and becoming uncharitable while also being as charitable as possible without crossing the line and becoming dishonest.”

Does that make sense to you?

I HAVE contacted my Congressman. I HAVE spoken to the police. I HAVE contacted lawyers for the purpose of bringing legal cases.

Using the resources available to us is a positive. So I will continue to do those sorts of things.

But you go too far when you say to “force” things and not to take “no” for an answer.

I put the owners of the Bogleheads Forum in a position where they had to ban me or permit the members of that board community to hear what the last 33 years of peer-reviewed research says. They FELT forced to ban me. Because to them the idea of permitting investors to learn what the research in this field says is unacceptable. But it’s not true that I forced them. What I forced was a choice. I forced them to choose. They could ban me (that’s the option they chose) or they could permit their readers to learn about the first true research-based model.

I didn’t leave them with other choices. I didn’t agree to self-censor myself so that those seeking to maintain a belief in the smelly Buy-and-Hold garbage could do so with my apparent blessing. I made clear that if my name was going to continue to appear at the forum, honest posts were going to appear there on a great variety of subjects. I was firm. I INSISTED on recognition of my right (and the right of all my fellow community members) to post honestly.

But I was not unyielding. I always left that that option of banning honest posting. I didn’t do what you advise here and refuse to take no for an answer. They gave the answer “no” to my demand that my right to post honestly be recognized and I accepted (for the time-being) their answer.

Why is that so important?

Because I become a Goon myself if I cross the lines that you advise me to cross.

My aim to to achieve good here. We can never achieve good through bad means.

I work it hard WITHIN the rules of the boards and blogs and within the laws of the United States and within the rules of civil human behavior.

That’s how I will continue to play it.

Did Rosa Parks do what you are advising here?

She did not.

She INSISTED on her right to choose for herself where she would sit on the bus.

But the first time she did this (this was 10 years or so before the famous incident), she was arrested for what she did and she accepted society’s unfortunate verdict. Her rights were ignored. But she remained within the society to fight for those rights another day. And she won the next fight.

WHY DID SHE WIN?

Because she wasn’t fighting only for herself. She was fighting for the entire society. Recognition of her rights was everybody’s business. In time, all others came to recognize how important it was to recognize her rights and they were given recognition. Rosa Parks changed the world because Rosa Parks loved the world. Her love for those who ignored her rights for a time was her secret weapon not against them but FOR THEM.

I love Jack Bogle. I love Mel Linduaer. I love John Greaney. I love you, Yogi.

That’s why I will defeat you in the end.

Except I will not really be defeating you.

I will be LIBERATING you.

You want the same thing I want. You want to be able to earn much higher returns while taking on greatly reduced risk.

You are going to see that little dream of yours come true.

I am going to see to it.

I am not going to agree to anything less than a 100 percent complete victory for Jack Bogle and for Mel Linduaer and for John Greaney and for Yogi Bear.

I took a sneak peak at the last page of our little saga and I can tell you that you achieve full and complete victory. You agree to permit honest posting on safe withdrawal rates and scores of other critically important investment-related topics because I refuse to permit you to settle for anything less.

I cannot do this without you, Yogi.

So I can never disrespect you.

And I can never be less than warm and friendly to you.

And I can never sell you out by agreeing to self-censor myself.

Some of the things you advise up above show a lack of respect for you that I can never permit myself to feel if I am to see that you achieve a full and complete victory.

Something that you have been failing to see since the morning of May 13, 2002, is that we are on the same side.

Your pain is my pain.

And my victory is your victory.

We are going to overcome your pain and lead you to a complete and total victory.

That has always been the plan.

We do that by being firm, yes.

But we also do it by being loving.

I will never be disrespectful of you or the other Buy-and-Holders.

I will ALWAYS take “no” for an answer.

For the moment.

For a time.

For the day.

Then I will be back the next day asking (not demanding!) once again that you free yourself of your chains and end your pain and enjoy the benefits of having been born at a time in the history of the world at which you get to be one of the luckiest investors in the history of the world just by learning what the last 33 years of peer-reviewed research in this field teaches us all about how stock investing really works.

I hope that all makes some sense to you.

Love is the answer.

I am sure.

