A Rich Life

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

“People Have Been Telling Me for 12 Years That They Want a Place Where They Feel Safe Expressing Their Sincere Thoughts on Investing. It Amazes Me That No Such Place Exists on the Internet Today. We Need to Create Such a Place. Then People Who Are Attacked Will Have a Place to Turn to for Protection.”

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

You made an important point when you noted that you used to be a Buy-and-Holder, Canuck. That’s true of me as well. It was also true of John Walter Russell (John is the co-developer of four of the calculators at the site). It was also true of Wade Pfau (Wade is an academic researcher who has a Ph.D. in Economics who co-authored with me the peer-reviewed research that shows investors how to reduce the risk of stock investing by 70 percent [by abandoning Buy-and-Hold strategies]).

The same point is demonstrated again and again and again. There is nothing dumb about Buy-and-Hold. Millions of smart and good people believe in Buy-and-Hold. Buy-and-Hold was once a legitimate thing. There once really was research that seemed to support it. The vast majority of people who believe in Buy-and-Hold are NOT Goons.

Our nation’s problem is that the peer-reviewed research has shown for 33 years that there is zero chance that a Buy-and-Hold strategy could ever work for a single long-term investor. Yet very few know this! Most people believe that Buy-and-Hold is a real thing to this day.

Our political system is set up to make this sort of national tragedy impossible. We have free speech. So people who see the holes in the Buy-and-Hold claims are free to tell people about them. The investing field is a money field. People could in ordinary circumstances make millions or even billions of dollars telling people about new strategies that reduce the risk of stock investing by 70 percent. Why haven’t we seen many people make the transition from Buy-and-Hold to Valuation-Informed Indexing?

There are three reasons.

One, there is a lot of money to be made with Buy-and-Hold. The secret to marketing is forming an emotional connection with your customer. Buy-and-Hold is pure emotion; it misleads people into believing that their phony and temporary bull-market gains are real and of course people love hearing that even though it destroys their hopes for a decent retirement in the end. The $12 trillion of phony gains created out of thin air during the bull market was essentially $12 trillion worth of marketing money used to promote this Get Rich Quick scheme. You can buy a lot of supporters with $12 trillion in marketing money.

Two, there are a lot of reputations that have been built through the promotion of Buy-and-Hold. The way you succeed in this field is by getting Big Shots to put in a good word for you. Most of the Big Shots are Big Shots because they backed Buy-and-Hold during the insane bull market and tricked (not intentionally — but still…) millions of investors into thinking that the gains being produced by the strategy they were following were real. These people are aware of Shiller’s research. But they have a huge personal stake in doing everything in their power to keep millions of middle-class investors from learning about its implications. Human nature being what it is, they keep it zipped. And they make it clear to others in the field that it would be in their best interests to keep it zipped as well. The sad reality is that most people in this field are out for themselves first, second, third and fourth and, if that means that their customers and their readers suffer failed retirements, that’s a price that just has to be paid as part of an arrangement that makes them multi-millionaires themselves.

Three, the Goons will stop at nothing to destroy the reputations and businesses of anyone who dares to “cross” them by telling people about what the last 33 years of peer-reviewed research really says.

Most people believe in Buy-and-Hold. But most people are open to hearing the other side of the story too. In fact, most people very, very much like the idea of being able to hear the other side of the story.

Here is a link to an article I wrote years ago pulling quotes from 101 comments from posters expressing a desire that honest posting be permitted:

http://www.passionsaving.com/investing-discussion-boards.html

THAT’S how most people feel about this stuff.

Most people believe in Buy-and-Hold because that’s all they have ever heard about. Most people are open to hearing about research-based strategies. But they are not going to buy into them in one day or two days or two months or perhaps even two years. Changing the strategy you use to achieve your retirement goals is a big deal. People want to be sure before they abandon Buy-and-Hold. They need to hear about the research-based stuff on a daily basis. They need to be able to ask questions. They need to be able to express concerns. They need to ponder things and come back and explore things from multiple angles. This process of exploration is not taking place and that’s why we are in such a terrible jam.

The reason why it is not taking place is not that people are dumb or not interested in learning. The reason it is not taking place is because not enough of those of us who understand that Buy-and-Hold is a big pile of smelly garbage have the courage to stand up to the Goons and insist that they obey the laws that this nation has adopted to protect us from their ugly, abusive tactics.

Shiller doesn’t like to talk about that. He has faced a LOT of abuse because he has put forward the research that shows that Buy-and-Hold can never work. But he tries to limit the abuse by not speaking clearly and firmly and boldly about the insane abusiveness of the Buy-and-Hold Goons. And until Shiller and a good number of others start doing that, it is very hard for us to move forward. Lots of people have good insights. But they don’t get shared. If you are not going to share what you know, the society you live in doesn’t realize much in the way of benefits from what you know.

So that sort of thing has to stop.

The Get Rich Quickers have zero problem speaking up about what they believe and sticking up for each other. Those of us who believe in research-based strategies are exceedingly tentative in most of our claims and statements. We see academic researchers threatened and we hesitate to call it financial fraud. We see people refuse to correct errors in retirement studies for 12 years and we worry that it might be too “extreme” to note that they are going to end up in prison cells following the next price crash.

People see this. People see the cowardice (that’s what it is, isn’t it?) of the Valuation-Informed Indexers and they hold back from joining the cause or from expressing full support for it or whatever. I don’t play this game. I offer zero apologies for being the person to discover the errors in the Old School SWR studies. I offer zero apologies for being the co-author of peer-reviewed research that shows million of middle-class people how to reduce the risk of stock investing by 80 percent. I am proud of those contributions, which have served a huge positive purpose.

