A Rich Life

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

Goon Poster to Rob: “You Have Your Agenda and Want To Spread It On Every Thread, Even When It Is Not the Subject Being Discussed. You Think That Your Points Are More Important Than What Anyone Else Has to Say, Yet Give No Consideration to the Opinion of Others. If It Doesn’t Mesh With Your Line of Thinking, You Say That People Are Lying or Afraid and That Is Just a Bunch of Bull.”

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

A contributing factor of you getting kicked off all those sites is the factbthat also don’t listen. You have your agenda and want to spread it on every thread, even when it is not the subject being discussed. You think that your points are more important than what anyone else has to say, yet give no consideration to the opinion of others. If it doesn’t mesh with your line of thinking, you say that people are lying or “afraid” and that is just a bunch of bull.

I plead “guilty” to having an agenda and wanting to spread it far and wide. No apologies whatsoever.

I plead “not guilty” to pushing that agenda on any thread in which it was not relevant. That is something that I would never do. That is something that I would never consider doing. I am a very big believer in following rules, Anonymous. And that is a rule which is needed and makes sense and which I endorse. I never, ever break that rule.

All that said, there is a small bit of legitimacy to what you are saying here.

Shiller’s findings are relevant to a LOT of threads.

That’s not my doing. That’s just the way it is. Shiller’s findings are of fundamental importance. They are relevant to many, many. many discussions.

I plead “guilty” to believing that my points are more important than the points being made by most others. Everyone is guilty of that. If I didn’t think my points were important, they wouldn’t be my points. I obviously always show respect and affection to those making other points. I obviously always try to learn from those making different points. That’s as far as a human can go. We all have biases. We all are influenced by the life experiences that have comprised our lives and by the particular skill sets that we bring to the table.

I plead “not guilty” to saying that people who don’t believe in Valuation-Informed Indexing are lying or afraid. I have said 10,000 times that there are millions of good and smart people who believe in Buy-and-Hold. I was a Buy-and-Holder myself prior to the evening of August 27, 2002. Do you seriously believe that I called myself a liar and a fearful person prior to that date?

I plead “guilty” to saying that those who engage in Goon behavior (death threats, demands for unjustified board bannings, tens of thousands of acts of defamation, threats to get academic researchers fired from their jobs) are liars or fearful. Those behaviors are over the line of what is considered acceptable or tolerable in a free society.

The root problem here is that Buy-and-Hold and Valuation-Informed Indexing are opposite strategies that both claim to be rooted in the peer-reviewed academic research. If VII weren’t rooted in research, the Buy-and-Holders wouldn’t get so upset. They still wouldn’t follow VII strategies. But they wouldn’t see VII as a threat. They see it as a threat because they believe that their ideas are rooted in research and those advocating VII are advocating a strategy that is the opposite in every possible way that is ALSO said to be rooted in the research. Huh?

The answer is for Buy-and-Holders and Valuation-Informed Indexers to show respect and affection for each other and to try to learn from each other.

That’s the way that this would have played out if getting this investing stuff right weren’t so darn important. If it were a small thing, the Buy-and-Holders could say “well, this new stuff doesn’t sound quite right, but let’s hear what these people have to say, it sure can’t hurt just to listen to them.” In this case, it CAN hurt. If the Valuation-Informed Indexers are wrong, they could cause people to suffer failed retirements. So the Buy-and-Holders feel a need to come on very strong.

The other side of the story is that, if you believe in Valuation-Informed Indexing, it is the Buy-and-Holders who are causing failed retirements! We believe just as strongly in what we believe. Buy-and-Hold is every bit as dangerous in the eyes of Valuation-Informed Indexers as Valuation-Informed Indexing is in the eyes of Buy-and-Holders.

We have to find some way of having a conversation without yelling at each other.

I am game for anything that doesn’t require me to say something that I do not believe. I don’t want to tell lies. That’s normal and understandable, right?

Now –

The problem comes with what you say up front. Shiller’s findings are “revolutionary.” They turn our old understanding of how stock investing works on its head. They change every strategic consideration.

It’s not my intent to jump on every thread in which the Buy-and-Holders are having a conversation amongst themselves and ruin it for them by turning it into an argument. It is NOT my intent to do that.

But it is not only confirmed Buy-and-Holders who participate on our boards and blogs. About 10 percent of our community members follow VII strategies. Those people should be able to hear the VII side of the story on all the threads on which it applies (and that is most of them). And there is a much larger percentage of the community that remains in the Buy-and-Hold camp but would like to hear the other side of the story from time to time as well. Those people have rights. The Buy-and-Hold dogmatics don’t get to decide by themselves how things go down.

