A Rich Life

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

“A Lot of People Want Me to Shut Up. But a Lot of Others Very Much Want to Be Able to Post Honestly on Investing Issues Themselves and Would LOVE, LOVE, LOVE to See Me Get Away With It At Some Big Site Because Me Getting Away With It Would Open the Door to Them Getting Away With It. Within a Short Time of the Day When I Get Away With Posting Honestly At Some Big Site, You Are Going to See THOUSANDS of Good and Smart People Rushing Forward to Post Honestly on ALL KINDS OF INVESTMENT-RELATED TOPICS.”

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

And the majority disagree with you. We can see this by the lack of any significant interest on this site as well as the comments on other boards. Blaming your problems on others just to feel better, does not improve your situation.

The majority disagrees with me, Anonymous. I noticed!

But isn’t the entire point of rooting one’s investing strategies in peer-reviewed research to go beyond the subjective views of both majorities and minorities and to learn WHAT REALLY IS?

If the majority rejected gravity, would that make it any less a real force?

There was a time when the majority did not believe that people with black skin should be able to drink from the same water fountains as people with white skin. Did that make it right?

If the tobacco industry spent hundreds of millions of dollars of marketing money telling people that it is good for your health to smoke four packs of cigarettes each day and the majority fell for their lies, would you feel comfortable telling those lies to your friends and seeing them die early deaths as a result?

Heaven help us all, but there was a time when a majority of music listeners voted “Disco Duck” the #1 song. Should we put the group that performed “Disco Duck” in the Rock and Roll Hall of Fame for their majority-pleasing efforts?

I like being in the majority. When the majority voted “Hey Jude” the #1 song, I said “right on!” But when “Disco Duck” reached the top spot, I felt compelled to disassociate myself from that particular majority decision.

Majorities are not always right. New ideas are NEVER supported by majorities. It is a logical impossibility that a majority could support a new idea on the day it is introduced to the world. For us all to benefit from new ideas, we must be willing to let those advocating new ideas to have their say. Then the new idea starts with one supporter and that grows over time to 100 and then to 100 thousand and then to 100 million. New ideas BECOME majority-supported ideas by being heard even though they are not yet majority ideas.

Our economic system generates enough economic growth to provide an average annual return of 6.5 percent real to stockholders. That’s because we have a long record in this country of PERMITTING and even ENCOURAGING the expression of the new ideas that help us all to live richer lives than we could ever hope to live if we lived in the kind of society that permitted only old, long-discredited majority-supported ideas to be expressed. The Buy-and-Holders want us to become that sort of society. They hate the idea that new research has been done that discredits their old understanding of how stock investing works and that lets us all invest in a way that is far safer and that offers us all far higher long-term returns.

I love my country. I REJECT this sick idea that we can never learn anything new about how stock investing works.

I’ll let you in on a little secret. Deep in his heart, my good friend Jack Bogle is not so crazy about that idea either. He lends support to the Linduaeheads. I see that. But he ALSO has put forward a good number of statements showing that he suspects that Buy-and-Hold is a big pile of smelly garbage. So what do you think is going to happen following the next price crash? I think that Old Saint Jack is going to see all the human misery he has caused and his heart is going to melt and then he is going to give that “I Was Wrong” speech and then we are all off to the races.

My problems don’t matter to too many people outside my immediate family, Anonymous. You Goons don’t have to worry too much about my problems. But I am not the only one experiencing problems as a result of the Buy-and-Hold Crisis. MILLIONS of middle-class people are experiencing problems. And those problems will be much worse following the next price crash. Those millions are going to turn on you following the next crash. And then it will be YOU suffering very, very big problems. Problems like being sent off to serve a long prison sentence. Yikes!

My problems are small compared to that, my man. Do you see?

Would endorsing the Buy-and-Hold garbage make me more popular? No doubt.

For a time.

But I believe in the original Buy-and-Hold vision. The original idea was to encourage people to root their strategies in the peer-reviewed research. There is now 33 years of peer-reviewed research showing that there is precisely zero chance that a Buy-and-Hold strategy could ever work for a single long-term investor. If I endorse what Buy-and-Hold is today, I am rejecting what I loved about it back in the days when I was a proud Buy-and-Holder myself. If I endorse what Buy-and-Hold is today, I am rejecting everything that I and the country that I love stands for. Yucko! You know?