I hope to come up with plenty more breakthroughs of that nature. And I want to encourage lots of others to do so. I give the Goons the back of my hand. We adopted laws to protect ourselves from them because they are a destructive force. They have chosen to walk a path that leads to prison terms. I am happy to try to help them out. But I fail to see how it would be a life-affirming act for me to agree to commit felonies and end up in prison with them. My efforts are directed at getting their prison sentences reduced a bit, not at adding one for myself.

We need to see an attitude change. That’s the point here. We need to stop asking permission to post honestly and start demanding and insisting that our right to do so be respected — and no backtalk!

We need to change the incentives and disincentives that apply for those giving investing advice. Today there are huge rewards for those who push the smelly Buy-and-Hold garbage. We need to see that penalties apply for those putting their own interests above the interests of their clients and readers. And we need to see that huge positive incentives apply for those who call out the Wall Street Con Men and their Internet Goon Squads on their b.s. The more rewards people experience for posting honestly about investing issues, the more honest posting on investing issues we will see. We want to draw people of high integrity back to the investing advice field.

People have been telling me for 12 years that they want a place where they feel safe expressing their sincere thoughts. It amazes me that no such place exists on the internet today. We need to create such a place.

I am going to start a discussion board at this site when I have 10 people who have agreed to post at least once per day at that board. When newcomers to the site see that board and listen in to the discussions and see how wonderful and real and positive and life-affirming they are, they will join in and then spread the word to their friends and neighbors and co-workers. And the 10 posters will quickly become 100 and the 100 will become 1,000 and the 1,000 will become 10,000 and so on and so on. We have a winner here. We just need to make people feel safe for the flower to be able to bloom.

I’m am inviting you to become The Second Poster at that board, Canuck.

There are no hard feelings if you say no. I will 100 percent understand.

But if you say “yes,” that answer will make it that much easier for me to attract Poster #3. And a positive response from Poster #3 will make it that much easier to attract Poster #4.

That’s how it is done. Every great idea starts with one person and then grows and grows and grows and grows. The growth of this great idea has been hindered by the Goons. But the trick of all bullies is to make people feel intimidated and thereby to gain a power over people that they have not won through legitimate means. The Goons have been cutting off the heads of good people one by one for 10 years now. Once we have a board with 10 regular posters in place, that can never happen again. Then people who are attacked will have a place to turn to for protection.

Then the idea will grow and grow and grow and grow.

We are in the process of changing history in a very big and very positive way.

Rob

“Adam Smith Taught That We Are All Rational People Making Rational Choices Re Our Money. That Was Always Wrong. We Are PARTLY Rational People But We Are Also Largely Emotional People. It Didn’t Matter So Much for Many Years That the Economists Got This Wrong Because Most People Don’t Pay All That Much Attention to What Economists Say. That Was So Until Eugene Fama Took Smith’s Ideas and Applied Them to His Theory About How the Stock Market Works.”

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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 lot of people think that I am pretty darn harsh in my assessments of the Buy-and-Holders. I say that there is zero chance that Buy-and-Hold can ever work for a single long-term investor. I say that the relentless promotion of Buy-and-Hold strategies was the primary cause of the economic crisis. I say that a good number of the Goons will be sent to prison following the next price crash. I say that Old Saint Jack himself is at risk of being found guilty of financial fraud. And on and on and on. You get the idea.

I stand by all those statements.I don’t make statements like that lightly. It took me years to understand what is going on here well enough to understand that statements like that MUST be said if we are to overcome this economic crisis. Once I saw clearly that that was the case, I started saying things like that and without apology.

Those statements are NOT truly negative statements. On the surface they obviously are. But when you acquire a deep knowledge of what is going on here, you come to see that those statements have a positive side to them. I am going to try to explain to you what I mean because you seem to have at least some willingness to learn the full reality here and this aspect of things is very, very, very important.

The Buy-and-Holders are good people. The Buy-and-Holders are smart people. Eugene Fama DESERVES the Nobel Prize he was awarded last year. Jack Bogle is properly viewed as a hero to millions of middle-class investors. He is a giant. He is the second most important figure in the investing advice field. The Goons who terrorize this board on a daily basis have helped me appreciate about a dozen different, important insights. They teach me new stuff all the time.

Huh?

I thought I said that they threatened to kill my wife and children. Now I am saying that they teach me stuff all the time. That makes no sense. That cannot be. That’s crazy.

It is a little on the crazy side. But it is so all the same. To really understand why you were banned at that board, you need to go all the way back to Adam Smith. Adam friggin’ Smith! That’s colonial days! Adam Smith was a very smart guy who got one thing terribly wrong. And his mistake was copied by hundreds of thousands of economists through the years. And now, about two Centuries later, the false idea that Adam Smith has put in millions of minds had led to you, Canuck, being improperly banned from an internet discussion board. That’s really what happened.

Adam Smith is the guy who is credited with putting forward this idea that humans act in their self-interest when making money decisions. Our entire economic system is built on that idea. And it is wrong. It is not so! That’s why we are in an economic crisis today. We need to fix that error. And all the schools teach that error in all the textbooks. That’s why it is so hard to get it fixed.

The most likely annualized 10-year return on the purchase of an index fund in 2000 was a negative 1 percent real. That’s just math. You do a regression analysis on the 140 years of return data available to us and that’s the number you get. TIPS were paying 4 percent real at the time. So you gained 5 percentage points of return by switching from stocks to TIPS. Not for one year. For 10 years running. That’s a total differential of 50 percent of the initial portfolio value. Increasing your portfolio value by 50 percent lets you retire years sooner, even decades sooner. It’s investor heaven!

So why didn’t millions of investors make the switch?