Say that the Buy-and-Holders wanted the right to label some threads “For Buy-and-Holders Only” so that they didn’t need to get in arguments re basic points with the Valuation-Informed Indexers. I have no problem with that so long as the same right is extended to the Valuation-Informed Indexers. We get to have our threads where the Buy-and-Holders stay out too. And of course there would be other threats (most threads) in which both Buy-and-Holders and Valuation-Informed Indexers would participate.

The core thing here is that there needs to be a general recognition that there are TWO schools of academic thought re how stock investing works, not one. Buy-and-Holders are not dumb. Buy-and-Holders are not evil. But it is NOT true that Buy-and-Hold has been proven beyond any reasonable doubt. Fama won a Nobel Prize. So did Shiller. Both schools of thought are valid today. Every board and blog on the internet must be open to discussion of both schools of thought.

No one who comes to the table with a halfway reasonable mind is going to have a hard time working out details with me. I am 100 percent happy to bend over backwards to be reasonable and accommodating to my Buy-and-Hold friends. Put forward reasonable suggestions and we can lock this down in 24 hours.

It is NOT reasonable to expect me to sit in the audience for years while John Greaney pushes his retirement study on a daily basis and not say anything even though I am aware of the 33 years of peer-reviewed research showing that that study gets the numbers wildly wrong. I am not saying it that way as some sort of dig. I am saying it that way to make you aware of the very real problem here. You put me in an impossible situation when you apply intimidation tactics to silence me re something like that.

Greaney may well believe in the study. I believe that he does. Bogle may well believe in the investing strategy. I believe that he does.

But it is NOT the case that the Old School SWR methodology is beyond dispute proven. It is NOT that.

I have every bit as much right to advocate Valuation-Informed Indexing as Bogle has to advocate Buy-and-Hold. That right MUST be respected. There can be zero negotiation re that one.

Work with me and I will do everything I can to make things proceed smoothly.

Pull out intimidation tactics and I will call out your sorry ass on it. Every time. I am FAMOUS for it.

It has to be said that way because the bad stuff has been going on too long now for it to be ignored.

But, if you want to work together, I am 100 percent on board. I LOVE the good that the Buy-and-Holders have done, which is considerable. I care deeply about all of my Buy-and-Hold friends. It is my strongly held belief that VII is just a new version of Buy-and-Hold. We are not enemies. We are friends. We should be working together. It is a national tragedy that things ever got so far off track that there are people who today think of the two sides as working toward different purposes. We want the same things. And we can only obtain the things we want by working together.

I DO listen.

I listen to reasoned and civil arguments.

I do NOT listen to intimidation. Not ever. Intimidation tactics are a total and complete turn-off for me. My ears clog out when some Goon comes forward with dirty, smelly, disgusting intimidation tactics.

Your move.

Please THINK before posting your next words. We all have to live with the consequences of what you put forward. Please listen to that voice within you that is telling you to take things in a positive and constructive and life-affirming direction. If you listen carefully to that voice, you will see all good things come back to you in return.

Rob

Michael Kitces Writes a Fine Article on Valuation-Informed Indexing and the New School of Safe-Withdrawal-Rate Analysis

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Michael Kitces has written a fine article on Valuation-Informed Indexing and the New School of Safe-Withdrawal-Rate analysis. It is called Shiller CAPE Market Valuation: Terrible for Market Timing, But Valuable for Long-Term Retirement Planning.

Juicy Excerpt #1: Nonetheless, the reality is that while Shiller CAPE has little predictive value in the short term, its correlation to market returns is far stronger over longer time periods; Shiller CAPE shows its strongest correlation to nominal returns over an 8-year time horizon, and is actually most predictive of real returns over an *18* year time horizon… supporting Benjamin Graham’s old adage that the markets may be a voting machine in the short run, but they are ultimately a weighing machine in the long run as valuation eventually takes hold. On the other hand, over very long time horizons (e.g., 30 years) Shiller CAPE once again begins to lose its value as other longer-term structural market factors take hold.