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

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

Rob

“What Wade Pfau and I Discovered in That Famous Peer-Reviewed Research Paper We Co-Authored Is That Nearly 70 Percent of the Risk of Stock Investing Is Attributable to the Lies That Investors Tell Themselves.”

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

Of course, you are an expert at lying, Rob.

All of us humans are, Anonymous.

Have you read Freud? Isn’t projection a form of lying? Are there ANY humans who don’t engage in even a tiny bit of projection (that is, a tiny bit of lying)?

How about Dostoevsky? When his character Raskolnikov killed the old woman, did he not justify doing it by telling himself lies (rationalizations)?

What Wade Pfau and I discovered in that famous peer-reviewed research paper we co-authored is that nearly 70 percent of the risk of stock investing is attributable to the lies that investors tell themselves. If every book on investing started with a discussion of those lies and with descriptions of the tools that investors need to make use of to protect themselves from the effects of those lies, we all would be able to retire a good number of years sooner.

No?

It sure seems so to me.

When you say that I am an expert on lying, you are saying that I am an expert on stock investing. Because effective investing is all about avoiding risk. And most of the risk of stock investing is the product of the lies we are all inclined to tell ourselves unless the experts help us out by reporting straight to us on what the last 33 years of peer-reviewed research has revealed to us all about how stock investing works in the real world.

Or at least so says Rob Bennett.

Rob

“It’s Emotionally Painful Pointing Out People’s Mistakes to Them. We All Want to Be Liked. Telling People the Truth About Stock Investing at a Time When Prices Are High and They Don’t Want to Hear It Is Hard Word. That’s Why So Few People Are Willing to Push Too Hard re This Stuff.”

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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 even as late as last year you were taking your “career” somewhat seriously, with website redesigns and videos. Your recent lack of effort shows complete capitulation.

There’s some truth to that, Anonymous.

I haven’t given up. I see this as the most important economic and political story of my lifetime. I know by the reaction I have seen over the first 12 years that there are millions of people who would like to be able to learn about a smart and simple and safe way to invest in stocks. I know that there are many, many investment advisors who would like to be doing honest work. I know that there are many academic researchers who would like to be doing honest work. I know that there are many personal finance journalists and bloggers who would like to be doing honest work. There are people who would like to be creating calculators that report accurate numbers and there are people who would like to be creating books that explain what the last 33 years of peer-reviewed research says and on and on and on.

So there’s huge interest. And there’s huge need. And I believe that as a society we will work up the courage and love it will take to overcome this problem. I believe that that is going to happen following the next price crash, which according to the research is not too far away. So intellectually I am a bigger believer in the importance of pushing the Valuation-Informed Indexing message than I have been at any time in the past. If you intended to suggest that I have somehow “capitulated” on the need for honest posting about investing questions, then you couldn’t possibly be more wrong.

But if you are intending to suggest that there has been a change in my level of public activity re these matters in the past year or two, you are right.

It’s painful for you Goons to acknowledge having made mistakes in your investing choices. That’s why as a society we are in the fix we are in. Guess what? It’s painful on my side too. It’s emotionally painful pointing our people’s mistakes to them.

There is something in human nature that makes this hard. We all care what our friends and neighbors and co-workers and fellow community members think of us. A simple way of putting it is — We want to be liked. If you want to see how that affects what people who are informed about the peer-reviewed research talk about it, take another look at the blog entries describing the e-mails that I exchanged with Wade Pfau.

Wade LOVED exploring this stuff. The 16 months he spent working with me were the happiest 16 months of his life. He used to stay up late just thinking about this stuff and plotting out new ways to help millions of people by exploring all of the many powerful insights we have mined but kept secret over the past 33 years. He was talking about winning a Nobel prize. He couldn’t believe his good fortune in having stumbled upon a research topic that would do so much good for so many people, a research topic that would liberate millions to live far richer lives and one where all of the data was on one side so the findings were clear and sharp and pointed to hundreds of exciting real-world implications. After you take that stuff in, investigate why Wade flipped to the Goon side.