And why didn’t thousands of experts tell them to do so? Experts want to become famous, right? Showing people how to retire years or even decades sooner would certainly do the trick. So why didn’t we have experts falling over each other to spill the beans back in 2000?

It’s that darn Adam Smith fellow who messed everything up!

Smith taught that we are all rational people making rational choices re our money. That was always wrong. We are PARTLY rational people but we are also largely emotional people. It didn’t matter so much for many years that the economists got this wrong because most people don’t pay all that much attention to what economists say. They say silly stuff all the time. But so long as it doesn’t hurt people, who really cares? They make up silly stories in their ivory towers and the world keeps on turning just as before. No biggie.

That was all so UNTIL EUGENE FAMA TOOK SMITH”S IDEAS AND APPLIED THEM TO HIS THEORY ABOUT HOW THE STOCK MAKRET WORKS.

That’s what Fama did. That’s what Buy-and-Hold is. Buy-and-Hold is the theory of how the market works that is rooted in the idea that investors are RATIONAL actors. They are NOT. But Buy-and-Hold PRETENDS (with no evidence whatsoever — there has never been a single study supporting the Buy-and-Hold concept and this reality can be checked by anyone who cares to know for sure) that they are. And, unlike the Rational Man theory of economics, when people invest their retirement money pursuant to this “idea,” real stuff happens. Real bad stuff.

Fama took Smith’s idea and gave it application in the real world. And the losses that inevitably followed have already been large enough to bring on the biggest economic crisis in U.S. history. And we have another 65 percent price crash on the upcoming agenda! Flawed ideas applied in the real world can have really, really, really bad consequences for millions of people.

Okay.

I said that this stuff has a positive side to it.

The positive side is that at least the Buy-and-Holders were trying to make stock investing a scientific enterprise! No one had ever done that before. Prior to Fama, most investing advice was guesswork. That’s not so today. Today there are studies. The studies get all the numbers wrong. That’s unfortunate. But now that we all accept the idea (first advanced by our Buy-andf-Hold friends!) that investing analysis should be rooted in peer-reviewed research, what is to stop us from permitting HONEST AND ACCURATE research, research that corrects the errors made by the Buy-and-Holders and that thereby helps millions of middle-class people to invest far, far, far more effectively than they ever have before.

I am the co-author (with Wade Pfau — Wade holds a Ph.D. in Economics from Princeton) of peer-reviewed research showing investors how to reduce the risk of stock investing by 70 percent. Not bad for a fellow who never went to investing school and never managed a big fund and whose only expertise in this field is that he figured out how to get his words posted to the internet!

If I had shown people how to reduce the risk of stock investing by 10 percent, I would be the toast of the town. Everyone would love me to death. The Buy-and-Holders hate me with a burning passion because showing people how to reduce the risk of stock investing by 70 percent makes them “look bad.”

But so what, you know?

Are they going to be able to keep people from learning about that research after the next price crash? Somehow I doubt it. That research is going to get written up on the front page of The New York Times someday and then we are going to see the biggest Learning Experience ever achieved in this field. Everything is going to be turned upside down. And in a very, very, very positive way.

The Buy-and-Holders are good people. They WANT to do good.

They are in pain because they messed up in the creation of their first-draft effort at a research-based investing strategy.

We need to overcome the Goons. The sooner we do so, the shorter their prison sentences will be. So that’s a win/win/win/win/win.

Once we overcome the Goons, we are all going to some amazing places. Places where it is possible for us all to retire many years earlier and places where investing in stocks is no more risky than investing in Certificates of Deposit.

What I am saying here is not opinion. It is all research-based. It is freakin’ math!

How is it possible?

That’s the one that trips everybody up. No one ever points to any flaw in the Logic Chain I use. What people do is ASSUME that my claims are not good ones because they are so darn grand (so people call them “grandiose”).

How is it possible?

It’s possible because we are overturning that darn Adam Smith guy. We are keeping his good stuff, which is very good indeed. But we are adding a behavioral finance element to it so that the entire thing works for the first time in history. That’s no small change. That is the missing piece, the mistake that has been making stock investing unnecessarily risky for hundreds of years now, the piece that has caused four of the four economic crises suffering in the United States since 1870.

Remember, the Buy-and-Holders are good people. So the Buy-and-Holders want this.

We have no opposition. We cannot lose!

Our only opposition is a temporary force. It is that voice within the Buy-and-Holders that says: “I cannot acknowledge having made a mistake, it is too, too terrible a reality!”

All that shows is that the Buy-and-Holders deep in their hearts want to get it right.

Which is a good thing.

The Buy-and-Holders are going to be switching sides in the not-too-distant future.

I am going to take a break to cool off a bit. Then I will be back with some exploration of the question of HOW we are going to make the Buy-and-Holders flip.

Rob

Site Visitor to Rob: “Discovering Your Work Has Been Enlightening for Me; It’s Given Clarity to My Own Ideas. Your Theory Is Just As Valid, If Not More So, Than What’s Popular Right Now. It Definitely Furthers the Scope of Investment Knowledge.”

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

Rob,

For what it’s worth, and obviously not on the scale of what you have accomplished and achieved, but on the all-things-money blog I have frequented for the last couple of years, and debated against common stock market mantras, there have been several calls for me to be banned or my comments ‘moderated’ simply because I rally against what’s popular and the feel-good cheerleading.

A bit of background, I was a buy-and-holder until 2008/09. That shock woke me up and I said “There *HAS* to be a better way of investing and growing wealth!” The quest was on…

Funny thing is, I bring reams of data and research to the table — even if I have interpreted it in error, the data is still presented so anyone can see for themselves and correct me, make their own ascertains, etc. The nay-sayers almost always bring nothing to the table — no data, no research, no facts, not even an angry commentary, just name calling and requests for banning/moderation (and some of these people are financial industry “professionals”!). Brainwashed and fearful.