Juicy Excerpt #2:  Prior research from the May 2008 issue of “The Kitces Report” has shown that Shiller CAPE ratios have an astonishingly strong -0.74 correlation to safe withdrawal rates and can help predict a reasonable starting point for retirement spending; because the long-term sustainability of retirement spending is most sensitive to an unfavorable sequence of returns in the first half of retirement, Shiller CAPE’s predictive value aligns quite well and helps to provide valuable insight about whether the prospective retiree faces an important headwind or tailwind in the early years of retirement. Notably, the results indicate Shiller CAPE is more correlated to safe withdrawal rates than it is to market returns themselves!

Juicy Excerpt #3: Perhaps this distinction between valuation’s long-run-but-not-short-run predictive value was the very reason the Nobel Prize committee gave its award jointly to Shiller for his work on how stock returns can be predicted in the long run, while simultaneously giving it to Eugene Fama for his efficient markets research showing that stock returns cannot be effectively predicted in the short run!

Rob’s Comment: Thanks for writing the fine article, Michael. It is important and brave stuff. I don’t agree when you suggest in the headline that P/E10 is not a good tool for long-term market timing. I certainly agree that short-term timing doesn’t work. But there is now 33 years of peer-reviewed research showing that long-term timing ALWAYS works and it is important for people to know that. I understand why you don’t want to say openly that long-term timing always works. It upsets Buy-and-Holders when they hear that. But that is the case and it is a very, very big deal. The research that I did with Wade Pfau shows that investors can reduce the risk of stock investing by nearly 70 percent by giving up on Buy-and-Hold strategies and engaging in long-term timing instead. That’s a very big deal indeed.

Goon Poster to Rob: “No One Else Sees One Gimmicky P/E10 Metric as Gospel for Valuation. There Are Hundreds of Technical Metrics That Can Be Used That Perhaps Have Correlation With Previous Lows and Highs But They Don’t Suggest Causation and They Don’t Ensure Anything About the Future Value of Stocks. It Is Just Not as Revolutionary As You Believe And It Is So Bizarre That You Are So Attached To It Since You Are Such an Insignificant Contributor.”

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

All of your 30 redundant points can be answered by the simple fact that no one else sees one gimmicky PE10 metric as gospel for valuation. There are hundreds of technical metrics that can be used that perhaps have correlation with previous lows and highs but they don’t suggest causation and don’t ensure anything about the future value of stocks.

Even the people who came up with this metric (not you) don’t suggest using the metric to actually influence your exposure to stocks.

Your problem is you have become absolutely fixated on one metric, one bit of research, that you had an incredibly small part in like 15 years ago. The actual brains and true contributors to those things have long since moved on to further their research and careers yet you compulsively dwell on this tiny contribution you had to someone else’s long forgotten research. It is not a conspiracy to cover it up, it is just not as revolutionary as you believe and it is so bizarre that you are so attached to it since you are such an insignificant contributor.

“The Fact That Only Goons Comment Here Does Not Show That These Blog Entries Are Unimportant. It Shows That They Are SO Important and So Far-Reaching in Their Significance That Most of Us Don’t Feel Comfortable “Getting Involved.” The Leverage That Comes With Opening the Entire Internet to Honest Posting on the Last 33 Years of Peer-Reviwed Research in This Field Is Nothing Short of Mind-Blowing.”

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

Without posts from the people you call “goons”, you wouldn’t have any content. When do you expect to actually post something original?

The Goons are the story today, Anonymous.

We have known intellectually what works in stock investing for 33 years now. That knowledge has been suppressed for 33 years now because it causes the Buy-and-Holders psychic and financial pain to acknowledge their mistake. We cannot continue like this indefinitely. We are destroying millions of dollars of wealth EVERY DAY as a result of our unwillingness to acknowledge the mistakes of the past and move on. The total losses are now in the TRILLIONS of dollars.

Something that cannot be continued eventually comes to an end. No?

You are simply wrong when you say that I do not post original content here every day. The process stuff is both original and important. The 12-year cover-up of the errors in the Old School safe-withdrawal-rate studies is the most important finance-related story in the history of the United States. We all need to come to terms with the human misery we have caused by not following the laws and traditions of the United States. My daily blog entries help us to come to terms with what has gone down. The fact that only Goons comment here does not show that these blog entries are unimportant. It shows that they are SO important and so far-reaching in their significance that most of us don’t feel comfortable “getting involved.”

I’ll switch back to content-oriented stuff when the Ban on Honest Posting has been lifted at every investing discussion board and blog on the internet. I obviously love that stuff. I have already written HUNDREDS of content-oriented articles and HUNDREDS of content-oriented column entries and THOUSANDS of content-oriented blog entries and THOUSANDS of content-oriented discussion-board and blog comments and SCORES of content-oriented podcasts and FIVE unique and powerful calculators. And I obviously have only scratched the surface of what can be done by those exploring the implications of Shiller’s “revolutionary” (his word) findings of 1981.