Part of it is the obvious stuff. He wanted to be successful in his career. He has financial responsibility for two small children. He didn’t want you Goons destroying his means of making a living. He saw that Jack Bogle supported you and that scared him. He knows that Bogle has money and power and connections and he knows that he doesn’t hesitate two seconds to put those advantages to use destroying anyone who dares to “cross” him by telling the truth about what the last 33 years of peer-reviewed research in this field tells us about how stock investing works. Wade’s fears over what the Buy-and-Hold Mafia would do to his career were the primary reason why he agreed to stop doing research on Valuation-Informed Indexing and to stop promoting the research he had already published with me at the time he flipped.

But there was also another factor at play.

Wade thinks of himself as a good person and for good reason — he IS generally a good person (I of course believe this to be so of all of my many Buy-and-Hold friends). So it wasn’t an easy thing for him to do to make that flip; Wade isn’t in the habit of going along with massive acts of financial fraud that are likely to destroy millions of middle-class lives. When people engage in behavior like that, they need to rationalize the decisions they make as representing something more than the advancement of their self-interests. If you listen closely to the things that Wade was saying when he felt pressures being brought to bear on him, you will hear what he was telling himself. He was telling himself that it is important to be part of the club, not to be an outsider, not to say things that stir up trouble or that makes people feel uncomfortable with choices they have made for themselves or have encouraged others to make.

This comes across clearly in one of the quotes from Wade that I use in the slider at the top of all the pages at this blog. Wade said at the Bogleheads Forum one time something to the effect of: “You see people who push market timing as slimey sellers of snake oil. I don’t want to be seen as that sort of person.” Wade wants to fit in. We ALL do. I’m like all of the other humans. I want to fit in too. So I feel pain just like Wade and just like all of the others when I am painted as some sort of promotor of snake oil or something along those lines.

I’ll tell you something that I find odd that I have seen play out numerous times. I sometimes have people show skepticism over the ideas that I advance and I sometimes have people show a good deal of acceptance of those ideas. Guess which type of experience hurts the most?

It hurts more when people show acceptance.

Not because I don’t want people to accept the ideas — I obviously do want that. But because of all the social pressures that people feel not to tell the truth about how stock investing works, I usually do not gain much traction even among people who accept the ideas. A perfect example is the blogger named “Mr. Money Mustache.” I had dinner with Mr. Money Mustache at one of the financial blogger conferences. We had a great and long conversation about all sorts of things. He’s a super guy and he has a hugely successful blog. He found great merit in Valuation-Informed Indexing and would obviously love to share it with all his readers. And if he promoted the idea, this would be over. He has a huge number of readers and they would share it at other places and The Great Wall of Corruption would come tumbling down.

Mr. Money Mustache elected not to write about Valuation-Informed Indexing at his site. He didn’t offer me much of an explanation of why he made that choice. He said something about how, no matter how great an idea is, there are people who will find ways to criticize it. There clearly is something that causes him to hold back. This is not a fellow who is afraid of offending corporate interests. He once let go of an advertiser who was bringing him thousands of dollars per month because it insisted that he stop using obscenities in his articles. He not only told the advertiser to go to hell, he told the story on a stage at the financial bloggers conference. So he is not the type whom you would expect to be afraid to go up against the big money boys who push all the smelly Buy-and-Hold garbage.

So why did Mr. Money Mustache not blow the whistle on this massive act of financial fraud?

I think it’s that concern about not being liked that affected Wade and that affects all the humans, including me. Mr. Money Mustache wants to be liked. And he IS liked. His readers LOVE it that he includes obscenities in his articles. His attitude toward that sort of thing is the secret to his success. People don’t read him just because he is intelligent. They read him because they LIKE him. And lots of his readers are Buy-and-Holders (how could it be otherwise when honest posting about what the last 33 years of peer-reviewed research says is banned at every large investing site?). So, if Mr. Money Mustache spreads the word about what works in stock investing, he is going to face social disapproval. There’s no getting around it. He doesn’t want to face social disapproval. So he holds back, at least for the time being.