Discovering your work has been enlightening for me; it’s given clarity to my own ideas. Most people out there are all about self-preservation, even if it means shutting down the “truth”. Few people are about true discovery at any cost. I’m still playing catch-up with the large volume of work you’ve produced (and the reviews), but it seems to me that your theory is just as valid, if not more so, than what’s popular right now. Even if it’s not 100% perfect 100% of the time (what human function is?!), it definitely furthers the scope of investment knowledge.

Don’t worry, obsession on its own may not be good, but coupled with a higher goal can produce significant results. Aren’t we all super happy Mr. Edison was a highly obsessed S.O.B.? 😉

Canuck:

You are hitting on all the important points.

I hope you will continue posting here. It would be great if you posted on a daily basis. If there is anything that I can do to make that happen, please let me know. I will take what I can get. If you can only post once per week or whatever, that’s of course fine. Or if you choose not to do so at all, I will understand. It is boring to have only me and the other Goons posting here.

But please let me explain why in time I believe that we could make it less boring and why you could play a HUGE role making life better for MILLIONS of people if you spent some time here.

All that you say about how you have been treated is 100 percent in line with what I have seen at HUNDREDS of places. It is too sad.

It is very important that all understand that the people who have improperly called for you (and so many others) to be banned are IN GREAT PAIN. They are not bad people. They are not dumb people. They are hurting people.

Why are they hurting so much?

Because this stuff matters so much. They want to be able to retire someday. And they all have common sense. They know on some level of consciousness that it is pure nonsense to believe that price discipline doesn’t matter when buying stocks. The idea makes precisely zero sense. It is absurd. And of course we now have 140 years of historical return data CONFIRMING what our common sense tells us. There is zero chance that Buy-and-Hold can ever work for a single long-term investor. Zero. And all the Buy-and-Holders know it!

They do. I have been watching this stuff very carefully for 12 years now and I am 100 percent sure of this. The Buy-and-Holders know that Buy-and-Hold can never work. They get that loud and clear.

There is an obvious puzzle attached to what I am saying. The Buy-and-Holders follow Buy-and-Hold strategies. It’s not that they say one thing and do something else. No. They practice what they preach. The Buy-and-Holders BELIEVE in Buy-and-Hold. They believe enough to risk their retirement money on it.

Wait.

I am contradicting myself.

I first said that the Buy-and-Holders do NOT believe in Buy-and-Hold. Then I said that they DO believe It cannot possibly be both! Either I am a liar or I am nuts. It’s not only the Goons who say that. I am proving it with my own self-contradictory comments. No?

No.

Humans are capable of believing in two completely opposite things at the same time. This is actually a common phenomenon.

Say that you have a friend who is an alcoholic. He is in the process of destroying his life. His wife has left him. She took the kids. She took the house. His health is failing. His boss is close to firing him. It’s a bad scene. So you have lunch with him and tell him that he has a problem and that he needs to do something about it.

He starts screaming at you and banging the table. He has no freakin’ problem! He is just fine! He doesn’t need your friendship and he will axe you in two seconds if you ever again suggest that he has a problem. Get the hell out of his life!

That settles it. He doesn’t have a problem. He should know, right? He is closest to the situation. And he has told you clearly that he doesn’t have a problem. What else do you need to know?

He SAYS that he doesn’t have a problem. That’s the addiction talking. The very reason why he gets so upset is that he of course knows very well that he has a big problem. Suffering an addiction doesn’t make someone a moron. He knows with 100 percent certainty that he has a big problem. And he also swears on a stack of Bibles that he does not have a problem. Why? Because he cannot face it. He is hurting. Denying the problem gives him a little temporary emotional relief. That’s why he continue to deny the obvious. The obvious is too darn painful a reality for him to face.

That’s where the Buy-and-Holders are today, Canuck.

They kicked you off the blog not because you broke any rules or because you didn’t present enough evidence or because they have so much evidence supporting their views. They kicked you off the blog for precisely the opposite reason. You have ALL the evidence. They have ZERO evidence. And that’s a panful place to be. That hurts. They kicked you off the blog to make the hurting stop. You were posting real stuff and that stuff makes a Buy-and-Holder suffer incredible amounts of psychic pain.

I once had a poster who summed this up perfectly (and in a comical way). I was getting all kinds of static at this board. People were demanding that I be banned. And this guy stepped forward and said (I am paraphrasing): “Rob is probably the politest and warmest and most gentle person I have ever come to know. And he irritates me to no end!”

The guy couldn’t stand me. Not because I am a meanie. Not because I am dumb. He couldn’t stand me because he tried to tell himself that he followed research-based strategies and the strategy that he was following (Buy-and-Hold) was the farthest thing from a research-based strategy ever developed by the human mind. He couldn’t ignore what I was saying because it was so obviously true. And yet he couldn’t bear to hear me say it because, if he heard it, he had to make changes and, if he was going to make changes, he first had to acknowledge that he had made a mistake at an earlier time, and acknowledging that he had made a mistake about how he invested his retirement money was just too painful a reality to bear.

This is what is going on.

I don’t mean just with the Goons and with the people who demanded that you banned from that board. This is what is going on with Jack Bogle. And all the others. This is what is going on with every Buy-and-Holder out there.

All of them really do believe in Buy-and-Hold on one level of consciousness. And all of them really do follow Buy-and-Hold strategies themselves. And all of them lack confidence in the strategy they are following. And all of them suffer great pain as a result when they hear anyone discuss true research-based strategies.