So there is going to be tons and tons of content-based stuff in coming days to add to the tons and tons of content-based stuff already available. But the process-oriented stuff is ten times more important today. Once the Ban on Honest Posting is lifted, we will be seeing honest investing advice with Jack Bogle’s name on it on a daily basis. We will be seeing honest investing advice with Bill Bernstein’s name on it on a daily basis. We will be seeing honest investing advice with Scott Burns’ name on it on a daily basis. And on and on and on and on and on.

The leverage that comes with opening the entire internet to honest posting on the last 33 years of peer-reviewed research in this field is nothing short of mind-blowing. Holy moly!

I would be failing to honor my responsibilities as a journalist to write about anything else until the Ban on Honest Posting has been lifted, Anonymous. I do make one exception. The majority of my entries for the Value Walk column relate to matters of substance. I like to keep those focused on substance as a way of forcing me to spend some time each week looking for new insights of a substance-oriented nature. So I allow myself that little luxury. Other than that, though, I mostly write today about the need to open every board and blog on the internet to honest posting as I see that as being the area in which the long-term leverage benefits are greatest by far.

Does all of that make good sense to you, my long-time abusive posting friend?

It certainly makes good sense to me.

Rob

Goon Poster to Rob: “Shiller/Wade Publish Papers and Shiller Has Written Some Books. Seems Like the Knowledge Is Free Flowing to Me. The Only Thing That Has Been Restricted Is Your Access to Some Pretty Unimportant Internet Message Boards and It Is Basically Because You Are a Big Pain in the Rear to Deal With.”

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

How exactly is access to that knowledge restricted? AFAICT Shiller/Wade publish papers and Shiller has written some books. Seems like the knowledge is free flowing to me.

The only thing that has been restricted is your access to some pretty unimportant Internet message boards and it is basically because you are a big pain in the rear to deal with.

We need to have people talking about the implications of Shiller’s findings at every investing discussion board and blog on the internet, Laugh.

Shiller’s findings show that there is precisely zero chance that Buy-and-Hold can ever work for a single long-term investor. What percentage of the population do you think knows that?

I didn’t know it on the morning of May 13, 2002.

John Walter Russell didn’t know it when he and I began working together.

Wade Pfau didn’t know it when he and I began working together.

Wade has a Ph.D. in Economic from Princeton. You would sure think that he would know about an the work of an economist who won a Nobel prize, wouldn’t you?

But he didn’t. He had heard of Shiller. But he had never been in a discussion of the implications of Shiller’s work.

Why?

Because there are millions of people who have followed Fama’s work, not Shiller’s. Fama’s work takes one to a very different place. So those people are hurting.

And when people try to explore the implications of Shiller’s work, they get shouted down by the hurting Buy-and-Holders. So, no, information is not feee-flowing AT ALL.

We need to stop the shouting.

We need to stop the hurting.

We need to come to understand that we are all in this together and that we all should be working together to realize the benefits of Shiller’s amazing findings for ourselves and for all our fellow investors.

Internet boards are NOT unimportant. This new communications medium is very exciting. We can change the world by opening those boards to honest posting. My good friend Jack Bogle is a good man and a smart man. If we open those boards to honest posting, we will soon have Jack working with us. Jack has a lot of influence in this field. Once we get him working with us, things will get better and better and better. All of the negative energy will have been changed into positive energy.

I am NOT a big pain in the rear. I report on the peer-reviewed research of the past 33 years. We have seen the biggest advances in our understanding of how stock investing works ever achieved in history brought to light during those 33 years. The peer-reviewed research is NOT a big pain in the rear. The peer-reviewed research is our friend. The peer-reviewed research is trying to help us. The peer-reviewed research liberates us. It frees us to lead richer (in every sense of the word) lives than we ever before imagined that we might be able to live.

The research SEEMS like a pain in the rear end to a Buy-and-Holder because it shows us that the core premise of the Buy-and-Hold Model (the idea that price discipline is not necessary when buying stocks) is in error. The research that I co-authored with Wade shows us how to reduce the risk of stock investing by 70 percent while earning HIGHER returns. That ain’t no pain in the rear end. That’s investor heaven. That’s what we ALL want. Including Jack. Including you, Laugh.