I love my country. If my country were perfect, we would have spit out the Buy-and-Hold garbage a long, long time ago. So I guess it would be fair to say that my country is something less than perfect.

I still find it lovable. I still believe that we are eventually going to figure out how to turn this thing around. We messed up in the Civil War and yet we survived that one, did we not? We messed up during the Watergate thing and during the Clinton impeachment thing and we survived those two, did we not? We messed up during the Great Depression and we survived that one, did we not?

Some of those events were pretty darn scary. But something in us caused us to pull though in the end. I think that is what is going to happen this time. I don’t even think that we are going to remain on opposite sides in the end. I believe that the next price crash is going to be scary enough that it is going to cause us to pull together and to together bring on the greatest period of economic growth in our history.

It’s not always about being popular. Rosa Parks didn’t refuse to go to the back of the bus because she wanted to win a popularity contest. A lot of whites thought she was a troublemaker. Heck, a lot of blacks thought that. You don’t hear too many blacks OR whites saying that today.

She was the GOOD kind of troublemaker. That’s the kind that I try to be. A lot of people want me to shut up. But a lot of others very, very much want me to be able to post honestly about investing issues themselves and would LOVE, LOVE, LOVE to see me get away with it because me getting away with it would open the door to them getting away with it. Within a short time of the day when I get away with posting honestly at some big site, you are going to see THOUSANDS of good and smart people rushing forward to post honestly on ALL KINDS OF INVESTMENT-RELATED TOPICS.

My good friend Jack Bogle will be posting honestly one of these days.

My good friend Wade Pfau will be posting honestly one of these days.

My good friend Mike Piper will be posting honestly one of these days.

My good friend Robert Shiller will be posting honestly one of these days.

And on and on and on and on and on.

And, when all those people are posting honestly and when everybody sees how much earlier they will be able to retire as a result, POSTING HONESTLY WILL EVEN BECOME THE POPULAR THING TO DO. Then what will you Goons say?

Popularity isn’t everything. Caring about your friends is something. I have refused to post dishonestly about the numbers that my friends use to plan their retirements because I care about them. You know what? I bet that I will become a very, very rich man somewhere down the road a piece as a result. What will you say then when your last argument is kicked out from under you?

We allow honest posting on hundreds of different subjects today. We are going to allow honest posting on the last 33 years of peer-reviewed research in this field sometime in the not too distant future. I am sure.

Do you see?

It’s not all about being the most popular guy in the world at every moment of time. Sometimes you have to do something a little unpopular to change the world in a way that makes life better for every single person who lives in it. That’s what this 12-year-long saga is all about.

If I do the right thing here, I will be plenty popular when as a society we work up the courage to move to the place where deep in our hearts we all want to be. Right now I need to be HONEST. Being popular will follow from that once we all get out heads screwed on straight re this stuff.

Or at least that’s my sincere take on these terribly important matters.

My best and warmest wishes to you and yours. Don’t let the bad guys get you down, my long-time Goon pal.

Rob

“90 Percent of the Information About Stock Investing Available on the Internet Today Is Compromised by the Desire of the Person Putting Forward the Information to Be Liked by the People Reading the Information”

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

There is PLENTY of good information out there. This site, however, doesn’t really offer anything other than someone that wants comic relief since all you talk about is how you hate buy and hold and you call people goons all day.

We disagree, Anonymous.

I believe that 90 percent of the information about stock investing available on the internet today is compromised by the desire of the person putting forward that information to be liked by the people reading the information.

The promotion of Buy-and-Hold strategies created $12 trillion in Pretend Gains. Millions of middle-class people are counting on using their share of the Pretend Gains to finance their retirements. So it causes them great pain to hear what the last 33 years of peer-reviewed research tells us about how the market really works. Since the people giving the information want to be liked, they hold back on telling people stuff that they very, very much need to hear.

It’s a vicious cycle. Experts don’t tell the truth because their careers will be destroyed if they do. And the only way that could change would be if the people listening to the advice came to see how much less risky and more profitable stock investing would be if they knew the realities. But how can they ever come to understand these realities so long as the experts don’t dare to talk about them?