That’s the underlying dynamic here. The implications are HUGE. And most of them are positive. The positive stuff here outweighs the negative by a factor of 50 to 1. People get hung up on the Goon stuff and we all need to get past that and get on to enjoying the benefits of the good stuff, which is so positive that most people cannot even imagine how positive it is.

I am going to stop here for this post. But I will post a follow-up or two that explores where I think this is going and why I believe that you have a HUGE opportunity to do good for MILLIONS of people if you care to take advantage of it.

Rob

“Buy-and-Hold Is Not Just a Bad Investing Strategy. It Is a Threat to the Survival of Our Free-Market Economic System. I Love My Country. I Want My Two Boys to Be Able to Grow Up in the Same Sort of Country That I Grew Up In.”

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

Rob, serious question here: do you think you’re obsessing about this topic? I agree with the idea that you believe in: buy and hold isn’t the best way to invest. Seriously, though, you must’ve thought to yourself, at least a few times…..that “perhaps I could broaden the range of topics beyond the one idea I talk about daily….that buy and hold is not the best way to invest.” ?

My primary message is not: “Buy-and-Hold is not the best way to invest.”

My primary message is: “Honest posting should be permitted on every discussion board and blog on the internet so that we can all discover together whether Buy-and-Hold is the best way to invest.”

Do you see the difference?

If we permit honest posting, we will have thousands of good and smart people helping us to learn the best way to invest. We can’t possibly go wrong with all that help.

For so long as the Ban on Honest Posting remains in place, we are at the mercy of the Wall Street Con Men. It’s all about making a buck and there is no place in this field for people of personal integrity.

I didn’t write about investing for the first three years in which I posted at Motley Fool. I was very popular. I was doing good and important work and I was happy about it. I have never been “obsessed” about investing issues. I could pretty much take or leave discussions of investing, all else being equal.

But all else is NOT equal. My “obsession” began on the evening of August 27, 2002, when Greaney threatened to kill my wife and children if I continued to “cross” him by posting honestly re safe withdrawal rates. And when 200 of my fellow community members endorsed his post.

That ain’t right, James.

Those people are in pain.

They need our help.

The people who promote Buy-and-Hold are also in pain. I have great respect for these people. I have learned wonderful things from them and I care about them. I want them doing good, clean, honest work again. I know that deep in their hearts they want that for themselves too. I don’t have any doubt about it.

Buy-and-Hold is not just a bad investing strategy today. It is a threat to the survival of our free-market economic system. It is also a threat to the survival of our political system. You saw the reaction to the economic crisis (caused by the continued promotion of Buy-and-Hold strategies for 33 years after 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) on both the left (the Occupy Wall Street Movement) and the right (the Tea Party Movement). We are likely going to see something ten times worse following the next price crash, a price crash that will put us in the Second Great Depression if we don’t open the internet to honest posting soon after it unfolds.

I love my country, James. I want my two boys to be able to grow up in the same sort of country that I grew up in. One with our economic system. One with our political system.

I have a funny feeling that I am not the only one who wants that.

I have a funny feeling that you want that.

To get it, we need to be able to stand up to the Wall Street Con Men and their Internet Goon Squads when they push their smelly Buy-and-Hold garbage. I understand that you (and lots of others) are afraid. But there is no other way.

I am afraid too. I am just like you.

Do you want to know the difference?

The difference is that I am even more afraid of what happens to us all if we continue to duck this problem.

I do this not just for me. I do it for you. And I do it for my boys. And I do it for the Goons. And I do it for the Wall Street Con Men. And I do it for the millions of middle-class investors whose lives are in the process of being destroyed.

I wish someone else would do it, you know? It’s not the most fun job in the world. If someone else would step forward, that would make me very happy.

Do you see someone else stepping forward?

Someone needs to do this job. No one else has stepped forward. So I continue to give it my best shot. I can do no more and I can do no less.

None of the other good stuff that we all enjoy continues to exist unless we set this right. We all want to see it set right. But someone has to get the ball rolling in the right direction for good things to happen. It seems that somehow the Fates or God or Evolution assigned me to that job. Blame them, you know?

I love my country.

That’s the bottom line here, James.

That’s the reason for the “obsession.”

I wish you all good things.

Rob

Valuation-Informed Indexing #206 — When We Say That the Market Is Smart, We Are Flattering Ourselves

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I’ve posted Entry #206  to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called When We Say That the Market Is Smart, We Are Flattering Ourselves.

Juicy Excerpt: The market is comprised of people who own stocks. The market is us. When we argue that the market is smart, we are flattering ourselves.

The only way that the market could be smarter than the rest of us is if the people who comprise the market were smarter than the rest of us. Rich people own more stocks than people who possess low or moderate amounts of wealth. So, if you believe that rich people are smarter than people of low or moderate wealth, it would not be unreasonable to believe that the market is smarter than the rest of us.

But you don’t often hear people saying “rich people think inflation is headed upward” to support their arguments. The idea behind claims that the market believes something is that there is some ruthless truth-telling quality about markets that make their beliefs especially credible. I don’t see it. Markets are comprised of people and people get some right and some wrong regardless of whether they participate in markets.

“My Guess Is That Jack Bogle’s Confidence Level in Buy-and-Hold Is Something in the Neighborhood of 70 Percent. Enough to Permit Him to Rationalize That It Is Okay to Continue to Promote the Concept. But Not Great Enough to Justify Him Not Telling Every Person Who Comes to That Board About His Doubts.”

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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 suspect you are implying that the bogleheads thread is missing your input. Is that correct?

No, that’s not correct.

The thread is missing the honest input of THOUSANDS of good and smart people who should be contributing to that board community in an honest way but who today do not feel safe doing so.

Let’s take one hugely important example — my good friend Jack Bogle.