It hurt me more to be rejected by Mr. Money Mustache than it hurt me to be rejected by bloggers who believe in Buy-and-Hold. I believe that both types of bloggers should be permitting honest comments at their sites. But the rejection hurts more when it comes from someone who is not emotionally invested in Buy-and-Hold and who is capable of appreciating the arguments for Valuation-Informed Indexing on an intellectual level. It’s because things seem more hopeless when it happens that way. When I am rejected by a Buy-and-Holder, there is always the hope that that person can be convinced by the arguments and come around in time. When I am rejected by someone who sees the merits of the arguments, the natural question in the back of my mind is — What can I ever hope to do to change this?

I have seen more of that sort of thing in recent years. In the early days, most of the rejections seemed to be the result of intellectual disagreements or misunderstandings. Lots of people really believed in Buy-and-Hold back in 2002. Doubts about the strategy have been growing since the onset of the economic criss in late 2008. So today more of the rejections that I face are rooted in these concerns about social disapproval and fitting in. So the rejections have become harder for me to take than they were in earlier days.

So, yes I have cut back the public work that I do promoting the VII concept. I still do things. I obviously respond to questions and comments from you Goons. I am giving a presentation at FinCon14. I had a blogger write to me last week and request a Guest Blog Entry. I of course supplied that within 24 hours. I work on the book when I have time to do so. I review old articles and run the calculators to sharpen my thinking and my arguments. I keep busy with this stuff.

But I am less inclined to show up at blogs and enter comments pointing out the dangers of Buy-and-Hold. I know that it is important that I do so and I know that I have a responsibility to force myself to do as much of that sort of thing as I am able to do. But it hurts to feel social rejection over and over and over again. So I have cut back. It has become hard for me to face the negative emotions that follow from telling people the truth about stock investing and causing them to feel the pain that comes from seeing that they have made terrible mistakes that have done great harm to their financial futures.

Does that help, Anonymous?

I continue to see great value in the VII concept and I continue to feel a responsibility to spread the word far and wide. But it hurts to do so. And in recent days I have been inclined to give myself a bit more of a pass re doing the hardest parts of the job. I feel that I have done a lot and that I deserve a bit of a break. I expect to get back to that sort of work in days to come. I have hopes that that sort of work will become easier following the next crash. But, yes, for the time-being I have “capitulated” in certain respects. I still believe in the concept as strongly as I ever have. And I of course possess zero willingness to post dishonestly re any aspect of the stock investing experience. But I have taken a lot of blows over the past 12 years and they hurt and I am not today in a mood in which I feel too much excitement over the prospect of taking on too many more. I have pulled back because it hurts too much emotionally to be as out there as I have been for most of the past 12 years.

Teling people the truth about stock investing at a time when prices are high and they don’t want to hear it is hard work. It’s obviously not hard work in a physical sense. And I wouldn’t say that it is all that hard in an intellectual sense either — perhaps it is moderately hard in an intellectual sense. But this is VERY hard work emotionally. It’s draining. It takes a lot out of you. That’s why so few people are willing to push too hard re all this stuff.

I hope that makes at least a small bit of sense to you, Anonymous.

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

Rob

“What Shiller Did in 1981 Was Something Much Bigger Than Recognizing a Pattern. He Showed That the Core Idea on Which the Entire Buy-and-Hold Model Was Built Was in Error.”

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

Because once a pattern is recognized

What Shiller did in 1981 was something much, much bigger than recognizing a pattern. He showed that the core idea on which the entire Buy-and-Hold Model was built was in error.

The default belief is not that prices do not matter. The default belief is that prices DO matter. Prices matter with every good and service we buy. The puzzle here is — Why did so many smart people come to believe that price does not matter when buying stocks?

Many smart people came to believe this because in the early years of our investigations into how stock investing works (there were few serious investigations prior to the 1960s), a man named Eugene Fama made a startling discovery. Fama’s discovery was very important. He won a Nobel Prize for it. But Fama’s description of what he had discovered was tragically flawed.

Fama found that short-term timing (changing one’s stock allocation with the expectation of seeing a benefit for doing so within a year or so) does not work. All of the research done in the 50 years since supports Fama’s finding. It is the second most important finding in the history of investing analysis.

Unfortunately, Fama described the finding improperly. He did not say: “The data shows that short-term timing doesn’t work.” He said: “The data shows that timing doesn’t work.” The first statement is true and important. The second statement is wrong and dangerous. The second statement has caused millions of people to lose their jobs and has put millions of people on track to suffering failed retirements and has caused hundreds of thousands of business to fail and has caused numerous discussion boards and blogs to be burned to the ground or to be ethically compromised. The second statement will in days to come be responsible for having put a good number of friends of mine in prison cells.