I hope that helps a bit, old friend.

Rob

Site Visitor to Rob: “As You Demonstrate Through Various Postings, There Are People And Firms in the Financial Industry Which Utilize Valuation-Informed Indexing. So the Information Is Definitely Out There, the Public Does Have Access to it, the Professionals Are Conducting Business With It. Let It Grow. Who’s to Say That Many People Haven’t Figured This Out Already, They Just Haven’t Felt the Need to Publish and Press As You Have? They Just Got on With It.”

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

You being a lawyer, and me not being a lawyer, could you please article the actual crimes you believe Wade to be guilty of?

And if he is, then why do you not press charges?

If you believe in your heart of hearts that this “financial fraud” is so heinous and destructive, being a lawyer, why not instigate a class action lawsuit on behalf of all investors over the last 33 years against the financial industry and government?

As you demonstrate through various postings, there are people and firms in the financial industry which have and do utilize VII et al, even though they may not call it as such. So the information is definitely out there, the public does have access to it, the professionals are conducting business with it. Let it grow…

Besides that, perhaps you are not the singular person to “discover” VII. As your blogged financial industry professionals have stated, they too have utilize “VII” for years. So who’s to say that many people haven’t figured this out already, they just haven’t felt the need to publish and press as you have; they just got on with it.

The future will be interesting…

The crime is financial fraud, Canuck.

I have a law degree. But I did not work for my law degree for the purpose of practicing law. I worked for it to enhance my skills as a journalist. I have zero interest in bringing any class action suits.

I can imagine class-action suits being brought by others following the next price crash. I guess that’s part of our system, so I guess that’s fine. But I sure don’t see how it helps anyone for the damages to be greater than they would be if we all just came clean today. That makes more sense for about 5,000 different reasons. I mean, come on.

There are other people who understand that Buy-and-Hold can never work in the real world. I would say that that’s about 10 percent of the population. I of course want to see it grow. Is there some reason I shouldn’t get involved in HELPING it to grow? I sure am not able to imagine any.

I agree with you only in part when you say that the information is out there. There is good information available to people who search hard enough for it. But the good information reaches only a tiny percentage of the population. I was a Buy-and-Holder on the morning of May 13, 2002. So was John Walter Russell. So was Wade Pfau. We all became confirmed Valuation-Informed Indexers once we were exposed to the peer-reviewed research of the past 33 years. Why do you think we didn’t know about this far superior strategy long, long before we became aware of it? Wade had a freakin’ Ph.D. in Economics from Princeton and he didn’t know about it!

There’s some sort of funny business going on, Canuck. I can just tell.

There are some who know who keep it zipped because they know that the Buy-and-Hold Mafia will destroy their careers if they tell. I don’t want the Buy-and-Hold Mafia destroying people’s careers because they tell us all about a better way to invest. I want THOUSANDS AND THOUSANDS of people sharing all they know! Why the heck wouldn’t I? It’s a win/win/win/win/win.

I’ll let you in on a little secret, Canuck.

My good friend Jack Bogle would LOVE it if we could open the entire internet to honest posting. That would let him off the hook. He would see his ideas helping millions of people (Valuation-Informed Indexing is obviously rooted in Bogle’s ideas except for the one that has been found to be in error). Why the heck wouldn’t he want that?

And of course the same if so for my good friend Bill Bernstein.

And for my good friend Wade Pfau.

And for my good friend Scott Burns.

And on and on and on and on.

None of these people dares to speak up in plain and simple and firm and frank and bold language because they know that their careers will be destroyed if they do.

But what if a number of the Goons were sent to prison and news of that went viral on the internet (as it obviously would)?

That would bring an end to all the nasty stuff, no?

And bring on the greatest period of economic growth ever seen in U.S. history.

And insure the shortest possible prison sentences for those who have posted in “defense” of Mel Lindauer and John Greaney.

Are you able to imagine any possible downside?

I sure am not.

Yes, I believe that the future will be interesting. I only hope that we all work together to insure that it is the good kind of interesting that we have coming up ahead rather than the bad kind of interesting.

Can we all agree on at least that much, my new kinda sorta ethically compromised friend?