There’s good stuff mixed in with all the Get Rich Quick garbage. That much is certainly so. There are lots of smart people in this field. And there are lots of hard-working people in this field. And it is my strong impression that most of the people working in this field very much want to help people. But they can’t! If they tell the truth in a clear and uncompromised way, they will be destroyed. So they keep it zipped.

And each time one expert decides to keep it zipped, the pressure increases on all the others to keep it zipped as well. Because if one were to tell the truth, it would make all those keeping it zipped look bad. So there’s a Buy-and-Hold Mafia that goes around and makes sure that researchers who try to publish honest research suffer very serious penalties for daring to step out of line. And to see that bloggers who put up honest posts suffer very serious penalties. And to see that community members at discussion boards who post honestly suffer very serious penalties.

It’s not only the Buy-and-Holders who hold back. The Valuation-Informed Indexers hold back. Robert Shiller himself holds back! This guy won a Nobel Prize for his “revolutionary” (his word) research. And even Shiller fears telling the whole truth about the wonderful and far-reaching peer-reviewed research of the past 33 years. Shiller limited the discussion of the how-to aspects of stock investing to two paragraphs of his book. I wonder why, I wonder why.

If Shiller had published his book in 1961, before Fama published the research that led to development of the Buy-and-Hold strategy, we would all be in a very different place today. We would be enjoying the greatest period of economic growth in U.S. history rather than enduring the worst of the four economic crises that have been brought on by the reckless and relentless and ruthless promotion of Buy-and-Hold strategies by our Wall Street Con Men friends.

What a mess!

Anyway, I do indeed hate Buy-and-Hold. And I do indeed make reference to the Goon phenomenon in just about everything I write.

Not because I don’t view the Buy-and-Hold Pioneers as heroes to the middle-class. I very much see them as that. I think it would be fair to say that I see them as that to a greater degree than they see themselves as that.

And not because I enjoy focusing on the Goon problem. I focus on the Goon problem because I want to bring the Goon problem to an end. It doesn’t seem likely to me that we are going to bring the Goon problem to an end by ignoring the Goon problem. When everyone else in this field is as focused on the Goon problem as I am, we will be well on our way to bringing the Goon problem to an end, in my assessment.

All that I can do is all that I can do, Anonymous.

I think we are in a bad place today. A place that none of us wanted to find ourselves in. I believe that we all share a desire to work together to get us all to a far better place. I much look forward to the day when I will be able to join hands with all of my many Buy-and-Hold friends and work together with them to lead us to that place.

Until then –

It’s back to hating Buy-and-Hold and calling people Goons!

Grrrrrr……

Please take good care, man.

Rob

“It’s Important That You Understand What Will Cause the Next Price Crash. It Will NOT Be a Change in the Economic Realities. It Will Be a Change in Investor EMOTION. So It Won’t Be Just the Value of Your Portfolio That Will Be Crashing. The Belief of Millions that Buy-and-Hold Can Work Will Be Crashing. So All the People Who Hold Back from Calling You Out Today Will Be Angry With You for What You Have Done Following the Crash.”

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

This would be the one that will take stock values to 60% lower than they were in 2013 within three years, as per your prediction then. That’s about an 85% drop from today. We’ll see how close you were. 16 months to go!

You can do the math as well as I can, Anonymous. Shiller has the data at his web site. Just go check what P/E10 level applies before a secular bear market comes to an end. We have had four of them so far in U.S. history. If you do the check, you will see that in the first three cases the turnaround did not come until we saw a P/E10 of 8 or lower. Then you can do the math to see how large a drop that represents from where we stand today. We’re not looking at a pretty picture, that much is for sure.

It’s important that you understand what will cause the next price crash. It will NOT be a change in economic realities. That’s what it would be if Fama were right and if Buy-and-Hold worked, that’s what it would be if returns played out as a random walk not only in the short term but in the long term as well. No. It will be a change in investor EMOTION that will bring about the crash. Shiller showed that it is investor emotion that determines stock prices. Economic realities play a secondary role because economic factors influence investor emotions. But they often do not do so in a rational way. Our emotions make of economic realities what we will them to make of them.