The second statement is as false as any statement could ever be false. Shiller was the first person to test whether long-term timing (changing your stock allocation in response to a big shift in valuations with the understanding that you may not see benefits for doing so for as long as 10 years) works or not. Shiller found that long-term timing ALWAYS works and is ALWAYS 100 percent required for any investor hoping to have any realistic hope whatsoever of long-term investing success.

The false statement needs to be corrected. That’s what this 12-year saga is all about. No one can talk intelligently and honestly about how stock investing works according to the peer-reviewed research in this field until that statement has been corrected.

Fama did not discover a pattern showing that long-term timing doesn’t work. Fama didn’t discover ANYTHING about long-term timing because he never bothered to test whether long-term timing works or not or whether long-term timing is required or not.

Shiller did not find a pattern different than the pattern Fama found. Fama had never found any pattern relating to long-term timing because he never looked at the phenomenon. Shiller found the only pattern that has ever been found relating to long-term timing — he found that it always works and that it is always 100 percent required. Every researcher who has done follow-up work has found precisely the same thing.

There is no conflict in findings here. ALL of the data shows that short-term timing doesn’t work and ALL of the data shows that long-term timing ALWAYS works and is ALWAYS 100 percent required. Common sense of course tells us the same thing. ALL of the data confirms what our common sense tells us MUST be so.

The problem is that flawed human beings built their careers around an investing strategy that was developed before all the research that was required to know what works had been completed. These flawed human beings need to be encouraged to work up the courage to say the words “I” and “Was” and “Wrong” and thereby to permit themselves to spend the remainder of their lives doing good work rather than destroying millions of lives by refusing to acknowledge a very, very, very big error about a very, very, very important matter.

This is not about patterns. This is about saving the U.S. economic system from collapse as the result of an error made by our Buy-and-Hold friends nearly 50 years ago and uncovered by the peer-reviewed research in this field 33 years ago.

My best and warmest wishes to all of my soon-to-be-prison-dwelling Goon friends.

Rob

Valuation-Informed Indexing #211: Fama Acknowledges That We Don’t Know What Caused the Great Depression

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I’ve posted Entry #211 to my weekly Valuation-Informed Indexing column at the Value Walk site. it’s called Fama Acknowledges That We Don’t Know What Caused the Great Depression.

Juicy Excerpt: What is the first thing that comes to mind when you think of the Great Depression? It’s the Great Stock Crash of 1929. People’s fortunes being lost. People jumping out of windows. People selling pencils and apples on the street corner. That sort of thing.

Every sensible person connects those two events in his or her mind. It’s only one group of people that doesn’t — Economists. And how sensible are they? Seriously, there is an obvious connection between the two events. The only reason why it is not conventional wisdom that the Great Crash caused the Great Depression is that economists generally have not connected the two.

I have been saying that it was the popping of the stock bubble of the late 1990s that caused the economic crisis that we are struggling through today (which will likely bring on the Second Great Depression if Shiller is right that we have another price crash in our not-too-distant future). The only argument that people who disagree with me have been able to come up with is that that is not what the economists say. But Fama is now spilling the beans and acknowledging that the economists do not know.

“Valuation-Informed Indexing Is the Biggest Boon for Financial Bloggers in the History of Financial Blogging. We Have the Potential to Make BILLIONS. Those of Us Who Have the Courage to Stand Up to the Wall Street Con Men and Their Internet Goon Squads Become the New Experts. All of My Blogger Friends Should Be Taking Advantage of This Great Opportunity.”

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

Why aren’t you doing a keynote speech since you are the foremost financial expert and have the most irritant message of anyone on this planet?

I should be giving the Keynote talk, Anonymous. Absolutely.

Valuation-Informed Indexing is the biggest boon for financial bloggers in the history of financial blogging. We have the ability to show our readers how to reduce the risk of stock investing by 70 percent. We have the ability to show our readers how to increase returns enough for them to be able to retire five to ten years sooner than they ever imagined possible in the Buy-and-Hold Era. We have the ability to bring the economic crisis to an end and to bring on the greatest period of economic growth in U.S. history. We have the ability to eliminate the possibility of seeing future bull and bear markets and probably even future economic crises.