Rob

“I Think of This Place as the Edmunds.com of Personal Finance. The Buy-and-Holders Have Come Up With THOUSANDS of Tricks to Take People’s Eyes Off the Ball and to Cause Them to Ignore the “Price Matters” Injunction. We Should Be Trying to Describe the Tricks for People So That They Are Not Taken in by 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:

I’m not worried about the quality of your contributions. Personal anecdotes are gold. People relate to personal anecdotes. This stuff doesn’t have to be complicated. The Wall Street Con Men try to make it sound complicated because that’s a good way to make a sale — intimidate people with big words and they feel that they need to listen to the “guru.” Yuck! People need to understand what they are doing to stick with a plan for the long term. We need simple, plain talk.

There’s no rule here that you need to understand or endorse Valuation-Informed Indexing. I love to hear from Buy-and-Holders so long as they adhere to basic rules of human civility. They keep me honest. And they teach me things that I otherwise might miss. Buy-and-Holders are very welcomed here. And of course followers of all other strategies are welcomed. And people who have no loyalties to any strategies and who just prefer to ask questions or to ponder possibilities are warmly welcomed. So that is not an issue either.

There are THOUSANDS of things we can talk about at the board.

You are correct in your suggestion that, once you describe the strategy, there is not much more to be said about what works from one way of looking at things. The strategy can be summed up in two words — Price Matters. That’s pretty much it. It’s common sense. All the peer-reviewed research shows that this is so. So what else is there to say beyond those two words?

Have you ever gone to Edmunds.com before buying a car? They provide information about the fair price of the car so that you can negotiate more effectively. I see this site as being the Edmunds.com of personal finance. In a perfect world, we could just tell people “Price Matters” and that would be the end of it. In the fallen world we live in, things tend to get a bit more complicated than that. The Buy-and-Holders have come up with THOUSANDS of tricks to take people’s eyes off the ball and to cause them to ignore the “Price Matters” injunction. We should be trying to describe the tricks for people so that they are not taken in by them. That’s a big job given how the Wall Street Con Men operate today!

Thanks for your post. We will see how things go. I much relate to the words you posted above re how this is not just about money. People spend much of their lives saving the money they need to finance a retirement and people in this field should show some respect for that reality. I hope that, as we explore things more deeply over time, we will come to think of each other as friends.

Please take good care until you have some time free to pay us another visit, Canuck.

Rob

“None of Us Can Effectively Stand Up to the Buy-and-Hold Mafia on Our Own; We Need to Unite and Insist on Enforcement of the U.S. Laws Against Financial Fraud to Have Any Chance of Bringing These Powerful and Wealthy and Corrupt Individuals to Justice. I Think It Would Be Fair to Say That Bernie Madoff Is Mother Teresa Compared to Some of the “Individuals” We Have Seen Put Up Posts in “Defense” of Mel Lindauer and John Greaney (and My Good Friend Jack Bogle).”

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

Super post, Canuck. I relate to everything you say here.

Shiller published his research showing that valuations affect long-term returns in 1981. If valuations affect long-term returns, the risk of stock investing increases each time valuations increase. Buy-and-Holders recommend staying at the same stock allocation at all times. That means that your risk profile is usually wrong. You are in most circumstances taking on either more risk or less risk than is appropriate for an investor in your circumstances. Getting your risk profile wrong is ALWAYS going to hurt you. It can NEVER be a plus.

Say that a 60 percent stock allocation is right for you when valuations are at moderate levels. If you stay at 60 percent stocks when valuations are high, you are hurting yourself — your stock allocation is wildly off the mark. Your stock allocation is also wildly off the mark when valuations are low — again you are hurting yourself.

The stock allocation you choose is the most important factor determining whether you will be successful in the long term. If you are willing to adjust your stock allocation as conditions change, it’s pretty easy to insure good long-term results. But if you refuse to change your stock allocation (that is, if you practice Buy-and-Hold), you insure that your stock allocation will be wrong two-thirds of the time.

If you choose a stock allocation that is right for you when prices are moderate, you have the wrong allocation two thirds of the time (when prices are low or high). If you choose a stock allocation that is right for you when prices are high, you have the wrong allocation when prices are low or moderate. If you choose a stock allocation that is right for you when prices are low, you have the wrong allocation when prices are moderate or high.

It is IMPOSSIBLE to get your allocation right if you follow a Buy-and-Hold strategy. Because the last 33 years of peer-reviewed research shows that risk is VARIABLE. If risk is variable, you MUST change your allocation in response to big changes in valuations.

Here is the research paper that I prepared with Wade Pfau:

http://arichlife.passionsaving.com/wp-content/uploads/MPRA_paper_35006.pdf

Please look at Table 1 on Page 18.