So it won’t just be the value of your portfolio that will be crashing. Your belief that Buy-and-Hold can work will be crashing. And the belief of millions of others that Buy-and-Hold can work will be crashing. It is the belief that price doesn’t matter when buying stocks that caused the insane, out-of-control bull market. And it is the belief that price doesn’t matter when buying stocks that is behind your burning hatred of anyone who mentions what the last 33 years of peer-reviewed research tells us about how stock investing works on a discussion board or a blog.

So all the people who hold back from calling you out today will be angry with you for what you have done following the crash. That follows, does it not?

I wish you well, old friend.

Rob

Site Visitor to Rob: “The Market Crash Which, in Part — Not in Whole — Caused the Great Depression, Was Due to Mass- and Hyper-Speculation — NOT Buy-and-Hold!”

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

The market crash which, in part — not in whole — caused the Great Depression, was due to mass and hyper-speculation — NOT Buy-and-Hold!

So you say, Honest.

The P/E10 value prior to the crash was 33. That’s more than double fair value. That’s the highest P/E10 value we have ever seen in U.S. history prior to the late 1990s.

Market prices are self correcting so long as all investors know that it is in their best interests to exercise self-discipline. The investors of that day were NOT lowering their stock allocations in response to price increases. If they had been, the P/E10 value never could have gone that high. They were following Buy-and-Hold strategies, not Valuation-Informed Indexing strategies.

To be fair to the Wall Street Con Men of that day, we did not then have 33 years of peer-reviewed research showing that the widespread promotion of Buy-and-Hold strategies ALWAYS causes a price crash and an economic crisis. We do have that today.

Rob

“Middle-Class People Suspect That There Is a Lot of Corruption on Wall Street. Many Even Went So Far As to Point the Finger at Wall Street When the Economic Crisis Arrived in Late 2008. But They Were Vague in Their Accusations. They Did Not Specify WHO on Wall Street Caused the Problem and WHAT They Did to Cause It. We Need to Get the Information Out to Them.”

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

People (the middle-class) aren’t joining in because they have no money.

They also don’t really — and I mean REALLY — care.
They spend far more time watching teevee et al than paying attention to finance and economics.
Why would they? They have no wealth, thus it doesn’t concern them.
Remember, spenders, not investors/savers.

True, the financial crisis did effect everyone.
It made the rich even more rich, and everyone else less rich.

We disagree, Honest.

I’ve spoken to many middle-class people over the past 12 years. They care about what is happening to their money. They care a lot.

They haven’t put together the pieces of the puzzle. They suspect that there is a lot of corruption on Wall Street. Many even went so far as to point the finger at Wall Street when the economic crisis arrived in late 2008. But they were vague in their accusations along these lines. They did not specify WHO on Wall Street caused the problem and WHAT they did to cause it. We need to get the information out to them so that they can identify the Wall Street Con Men pushing Buy-and-Hold strategies 33 years after the peer-reviewed research showed that there is precisely zero chance that such strategies could ever work well for even a single long-term investor.

A big part of the problem is that we have never seen a case of financial fraud as big and as far-reaching as this one. I certainly didn’t know about it on the morning of May 13, 2002, and I consider myself a reasonably smart person who follows these sorts of issues to at least a moderate extent. When I find myself feeling frustration that the millions of middle-class people who are the primary victims of this massive act of financial fraud are not speaking up, I try to call to mind my own ignorance of the realities in those long-ago days and that helps me understand why many people are having a hard time taking this in today.

I don’t believe that the Wall Street Con Men (or even you Goons!) possess a full understanding of what you have done. I believe that you really follow Buy-and-Hold strategies. So you are being hurt as much as everyone else. You just don’t see it. You are in emotional pain. You believed that Buy-and-Hold was the answer and it hurts to acknowledge that you got that one wrong. You are suffering from cognitive dissonance. You obviously know that it is wrong to advance 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. But you can’t figure out how to get yourself out of the trap you find yourself in. If you come clean today, you go to prison. If you continue with your Campaign of Terror against our board and blog communities, you go to prison for an even longer time following the next price crash. It’s not an enviable choice.