And we have the potential to make BILLIONS doing this. Most of the experts in this field are afraid to talk about the implications of the past 33 years of peer-reviewed research in this field. That leaves it to us bloggers! Those who have the courage to stand up to the Wall Street Con Men and their Internet Goon Squads become the new experts! I have a RobCast titled “I Am 12 Years Ahead of John Bogle in My Understanding of How Stock Investing Works — And You Can Be Too!” That doesn’t just go for me. That goes for anyone with the courage and smarts to bypass most of today’s experts and post honestly on the past 33 years of peer-reviewed research.

All of my blogger friends should be taking advantage of this great opportunity to make tons of money while doing tons of good for their readers. It’s a freakin’ no-brainer. There shoudn’t be one person leaving this opportunity behind. Even people who still believe in Buy-and-Hold can get in on the action. Just because you believe in Buy-and-Hold doesn’t mean you cannot present the case for Valuation-Informed Indexing and thereby help your readers and thereby make a nice buck.

So, yes, it would make all the sense in the world for me to be the Keynote speaker at FinCon14. I believe that I WILL be the Keynote speaker at the first FinCon that takes place following the next price crash. I believe that we will devote an entire conference to teaching all financial bloggers what they need to know to help their readers make the transition from Buy-and-Hold to Valuation-Informed Indexing. This is the most important advance in our understanding of how stock investing works ever achieved in our history and we all should be working together to get the word out far and wide before the Wall Street Con Men do more damage.

People are scared.

People don’t like to see the lives of their family members threatened. People don’t like to see their businesses destroyed. People don’t like to be banned from discussion boards that they have spent years of their lives building up. People don’t like to be defamed.

We need to do two things. We need to eliminate all of the penalties that the Wall Street Con Men and their Goon Squads impose on those of us who believe that we should be posting honestly about what the last 33 years of peer-reviewed research says. And we need to see that those of us who do work up the courage to stand up to those engaged in this massive act of financial fraud are rewarded for their efforts.

The announcement of your prison sentence is going to change things in a big way. No one will be pushing the smelly Buy-and-Hold garbage after your prison sentence is announced. And the announcement that I have received a settlement check of $500 million is going to change things in a big way. Everyone is going to be writing articles and developing calculators and recording podcasts promoting the first true research-based investing strategy after my receipt of the $500 million settlement check has been announced.

We are in an economic crisis today because as a society we have made the rewards of promoting Get Rich Quick garbage too great and because we have made the penalties for reporting accurately and honestly what the peer-reviewed research in this field says too great. I believe that we will turn that around following the next price crash. I will be thrilled at that time to handle giving the Keynote speech at the FinCon event and at lots of other events.

I hope that helps a bit, Anonymous.

Rob

“Nothing I Say Is Even a Tiny Bit Controversial in Any Objective Sense. It Is Pure Common Sense. There Is a Mountain of Evidence on One Side and Zero on the Other. You Would Think That Would Help Me. But That’s Not the Way It Works. The Stronger My Case Is, the Worse the Buy-and-Holders Feel About the Mistake They Made.”

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

OMG.

You REALLY believe aaaallll those people paid for an education, studied hard, and went out and got jobs…because they just want to be liked??? You don’t have to be anything more than a two-bit pot dealer to be liked.

I’m betting ‘money’ ranks far, far above ‘will you be my friend?’ on their list of drivers.

And speaking of being honest and honest posting…whatever happened to all my Honest Posts you banned/deleted?

I don’t say that those people went to school to be liked. I certainly agree that part of it was to make a living. Another big part of it was to be able to do good in the world. The Buy-and-Holders are like everybody else. They act from a mix of motivations, some selfish, some altruistic, some in the middle.

But, yes, they do like to be liked. That’s one of the motivations that drives all of us.

If Shiller had published his “revolutionary” (his word) research in 1961 instead of 1981, there wouldn’t be one Buy-and-Holder alive on the planet today. Why would there be? We all want to reduce the risk of stock investing by 70 percent. We all want to be able to retire five to ten years sooner. So we naturally would all follow what the peer-reviewed research in this field says.