Look at the Maximum Drawdown section. The Maximum Drawdown is a good measure of risk. It is the greatest loss you ever could suffer following the strategy you employ. The Maximum Drawdown for Buy-and-Holders is 61 percent. For Valuation-Informed Indexers, it is 21 percent. That’s a reduction of about two-thirds. That’s huge! I am not saying this to brag and there are of course hundreds of good and smart people who played a role in helping me and Wade to produce this study, but that is the most important finding in the history of personal finance.

We now know how to reduce investing risk by close to 70 percent. That’s like learning how to cure cancer.

I had several long-time Buy-and-Holders tell me when that study came out that they were so impressed with that finding that they were considering changing strategies for the first time in their lives.

The response of the Buy-and-Hold Mafia was to threaten to send defamatory e-mails to Wade’s employer in an effort to get him fired from his job. Wade is financially responsible for two small children. He agreed to stop doing honest research if the Goons would let him keep his job.

Jack Bogle knows about this. He is okay with what the Goons did. Bill Bernstein knows. He is okay with what the Goons did. Larry Swedroe knows. He is okay with what the Goons did. Rick Ferri knows. He is okay with what the Goons did. The Buy-and-Hold Mafia cannot afford to see this research written up on the front page of the New York Times. The day that it is will be the day Buy-and-Hold dies in a practical sense (Buy-and-Hold died intellectually in 1981, when Shiller publisher his research showing that valuations affect long-term returns).

I wrote to the 30,000 names at the Social Science Research Network site to let them know about this. A good number wrote me back saying that they agree that this is corruption but that they do not feel that they can do anything about it given the brutally abusive practices of the Wall Street Con Men and their Internet Goon Squads. None of us can effectively stand up to the Buy-and-Hold Mafia on our own; we need to unite and insist on enforcement of the U.S. laws against financial fraud to have any chance at bringing these powerful and wealthy and corrupt individuals to justice. If this isn’t the greatest act of financial fraud in the history of the United States, I’d hate to know what is. I think it would be fair to say that this is 500 times worse than anything that Bernie Madoff ever did and Bernie Madoff lives in a prison cell today. I think it would be fair to say that Bernie Madoff is Mother Teresa compared to some of the “individuals” we have seen put up posts in “defense” of Mel Linduaer and John Greaney (and my good friend Jack Bogle).

Here’s a list of comments that Wade made about me and about Valuation-Informed Indexing during the 16 months that we were working together:

http://arichlife.passionsaving.com/2014/02/20/what-a-difference-a-threat-to-get-the-father-of-two-small-children-fired-from-his-job-has-on-an-investing-discussion-eh-long-live-buy-and-hold-its-science-with-a-marketing-twist/

There is zero chance that Buy-and-Hold can ever work for a single investor because it is built on a false premise. Prior to 1981, people believed that stock investing risk was STABLE. If stock investing risk was stable, Buy-and-Hold would be the ideal strategy.

What happened is that many powerful people built careers pushing the Buy-and-Hold concept BEFORE we learned from the research that it can never work. Then, when we learned this in 1981, they were embarrassed. They didn’t want to acknowledge the error. They felt that it would hurt their careers. So they ignored Shiller’s findings. And they put pressure on lots of others to not say anything about Shiler’s findings either.

Now we are 33 years down the road and the penalty of ignoring Shiller’s findings has become clear — millions of failed retirements and an economic crisis that may well eventually become the Second Great Depression. The people who didn’t want people to learn these realities back in 1981 really, really, really don’t want them to learn these realities today.

Most of them would like to come clean. There is tons of evidence that they have consciences and would love to find some way to get the word out. But how the heck do you get the word out without lots of people being sent to prison for the greatest act of financial fraud in U.S. history? The Goons don’t like it when I talk about the prison sentences. But my aim is to REDUCE the prison sentences. We can only reduce them by getting the word out and by bringing the economic crisis to an end. Each day that the cover-up continues, we cause more financial ruin and thereby INCREASE the length of the prison sentences of those who have participated in this massive act of financial fraud.

It’s a mess!

But the core reality here is very, very, very positive. We now know how to reduce the risk of stock investing by 70 percent. This is the biggest advance in the history of personal finance. My aim is to get all the nasty stuff behind us and then just concentrate on all the wonderful insights that we have mined over the past 33 years and have not been able to benefit from because we have had to keep it zipped to keep from hurting the feelings of the Buy-and-Holders.

Thank for asking. That was a super question.