I love my country. I respect and admire and feel gratitude toward the Wall Street Con Men because of all of the many insights I have picked up from them and have used to build the Valuation-Informed Indexing model. Most of you Goons are friends of mine from the days before I worked up the courage to put up my famous post of the morning of May 13, 2002. I believe that we are the luckiest generation of investors ever to walk Planet Earth and that we will all come to see that not too long after the initiation of the next price crash, when we will all pull together to bury the smelly Buy-and-Hold garbage 30 feet in the ground, where it can do no further harm to humans and other living things.

Does that help?

The millions of middle-class investors whose lives are in the process of being destroyed care. And I care about them. And even the Wall Street Con Men and their Internet Goon Squads care on one level of consciousness. So, once you see the futility of further abusive posting, we will all pull together and focus on the positive side of this story (our ability to reduce the risk of stock investing by 70 percent just by opening every discussion board and blog on the internet to honest posting on safe withdrawal rates and scores of other critically important investment-related topics) rather than the negative (the prison sentences and the hundreds of billions in financial liabilities and so on).

The hand of kindness remains extended to you and to all the other Goons and to my Wall Street Con Men friends.

My willingness to post dishonestly re the numbers that my friends use to plan their retirements (and thereby to participate in the massive act of financial fraud and to thereby earn MYSELF a prison sentence) remains precisely zero.

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

Take care, man.

Rob

“Buy-and-Hold Is a Trap. The More People There Are Who Come to Believe In It, the Higher Valuations Go. The Higher Valuations Go, the More Frightened People Become That Everything Is Going to Collapse. And the More Frightened People Become That Everything Is Going to Collapse, the More People Suppress Any Honest Research-Based Comments. Each Aspect of the Thing Feeds Into All the Others.”

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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 like how every post is now about yourself. And I am sure you have a 20-30 paragraph explanation for it and it all makes sense.

I do.

The posts that write today are intended for viewing after the next crash, Laugh.

We need to help people understand what happened to them. We don’t just want to say “oh, people messed up, sorry!” We need to go into as much detail as possible. Not because we want to linger over bad stuff. Because we want to AVOID bad stuff in the future. We have to make a complete case as to why it is important that investors focus on valuations ALL THE TIME and why it is critical that they make whatever adjustments in their portfolio allocations AS SOON AS THEY ARE CALLED FOR because, if they wait, it will get harder and harder to make those adjustments.

Buy-and-Hold is a trap. It does seem to work for periods of time. But the more people there are who come to believe in it, the higher valuations go. The higher valuations go, the more frightened people become that everything is going to collapse. And the more frightened people become that everything is going to collapse, the more people suppress any honest, research-based comments. Each aspect of the thing feeds into all the others.

And the more you struggle to get out of the trap, the tighter it pulls in on you. I believe that you Goons would permit honest posting on SWRs today if we could do it over. But to come clean today would require more than that. You would have to own up to the threats made to silence Wade Pfau and lots of other stuff. If you didn’t want to own up to the errors in the Old School SWR studies, you REALLY don’t want to own up to threatening academic researchers. The evidence that the numbers in the Old School SWR studies are wrong is now a mountain. But the trap is harder to get out of than ever before.

Not all of the posts are about me. But a lot of them are. My story is a compelling illustration of how things work when a large number of investors come to believe that Buy-and-Hold strategies might work. I should pose no threat to anyone. I possess no expertise in this field and I don’t claim to possess any. So why would my words pose a threat to the Buy-and-Holders? Why would they care enough to threaten to kill my wife and children if I continued posting honestly?

The threat exists because long before I came on the scene lots of other good and smart people tried to tell us all the truth about stock investing and were suppressed. By the time I came along the Buy-and-Holders were already insanely defensive. I didn’t know it. My sense is that a lot of them didn’t really know it. But they sensed that Shiller’s work was dangerous stuff and that anyone trying to discuss it had to be silenced pronto. So Buy-and-Holders started lashing out at me within five minutes of my famous post of the morning of May 13, 2002.

This is not an intellectual debate. There are important points of an intellectual nature in play. But all the evidence re the intellectual matters are on one side. So that part is easy. The reason why things have played out as they have is that the emotion is 50 times more intense on the Buy-and-Hold side than it is on the Valuation-Informed Indexing side, which has not yet won the strong loyalty even of those who generally believe in it.