The problem is that Fama published his research before Shiller published his research and many good and smart people believed that Fama’s research was valid and they developed an investing model based on it. Then, when they learned that Fama got an important part of the story wrong, they resisted making the correction that needed to be made in part because they want to be liked and in part because the want to make money and in part (paradoxically enough) because they want to help people (the Buy-and-Holders don’t wake up in the morning seeking ways to crater the economy, they believe in Buy-and-Hold themselves, they have rationalized away the 33 years of peer-reviewed academic research showing that it can never work for even a single long-term investor).

Nothing that I say is even a tiny bit controversial in any objective sense. It is pure common sense. And it is backed by 33 years of peer-reviewed research, rooted in 140 years of historical return data. The guy who started Valuation-Informed Indexing won a Nobel Prize for his work. There is no intellectual dispute here. There is a mountain of evidence on one side and zero on the other.

THAT’S THE PROBLEM!

You would think that would help me. You would think that having every sliver of evidence available to us supporting my position would be a plus for me. But, no, that’s actually not the way it works.

The stronger my case is, the worse the Buy-and-Holders feel about the mistake they made. The more lives there are that will be ruined if the Buy-and-Holders don’t come clean today, the less likely they are to do so — because they cannot bear to acknowledge how many lives they have already destroyed with their reckless and relentless and ruthless promotion of their smelly Get Rich Quick garbage.

If this were some small mistake we were talking about, we would all agree that it should be promptly fixed and get about the business of fixing it. It’s no small mistake. The mistake that the Buy-and-Holders made is the biggest mistake ever made in the history of personal finance, a mistake that has caused so much human misery through the years that the Buy-and-Holders cannot permit people to talk about it on the internet. This mistake has caused four economic crises! This mistake has caused millions of failed retirements! This mistake has caused hundreds of thousands of business to fail! This mistake has caused millions of people to lose their jobs! This mistake has caused numerous discussion boards to be burned to the ground! This mistake is in the process of causing a good number of people who have put up posts in “defense” of Mel Linduaer and John Greaney to be sent off to serve prison terms for committing the most massive act of financial fraud in U.S. history.

The problem here is not that the Buy-and-Holders don’t get it that they have caused great human misery with their Buy-and-Hold lies. The problem is that they get it only too well and they cannot bear to acknowledge even to themselves what they have done. They lie to others, yes. But first they lie to themselves. It’s called “rationalization.” It’s called “cognitive dissonance.” It’s called “living in a fog.” The one thing that it should never, ever, ever be called is “science.” True scientists don’t threaten to kill the wives and children of people who question their findings. It just isn’t done.

The problem we have here is a human problem, Honest. The Buy-and-Holders are in great emotional pain. They have their lives riding on an idea for which there is not a sliver of support in the academic research and they see no way out of the trap in which they have placed themselves. There is a way out. The way out is through coming clean by the close of business today. But you try telling them that. That way lies their hope of getting their prison sentences reduced a bit. But they cannot bear the thought of serving any prison sentences at all! So whachagonnado?

My job is to help them (you!) work up their courage, swallow their medicine, and start to rebuild their lives (and the economic system of the United States!). I am doing all that I can think of to do. If you come up with an bright ideas, please pass them along. My take on this is that I have tried just about everything and the only thing that is really going to make a difference is the next price crash. After the crash, I don’t think I am even going to need to speak. My good friend Jack Bogle’s heart is going to melt when he sees that his marketing mumbo jumbo put us in the Second Great Depression and then he is going to give his “I Was Wrong” speech and then we are all off to the races bringing on the greatest period of economic growth in U.S. history.

The Buy-and-Holders are like all the rest of us. They have good in them, they have bad in them. They have smart in them, they have dumb in them. They have courage in them, they have fear in them. They feel trapped. All of us who care about them should be doing all we can to help them out of the trap in which they find themselves. I put my entire heart, mind and soul into that project on a daily basis. And I wish for the best. And that’s pretty much it. I can do no more and I can do no less.

I hope that helps a bit.

Please take good care.

Rob