Rob

“After the 2008 Crisis Got Me Thinking That There Has to Be a Better Way to Invest, I Started Doing a Lot of Financial Research. The Thing That Disturbed Me the Most Is That Most of Them Were Saying the Same Thing. People Work So Very Hard for Their Money, Usually for 40/50 Year and Usually at Jobs They Don’t Particularly Enjoy. They Need to Have the Respect of the Financial Industry to Be Given, At the Very Least, Access to All Information As It Pertains to Investing.”

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

Hi Rob,

A quick one as I’m tight on time today.

To further detail why I think the way I do, kind of comes down to two…abstract ideals, for lack of better terminology.

1) After the 2008 Crisis got me thinking that there has to be a better way to invest, I started doing a lot of financial research (on the internet, of course!). Didn’t matter the source, I read it; if it seemed reasonable I filed it, unreasonable, filed in the circular bin. I’ve found an exceptionally small (dismally small?) amount of really solid and intelligent personal finance agendas out there. The rest are mere regurgitation, especially in the face of cart-upsetting facts.

The thing which disturbed me the most is that most of them were all saying the same thing, and the ones pandering to new and young investors were saying it the loudest. What got me was that these newbies weren’t even being honest or even all the information out there so they could at least formulate conclusions of their own. I guess you could say I want to stand up for the non-educated so they get a fair shot at utilizing their money in a fair manner.

2) Which leads to the second “driver”. It isn’t only my money I have invested. I’ve inherited money from two grandparents and a parent. When I did so I accepted the transfer of wealth with utmost sincerity and seriousness (there’s reasons why generation wealth in N.America does not last). This was wealth created by the lives of three people, I surely wasn’t going to disrespect that immense amount of labour capital simply by throwing it all into stocks without question. The people on the “sell” side don’t care about the human(e) part of the equation, but they sure care about the dollars.

People work so very hard for their money, usually for 40-50 years and usually at jobs they don’t particularly enjoy. They need to have the respect of the financial industry to be given, at the very least, access to all information as it pertains to investing.

One of my most endearing opponents (as I am his) is a mutual fund salesman who operates his own financial planning company. His concrete mantra is for his clients to stay 100% invested 100% in mutual funds at all times. That is, spend all your money on his mutual funds and nothing else — and keep it there — forever (how else is he supposed to collect his management fee?). I have a few other issues with him and his business “theories”, but this a major one.

I think I’ve pulled a ‘Rob’ here and thrown open the flood gates! lol Reigning it in….

I’d love to contribute to your new discussion board when it’s up and running. A couple of concerns, i) I’m not exactly sure how much in terms of quality etc. I can contribute above and beyond personal anecdotes and limited research. Being nothing but a repetitive ‘Chatty Cathy” can kill a board; ii) I’m not anywhere near up to speed on the whole VII theory et al so my contributions may be exceptionally limited in scope, which brings me to the final concern; iii) how can a discussion board expound on what VII is past what it is? Every investment theory has a set degree of parameters past which you are into other things. What can you see discussion board contributors posting that you haven’t already done so in your extensive articles?

Finally, whew!, can you provide me a link(s) to the “peer-reviewed research in this field showed that there is precisely zero chance that Buy-and-Hold can ever work for a single investor” ?

Gotta run for now but I’ll be back! Have a great week and thanks!

 

Valuation-Informed Indexing #207: Rational and Irrational Investing Ideas Co-Exist

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I’ve posted Entry #207 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Rational and Irrational Investing Ideas Co-Exist.

Juicy Excerpt: People don’t respond with excitement when they learn that it is possible to reduce stock investing risk by 70 percent. They respond with worry. What if it doesn’t work? It’s been working for 140 years. What if you got something wrong? The paper passed peer-review and is subject to challenge to anyone who has access to the internet. What if it stops working? Anything can happen in this crazy, mixed-up world of ours but most of us elect to get out of bed every morning and brush our teeth and get on with the business of the scary new day all the same.

There’s something about stock investing that makes people think it should be rational. There’s money involved. I think that’s the thing. Bankers don’t wear loud ties because folks who appreciate formality in every other life endeavor sleep better knowing that their retirement money is being handled by people of great prudence. We don’t want the people handling our money to be wild and crazy guys and gals. So we like to think that there is some magical force rendering the stock market a rational place.

It’s not so.

The market is every bit as rational and every bit as nutso as the humans who participate in it. That’s us! The market is no more serious or silly than all of us who have money in it.