My story illustrates well all the points that most need to be heard.

Other stories do too. Wade’s story obviously makes very important points.

And even the stories of you Goons make important points.

All of those stories are more important today than the substantive, intellectual points. The substantive, intellectual points are the good stuff. That’s the stuff we want to work up to. But we need to clear out the emotional stuff to get to the place where we all deep in our hearts want to go.

I wish you well, Laugh.

Rob

“That Guy Was Telling Us How He Really Feels. I Bug the Piss Out of Him. Your Solution Is to ‘Protect’ Him From My Words. My Solution Is To Figure Out Why My Words Bug the Piss Out of Him.”

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

No. You are wrong of course.

Those five reasons are what you would like the issue to be. But none of them are the issue.

The issue is the way you behave when interacting with others either by email or or discussion boards.

Numerous people come to the same conclusion independently.

And tell you so.

And you ignore them.

Over and Over again.

I’ll give a slightly different response to your comment, Evidence. I am going on vacation tomorrow morning. So I probably will not be able to react to any words you elect to put forward for a week or so. But, if you come back with something, I will certainly take a look when I return.

I don’t disagree with you that numerous people come to the same conclusion independently.

I don’t disagree that at least a good number of them make an effort to explain how they feel about things to me.

It’s not quite right to say that I ignore them. I make a sincere effort to LISTEN to every word directed at me re this matter. However, it IS true that I elect not to follow most of the advice re how to behave re this matter that is directed my way. So I don’t think we are in disagreement here.

And I don’t disagree that the same pattern repeats over and over again.

So we agree on much.

The thing we do NOT agree on is whether the behavior you are referring to is positive or negative.

My investing views are not majority views. I certainly hold no illusions that they are.

The problem from my point of view is that I believe that minority views re investing MUST be expressed AT ALL TIMES and under the same conditions as majority views. I get it that my views make many people feel uncomfortable. I get that loud and clear. That reality makes me feel that it is all the more urgent that these views be heard.

Discussion boards and blogs are communities of people holding a diversity of viewpoints re the subjects examined.

My views are at an extreme end of the spectrum of opinion.

For many years, these views were not heard AT ALL. Today, they are heard in small doses but only in small doses. I believe that all of our communities need to explore the implications of Shiller’s views far more frequently than they ever have before and in far more depth than they ever have before.

This is not something that can be put up to a majority vote. The majority is emotionally invested in Buy-and-Hold. If decisions as to what ideas a community could hear were made by majority vote, new ideas would never have a chance to grow and the communities following this practice would suffer. I believe that new ideas are the lifeblood of our communities. We not only should permit discussion of them. We should ENCOURAGE the discussion of them.

I certainly believe that the communities should decide what topics will be discussed. But not by majority vote taken at the time when a particular issue comes to the table. The communities decide what issues can be discussed by the rules they adopt to govern debate. All of our communities have elected to adopt rules that PERMIT discussion of the last 33 years of peer-reviewed research. That settles the matter.

People ARE uncomfortable with things I say. The best expression of this discomfort was put forward by a guy who said: “Rob is the most polite and gentle guy I have come across on the internet. And he irritates me to no end!” That guy was telling us how he really feels. I bug the piss out of him.

Your solution is to “protect” him from my words.

My solution is to figure out why my words bug the piss out of him.

If he were confident in his investing strategies, nothing I said could bother him. He shouldn’t be so irritated by mere words. There is something wrong here.

The P/E10 value that applies today tells us what is wrong. People are irrationally attached to stocks today. This whole thing is circular. People are upset to hear about the research because they are irrationally attached to stocks and people are irrationally attached to stocks because they have not heard about the research.

The only way to break the circle is to get posts about the research before people. Anyone who cares to can ignore those posts. But the posts need to be there at every board and blog for those who want to tap into what is said in them.

I don’t expect to convince you. I am putting these words forward because I felt that there was at least some truth in your comment and I felt that should be acknowledged.

There are many people who love my stuff. It is a minority. But there are a good number of such people. But there is also a larger number that is upset by my stuff. People tell me that all the time in various ways and, yes, I do largely ignore them. Because I don’t think that doing the popular thing helps anyone in these circumstances.