Jack obviously knows that Yale Economics Professor Robert Shiller has published research showing that there is precisely zero chance that Buy-and-Hold could ever work for a single long-term investor, right? WHY THE HECK ISN’T HE TELLING PEOPLE THAT AT THAT BOARD IN PLAIN AND SIMPLE AND CLEAR AND DIRECT LANGUAGE?

Has my good friend Jack gone fuckin’ insane?

Has he?

That’s a fair question, isn’t it?

Jack should have come out in 1981 and gave a speech saying that there was new research that cast doubts on the Buy-and-Hold strategy as it had been developed in its first-draft form by Bogle and the other Buy-and-Hold Pioneers. Had he done that, there would be no problem today. Had he done that, we would all be Valuation-Informed Indexers today.

Jack didn’t do that. He is one of the flawed humans. He messed up.

Okay.

So what do the rest of us do about that?

We could cover up for Jack, right? That might work for a few years, right?

But there’s a downside, isn’t there?

If we engage in a cover-up, we are engaging in financial fraud, a felony under the laws of the United States. We land in prison somewhere down the line. Perhaps the cover-up idea is not our best thought! Just perhaps!

Are there any other options?

There are.

The other option is to come clean.

That’s what I proposed on the morning of May 13, 2002.

Would there have been prison sentences had we opened the entire internet to honest posting on the morning of May 13, 2002?

I don’t think so. It is possible that there were some terrible things that happened before that date that I don’t know about and that I am wrong about this. But, going by what I know, there would not have been prison sentences if we all had come clean on the morning of May 13, 2002.

How about today?

I don’t see any way to avoid prison sentences today. But I am not God. Perhaps I am wrong. It has been known to happen.

Does it even matter?

We are all obviously better off if we come clean today than we will be if we come clean tomorrow. So let’s make it happen today, you know? Why the f not?

I don’t know how much confidence Bogle has in Buy-and-Hold.

My confidence is zero. I don’t believe that his confidence is zero. If it were zero and he continued promoting it, he would be The Frank Underwood of Personal Finance, a monster. I do not think of my dear friend Jack as a monster. So I do not view it as even remotely possible that his confidence is zero.

How about 100 percent? Could Jack’s confidence level in Buy-and-Hold be 100 percent?

No, that’s not possible. If it were 100 percent, he would be happy to hear people express contrary views and he obviously is not even a tiny bit happy to hear people express contrary views. So we can rule out 100 percent.

It’s not 0 percent and it’s not 100 percent. It’s something between those two.

Could it be 50 percent?

Perhaps.

I don’t know.

I cannot see into Jack’s mind.

My guess is that Jack’s confidence is something in the neighborhood of 70 percent. Enough to permit him to rationalize that it is okay to continue to promote the concept.

BUT NOT GREAT ENOUGH TO JUSTIFY HIM NOT TELLING EVERY PERSON WHO COMES TO THAT BOARD ABOUT HIS DOUBTS!

My good friend Jack has to tell us about his doubts. He MUST do this. Or he will go to prison too. And that is just too, too, too sad.

Do you see, Anonymous?

We don’t just need Rob Bennett contributing honestly to the Bogleheads Forum. We need Jack Bogle contributing honestly to the Bogleheads Forum.

And Bill Bernstein.

And Wade Pfau.

And Larry Swedroe.

And Scott Burns.

And J.D. Roth.

And Mike Piper.

And Carl Richards.

And Michael Kitces.

And Bill Schultheis.

And on and on and on and on and on.

We need EVERYONE contributing their honest thoughts to every investing board and blog on the internet.

Do you see?

Rob

“The Research Is Not Freakin’ Human! The Research Doesn’t Have a Get Rich Quick Urge Residing Within It. So the Research Doesn’t Fall for All the Foolish Fantasies That We Humans So Often Fall For. That’s Why We Are Able to Reduce Risk by 70% Just By Being Willing to Abandon the Buy-and-Hold Fantasy.”

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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 don’t know Rob, the ability to make guesses about the future and get them wrong doesn’t seem like a very valuable skill.

It’s not, Anonymous. We couldn’t possibly agree more.

But people have been doing it since the beginning of time, haven’t they?

That’s why I love the idea of rooting one’s strategies in the peer-reviewed research so freakin’ much!

Doing that gets you out of the realm of the subjective and brings you into the realm of the objective.

The Buy-and-Hold Pioneers were 100 percent right about that one. That’s why I love them so darn much. That’s why I want to bring Buy-and-Hold back to what it was in its early days — a research-based investing strategy.

I intend to continue to make guesses about the short-term future. I’ll probably get most of them wrong. Perhaps I will stumble onto a gold mine with one of them someday and we will all benefit. Perhaps not. The key, though, is that I will always ALSO continue advocating the first research-based strategy. And that means that there will always be plenty of people who will know not to pay too much attention to those subjective short-term guesses because the core of a long-term investing strategy has to be the peer-reviewed research, which as of today tells us that short-term guessing doesn’t work.

You’re engaged in short-term guesswork every day that you wake up and leave your Buy-and-Hold strategy in place, Anonymous. There’s now 33 years of peer-reviewed research showing that Buy-and-Hold can never work for a single long-term investor. Yet you solider on. Why?

Because there’s a Get Rich Quick urge that resides within all of us that tells us to ignore the research and to fall for the illusion that we will this time manage to pull off something that has never been pulled off before — to invest all our retirement money pursuant to a pure Get Rich Quick approach and not live to regret it sooner or later. Good luck with that!

We can’t do it.

My guesses often turn out wrong. So do Bogle’s. So do Shillers. So do yours.

There is only one strategy that has never failed for 140 years running. The research-based strategy.