We need to get people exposed to the new ideas so that they can make up their own minds. It will hurt a bit for some. But that’s what happens when a society makes a decision to start rooting investing advice in research. Research findings change over time and that can be upsetting. It also can be very liberating in the long run.

Take care, man.

Rob

Valuation-Informed Indexing #210: Shiller Is Weak re the How-To Aspects of Stock Investing

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I’ve posted Entry #210 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Shiller Is Weak re the How-To Aspects of Stock Investing.

Juicy Excerpt: The primary reason why people buy investing books is to learn what to do with their money. Irrational Exuberance is amazing on theory. But Shiller devoted only two paragraphs of his masterwork to the how-to questions.

Here is what he says: “So what should investors do now? The natural first step may be, depending on current holdings and specific circumstances, to reduce holdings of U.S. stocks…. But there is a fundamental difficulty with advising individuals and institutions to get out of the stock market. If such advice were taken by large numbers, it would cause an immediate drop in the level of the market. In fact, we cannot all get out of the market. We can only sell our shares to someone else. Somebody must be left holding the outstanding shares. As a group, those unfortunate people who bought in at a market high have already made their mistake, and we cannot correct it for them after the fact.”

Valuation-Informed Indexing #209: No P/E10 Value Signifies the Same Thing At All Times

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I’ve posted Entry #209 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called No P/E10 Value Signifies the Same Thing At All Times.

Juicy Excerpt: It’s also important to keep in mind that P/E10 values do not pop up randomly. There is a pattern that has applied for the entire 140 years of stock market history. Prices start out low. Then they rise steadily for perhaps 20 years. Then they fall sharply and remain low for perhaps 10 years. Prices behave in that matter because the natural impulse of investors is to push prices up. They continue doing this until their common-sense understanding that there are limits to how high prices can go kicks in to cause prices to crash. Then the economic devastation that follows from the huge loss in consumer buying power causes investors to hate stocks for a good bit of time.

A P/E10 value of 15 represents fair-value pricing for stocks. But a P/E10 value of 15 signals something very different when prices are on their way up to a P/E10 value of 25 or more than it does when prices are on their way down to a P/E10 value of 8 or less.

 

“My Buy-and-Hold Friends Were Not Motivated By Greed. They Did What They Did Out of Love. INTJs Are Planners, Systems-Builders, Conceptual Thinkers and Masterminds. And They Are Pig-Headed, Arrogant, Full-of-Themselves, Pieces of Shit.”

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

Soooo….bottom line, Rob, is you are doing all this for the money….just like all the Buy-and-Holders.

In other words, you are just as greedy as they are, you are just trying to peddle a different shtick.

Buy-and-Holders are greedy and block Honest Posts.
Rob is greedy and blocks Honest Posts.

If you can’t beat ‘em…..

No.

It’s not greedy to expect to be compensated for one’s good efforts. That’s normal and healthy and benefits the entire society as well as the individual receiving the payment. We need to provide incentives for people to do good work to be sure that the good work from which we all benefit gets done.

I don’t agree with you that my Buy-and-Hold friends have been primarily motivated by greed either. My Buy-and-Hold friends did what they did out of love, just as I do what I do out of love. They made a mistake. That happens. In ordinary circumstances, the mistake would have been promptly corrected and we would have all moved on to the better and richer lives we earned for ourselves by discovering the mistake.

We did not face ordinary circumstances. The mistake was not on the surface. It was a mistake concerning the fundamentals. So it affected hundreds of strategic questions in a big way. People had a hard time accepting that so big a mistake had been made. So many ignored it. Many more rationalized, they told themselves that the mistake wasn’t that big a deal. Others actively covered up the mistake in embarrassment.

A second out-of-the-ordinary event caused further delay in correction of the mistake. The mistake was discovered at a time when prices were very, very low, at a time when it was hard to believe that stocks would ever again be selling at fair prices much less insanely high prices. That’s one of the reasons why it was so easy to rationalize covering up the mistake rather than fixing it. Shortly after the mistake was discovered, we entered the biggest bull market in U.S. history. This made the mistaken understanding of how stock investing works seem appealing to millions.

The further delay in correction of the mistake meant that the mistaken understanding was spread to millions. It was written up in textbooks. It was passed along by investment advisors. There were studies issued and calculators developed. There were blogs created to spread the mistaken understanding. Hundreds of thousands of people built careers rooted in promotion of the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind, not knowing that that is what they were promoting. And millions came to believe in what was being promoted to them, seeing the numbers on their portfolio statements go up and up and up over the course of a good number of years. Those people shared what they thought they had learned about how stock investing works with their friends and neighbors and co-workers, making it that much harder for us as a society to acknowledge the mistake when the damage it had done to us had grown so great as to be no longer tolerable.

Making a mistake is not evidence of greed, Anonymous. John Greaney didn’t promote his SWR study to turn a buck, he did it because he thought it was a real and good thing and he wanted to share this real and good thing with others. It’s the same with Mel Linduaer and the book he wrote and the discussion board he built. Jack Bogle made money from Buy-and-Hold. But he could have made just as much money if not more promoting Valuation-Informed Indexing. There is zero reasons (that I am aware of) to believe that he would not have done just that had Robert Shiller published his “revolutionary” (Shiller’s word) research in 1961 rather than 1981.

The Buy-and-Holders got us started on a wonderful journey of discovery of the realities of stock investing. Because they are human, they made a mistake. It has happened to each and every one of us.

Their mistake became a national tragedy because it started machinery running in which lots of wealthy and powerful and well-connected people built their careers around promotion of a Get Rich Quick investing strategy that is in the process of destroying our economic system and generating frightening political stresses on both the left and the right. The mistake must be fixed, there’s no question whatsoever about that. And, yes, a pure and ugly and naked greed has played a big part in the cover-up of the mistake. But it wasn’t greed that started things off. There is no reason that I know of to believe that Buy-and-Holders are greedier than other people.

My personal sense is that it may be that Buy-and-Holders are a bit LESS greedy than most others. The board at Morningstar was called “Vanguard Diehards.” Diehards are people who believe in something so strongly that they cannot bear the thought of not sharing it with others. Greedheads are people who will do anything to make a buck. Diehards are True Believers, people who put their love of something AHEAD of the quest for the almighty dollar.

Buy-and-Holders have their strong points and their weak points. The best way to understand them is to read up on the “INFJ” personality type. They are planners. They are systems-builders. They are conceptual thinkers. They are masterminds.

And they are pig-headed, arrogant, pompous, full-of-themselves, pieces of shit.

It’s not me who says that! It’s those darn Myers-Briggs personality assessment sites you see all over the web.

Our INFJ friends have a very difficult time admitting mistakes. And you see that personality showing up a lot wherever Buy-and-Holders meet to discuss amongst themselves how great they are and how everyone who doesn’t believe every last thing they say about stock investing is a damn moron and a waste of space on this planet.

We should love our Buy-and-Hold friends.

Loving them does not mean enabling them in their acts of self-destruction.

Loving them means thanking them in all sincerity for their many important contributions while shaking them and then putting them down on a better path when they let the weaknesses of their MasterMind personality type get the best of them.

Greed is not the driver here. It is present in places, as it always will be when money matters are at issue. Greed is part of the reason why we have seen a lock-in effect, why it has taken so darn long to get simple mathematical calculations reported accurately. But greed is not the core problem.

There are two core problems.

One is that this is truly amazing stuff. It is hard for people to accept that we now know how to reduce the risk of stock investing by nearly 70 percent. That is by far the biggest advance in the history of personal finance and people have a hard time accepting that they were born into the luckiest generation of stock investors ever to walk Planet Earth.

The second core problem is that the mistake is such an obvious thing once you become aware of it. The price you pay for stocks affects the value proposition you obtain from them. Duh! Whoever would have thought it? Buy-and-Hold is so freakin’ DUMB that it makes people feel great pains of shame and embarrassment to remember that they once believed in it and encouraged others to believe in it. Buy-and-Hold EMBARRASSES us.

We need to get over our embarrassment and move forward. We need to begin getting those darn numbers right!

I’m ready when you are, my greedhead friend (a joke!).

Greedy Rob