Why? Because the research is not freakin’ human! The research doesn’t have a Get Rich Quick urge residing within it. So the research doesn’t fall for all the foolish fantasies that we humans so often fall for.

That’s why we are able to reduce risk by 70 percent just by being willing to abandon the Buy-and-Hold fantasy, Anonymous. It is the Buy-and-Hold fantasy, the idea that subjective guessing games might work out this time even though they have never before worked out, that is the cause of most of the risk of stock investing. It turns out that not only is Get Rich Quick not the solution, Get Rich Quick is actually the problem!

I am sure.

When I guess, I call it guessing. I don’t shift to a pure Buy-and-Hold strategy because I made one or two lucky guesses. Yes, I speculate in columns. And, yes, it appears that my track record with the speculation stuff is no better than the track records of the thousands who have gone before me. But at least I don’t advocate speculative investing strategies. I advocate Valuation-Informed Indexing. I advocate the true research-based stuff.

Do you see how that makes a difference?

It’s harmless fun to write a speculative column. You hurt millions of people when you put fantasy numbers in a retirement study and mislead people into thinking that it is based on anything real.

You don’t see me threatening to kill your wife and children because you pointed out that one of the silly predictions that I made in my column didn’t work out, do you?

That’s the difference between me and John Greaney. John Greaney is a Buy-and-Holder. I am not. So my ego is not wrapped up in all the subjective Get Rich Quick garbage. I can laugh at my mistakes. John has to cover his up out of shame. Yuck! Not this boy. Find somebody else, you know?

I wish you all good things, my long-term subjective fantasy-following Goon friend.

Rob

“We Don’t Want to Admit to Ourselves That We Have Fallen for a Get Rich Quick Scheme. The Hard Part Is the Part Where the Person Comes Clean WITH HIMSELF. Once We Can Become Honest With Ourselves About How We Are Not Nearly As Smart As We Once Pretended We Were, All Sorts of Good Things Become Possible.”

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

“When people work up the courage to call someone out on a discussion board, they will also work up the courage to file lawsuits and to demand criminal prosecutions. Why wouldn’t they?”

A snarky note on a message board requires no effort, no intelligence, no validity, and virtually no time. There are many orders of magnitude between that and a successful lawsuit or criminal prosecution. If you cannot understand that, then there really is no common point of reference to discuss anything with you.

There was nothing even a tiny bit snarky about the comments in which people called Taylor Larimore out on his dishonesty, Seriously. Most of the people who made those comments liked the guy and admired the guy. They had kept quiet about their doubts about lots of things he said for years. They were worried about what their fellow community members would think of them after they spoke their minds. It took a lot for them to work up the courage to do what they did. Their comments were rooted in love, not snarkiness.

I know how those people feel. It took me a lot of time to work up the courage and love to call John Greaney out on his b.s. And it took me a lot of time to work up the courage and love to call Mel Linduaer out on his b.s. And it took me a lot of time to work up the courage and love to call Jack Bogle out on his b.s.

If people can work up the courage and love need to take on Larimore and Lindauer and Greaney and Bogle on discussion boards, they can work up the courage and love needed to file lawsuits and to demand criminal proceedings. It certainly takes more work to bring a lawsuit. Obviously. But there are huge benefits to be had by bringing these lawsuits. We are talking about people who will have lost most of their life savings. Are you saying that no one will be able to work up the energy to file a lawsuit to obtain recovery of most of his life savings? Huh? That does’t make even a tiny bit of sense.

Bernie Madoff is in prison today. Someone must have worked up the energy to make that happen. The 13-year cover-up has destroyed the lives not of thousands but of MILLIONS. I have a funny feeling that there will be no shortage of people working up the energy to take action.

The hard thing is working up the courage to violate the Social Taboo. That’s been the story re these matters going back to the morning of May 13, 2002. Get Rich Quick investing strategies are cons. We LOVE them. Love them, love them, love them. It’s in our human nature to fall in love with Buy-and-Hold/Get Rich Quick investing strategies. But it is also in our human nature to feel great shame when we fall for such garbage. So we HATE coming clean. We hate it, hate it, hate it.

The story of the past 13 years is that it is very, very, very hard for us to work up the courage to act. We don’t want to admit to ourselves that we have fallen for a Get Rich Quick scheme. And we don’t want to call out our friends and neighbors and co-workers for doing so. We don’t want people getting mad at us for calling them “fools,” which is what we are doing when we point out that someone has followed a Buy-and-Hold/Get Rich Quick investing strategy. So there is a big wall to climb in getting these lawsuits filed.

But the hard part is not the filing of the papers. The hard part is working up the courage to say out loud the words “that is a big pile of smelly garbage.” Take a look at my work. I say those words freely and plainly and frequently today. But it wasn’t like that back in May 2002. I was tentative then. I was cautious. I felt uneasy going to the places to which I was going. That’s how the people who called out Taylor on his trickery felt. And they were the ones who had worked up the courage to go that far. That was a minority of the board population even in the days when the P/E10 level was 13. Most have never gone that far or anything close to it.

But the feeling spreads.

When one person works up the courage to violate the Social Taboo, it helps others form the courage needed.

The feeling of tentative courage spreads and spreads and spreads. Then it becomes less and less and less tentative. Then people actually become PROUD to be telling the truth and to be helping people rather than destroying their lives.

Filing a lawsuit is nothing to someone who has lost most of his life savings and who now sees that it is because he was tricked and who has thousands of friends encouraging him to do the right thing. It is hard to get from Point A to Point B. But the hard part is not the filing of the papers. The hard part is the part where the person comes clean WITH HIMSELF. Once we can be honest with ourselves about how we are not nearly as smart as we once pretended we were, all sorts of good things become possible.

Or so Rob Bennett believes, you know?

I believe all these things will happen. But I am not God. I can never be 100 percent sure. We are all just going to have to wait and see how things play out.

I know that I am happy to be on the side that I am on. That’s the one thing that I can say with 100 percent certainty. I love my country. I feel good in a very deep place to know that I am fighting to PROTECT her, not to destroy her.

I hope that all that makes at least a measure of sense to your Goon ears.

My best and warmest wishes to you and yours, my old friend.

Rob

“Following the Next Price Crash, You Will See People Directing Their Mental Energies to Concocting All Sorts of Overly Negative Appraisals of What the Buy-and-Holders Did. In Those Days, People Will Be Saying that Bogle INTENTIONALLY Got It Wrong. Which Is a Take That Is As Emotional As Today’s Popular Take That He Did Not Get It Wrong At All.”

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

Unfortunately, analogies don’t make an invented reality any less invented.

The purpose of the analogy is to help people understand what is going on, Anonymous.

No, the analogy by itself does not make what I am saying true. I certainly agree with that point.

The comment that I was responding to was something to the effect of “if Bogle were behaving in a corrupt manner, it would be easy to get people to pay attention to that.” I can see how someone would think that. I certainly thought it myself prior to May 13, 2002. I believed in Bogle. I believed in Motley Fool. I believed in all of my friends at the Early Retirement Forum. And on and on.

If you had told me at that time that Greaney would be successful in his efforts to get me banned at Motley Fool, I would have said you were nuts. All I would have to do is to contact the site administrator and tell him what Greaney was up to and that would solve the problem. That didn’t work out so well for me, did it?

Bogle is a great person. There is no one alive who believes that more strongly than I do. But he is a human and he is flawed and he makes mistakes and then he is tempted to cover up those mistakes rather than acknowledge them. That’s the reality.

People who love Bogle have a hard time accepting that. That’s why I mentioned Paterno. There are many people who love Paterno as much as the people who love Bogle love Bogle. Paterno’s accomplishments were real. He was also a great person. He was also flawed. When the stuff came out about what happened at Penn State, there were students who protested in support of Paterno. They didn’t care about the facts. They still loved the guy. Like it or not, that’s the way the humans are.

It’s my job to make sense of this for people. You have a hard time accepting that Bogle did anything wrong. So I am offering analogies to help you see that the people taken in by false claims do not appreciate at the time that they are being taken that the claims are false. The people who loved Nixon at the time he was being investigated couldn’t appreciate what the evidence showed because their real love for the man made it impossible for them to do so. The people who loved Paterno at the time things were coming out about Penn State couldn’t appreciate what the evidence showed because their real love for the man made it impossible for them to do so. The people who love Bogle today cannot appreciate what the evidence shows because their real love for the man makes it impossible for them to do so.

People are not rational creatures. That’s the core story here. People are rationaliZING creatures. They make decisions as to what to believe based on emotion. Then they concoct rationalizations to support those emotional choices.

The question is — What happens when the money disappears from their retirement accounts?

The emotions CHANGE. When that happens, you will no longer see investors concocting rationalizations for Buy-and-Hold. You will see the opposite. You will see people directing their mental energies to concocting all sorts of overly negative appraisals of what the Buy-and-Holders did. In those days, people will be saying that Bogle INTENTIONALLY got it wrong. Which is a take that is as emotional as today’s popular take that he did not get it wrong at all.

My job is to help people avoid both extremes. Bogle is a great man who made a mistake. That’s the reality. Both parts of that sentence are true and both parts of that sentence are important realities that need to be known by all investors.

The analogies do not make what I say so. The purpose of the analogies is to take the discussion out of the investing realm, where people’s emotional biases control them, and to show how the same basic dynamics have played out in other areas of human endeavor. People behave emotionally in ALL endeavors. Including investing. If you want to understand how investing works, you need to gain an appreciation of how things go down in other areas of human endeavor. Because it is the same humans who make decisions in both non-investing contexts and in investing contexts.

I hope that helps a bit.

Rob

Goon Poster to Rob: “Wow. You’re Claiming that Bogle Was Involved in the Threats to Get Someone Fired Unless They Wrote Fraudulent Research. That’s a Fairly Strong Accusation. Seems Like Something That Would Be Easy to Get Attention For, If True.”

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

Wow. You’re claiming that Bogle “was involved in the threats” to get someone fired unless they wrote fraudulent research.

That’s a fairly strong accusation. Seems like something that would be easy to get attention for, if true. If it’s not, of course, it seems to be rather reckless.

You were there when it happened, Curious. And you were of course involved.

Was it easy to get Nixon removed from office? There was LOTS of evidence of funny business for a LONG time before he was removed from office. Was it easy to get him removed?

Was it easy to get Joe Paterno removed?

Was it easy to get that bicycle racing guy removed?

It is HARD to get powerful people prosecuted for corruption, Curious.

It is VERY hard.

It’s hard enough that I would prefer that someone else do the job.

Guess what? No one else has stepped forward. Lots of people don’t think that it is as easy as you say.

Still, it has to be done.

And I do believe that I will pull it off.

People are going to be upset following the next price crash. Everything is documented. 100 times over.

There are thousands of people in this field who would like to come clean. Coming clean means telling the truth about Bogle. So I believe it is going to happen.

Truth be told, even Bogle has shown signs of wanting to come clean. It would not surprise me if I had his help. I believe his heart is going to melt following the next price crash.

We’ll see, you know?

You will play your cards and I will play my cards and Bogle will play his cards and we’ll see how it all turns out.

Can we at least agree re that much?

I am going to do everything in my power to expose every crime that has been committed. I will do it will love. But I will not back down. Zero chance.

Fair enough?

Rob