A Rich Life

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

“If Men Were Angels, Bogle Would Have Put Out a Statement on the Day He Learned About Shiller’s 1981 Research Saying: ‘I Am Going to Have to Think This Matter Over Carefully. It Is My Hope That My Words Today Will Launch a National Debate. I Personally Still Lean Toward Believing that Buy-and-Hold Can Work. But It Is Important That All Investors Know That There Is Now Serious Research Pointing to a Conclusion That That Is Not At All the Case.”

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Set forth below are the texts of two comments that I recently posted to another blog entry at this site:

The problem is that you do not understand what Shiller is saying and he has stated that you cannot use his data for timing the market. That goes for both short and long term, Rob.

You are lying, Anonymous.

If there were a statement by Shiller in the public record saying that long-term timing does not work, you would provide the URL.

No such statement exists.

Buy-and-Hold is a lie. It started as a mistake. But Shiller published the peer-reviewed research showing that there is precisely zero chance that it could ever work for even a single long-term investor in 1981. A mistake that is covered up for 33 years is a lie. This particular lie has caused more human misery than any earlier lie ever told in the history of personal finance.

Shiller would LOVE to feel free to say that long-term timing always works and is always required for investors hoping to have any chance whatsoever of achieving good long-term results. He fears for what the Buy-and-Holders will do to him if he tells the truth in plain and simple and honest language. He knows from personal experience how ruthless the Buy-and-Hold Mafia is. Just about everyone who has worked in this field for any length of time knows that.

I didn’t know it when I put forward my famous post of May 13, 2002. But then I never worked in this field. There is no reason why I should have known.

I believe that Shiller will come clean following the next price crash. I believe that Pfau will come clean following the next crash. I believe that Bogle will come clean following the next crash.

I believe that all of these people know that death threats do not have a place in investing discussions and that demands for unjustified board bannings do not have a place in investing discussions and that tens of thousands of acts of defamation do not have a place in investing discussions and that threats to get academic researchers fired from their jobs do not have a place in investing discussions. They all want to come clean but they all fear what will happen to them if they do.

If men we angels, Bogle would have put out a statement on the day he learned about Shiller’s 1981 research. He would have said: “I have long believed that Buy-and-Hold is a sound strategy but I want all who listen to my words to know that there was research published yesterday by an Economics professor at Yale showing that Buy-and-Hold may in fact be the purest and most dangerous Get Rich Quick scheme ever concocted by the mind of mortal man. It was not my intent to concoct a Get Rich Quick scheme. I have a hard time accepting that this research really says what it very much appears to say. I am going to have to think this matter over very carefully in coming days and try to make some sense of this. It is my hope that my words today will launch a national debate on these questions and that the fruits of that national debate will help me work my way to a better understanding of how markets work. For now, I personally still lean toward believing that Buy-and-Hold can work, at least in some circumstances. But it is important that all investors understand that there is now serious research pointing to a conclusion that that is not at all the case and each investor is going to have to study these matters before putting money in the market and make his or her own decision as to how to proceed while we “experts” struggle to figure out either how we messed up in earlier days or how this Yale Economics Professor messed up in the research he published yesterday. We are all on the same side. Let’s all work together to create a wonderful Learning Experience that will benefit investors for many, many generations to come!”

My good friend Jack did not say those words at that time. That’s why we are in the mess we are in today. He faked it. He covered up the evidence that he had messed up in a big way. As the cover-up extended longer and longer, the thought of seeing the truth get out grew more and more worrisome. Jack has now gone so far as to associate with the sorts of individuals who have put up posts in “defense” of Mel Linduaer and John Greaney. Jack has now committed multiple acts of financial fraud (at least in an objective sense — it is my belief that he is suffering from cognitive dissonance, which excuses some of his behavior but certainly not all of it).

We will see how things work themselves out following the next price crash, Anonymous. I love my country. I will continue to post honestly re safe withdrawal rates and many other critically important investment-related topics. My hunch is that you will continue with the cover-up. Working together, I believe that we could shorten your prison sentence a bit by having you come clean today and by thereby helping millions of people avoid the financial devastation of another price crash. My sense is that you are not willing to take steps that lead to any prison sentence at all and that you understand that the time at which coming clean could have helped you avoid any prison sentence at all are years back in the past.

So be it. It is what it is. I wish you all good things. But I possess zero willingness to commit acts of financial fraud myself. Prison is not my particular cup of tea. Find someone else. I can’t go for that. No can do. Not this boy.

Please take good care, my longtime abusive posting friend.

Rob

I’ll give a shorter response.

You Goons have connections with Bogle. If you thought that there was anything greater than a zero percent chance that you could persuade Shiller to make a public statement that long-term timing either does not work or is not required, you would ask Bogle to send Shiller an e-mail asking that he make such a statement.

You have not done this.

I wonder why.

Rob

Site Visitor: “The Moderators of Bogleheads Are Slightly Demented in Their Views. They Allow Personal to Vile Attacks Against Those Who Question Orthodoxy. There Is An Almost Religious Fervor. It Really Is Disturbing.”

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

All I can say is the moderators of Bogleheads are slightly demented in their views. As noted by the author they allow personal to vile attacks against those who question orthodoxy and will not allow even the slightest retaliation. I was victimized by one of the many pets of the moderators and banned because I privately chided the moderator for selectively editing my posts and while allowing her pet’s direct personal attacks to remain. That got me permanently banned.

There is a lot of useful information in that forum. However understand that there is an almost religious fervor that courses through that forum. It really is disturbing.

You stated things well, Izod.

I like it that you said: “There is a lot of useful information in that forum.” That is true. And it is important to point that out. Complaints about the Bogleheads Forum often leave the impression that it is the entire community that is lacking. No! The majority of community members at the site are wonderful; they are smart and good and generous people. The entire community should not be blamed for the actions of a few. There were a number of surveys taken during the time I posted there and a number of posters famous for posting honestly on the peer-reviewed research in this field were shown to be among the most popular posters at the site. I was Public Enemy #1 to the “leaders” of the site from the first day I posted there but there were many community members who directed very kind words to me in gratitude for my efforts to turn things around.

Yes, the moderators are demented. To suggest that they are only “slightly demented” is to be exceedingly charitable. You are to be applauded for your kindness but people listening in need to know the full realities. The moderators at the Bogleheads Forum are not slightly demented, they are 100 percent demented. There was a poster there who summed things up well with the statement that: “There are a bunch of trolls running around calling everyone else trolls!”

People who care about stock investing should want to figure out what is causing this problem. It is an exceedingly odd phenomenon. The strategy promoted at the board is Buy-and-Hold. Buy-and-Hold is marketed as a research-based strategy. The benefit of following a research-based strategy is that doing so helps investors avoid making emotional decisions. For those following research-based strategies, investing is pretty much a mathematical puzzle. Math is not known as an emotional subject. So what the heck is going on here?

I never went to investing school and I never managed a big fund. But I am the world’s leading expert on this one! I am the person who discovered the errors in the Old School safe-withdrawal-rate studies. I reported what I knew on the morning of May 13, 2002. The reaction of a guy (John Greaney) who had prepared one of the Old School studies was to threaten to kill my wife and children if I continued to “cross” him by posting honestly on SWRs. 200 of my fellow community members (most of these people had become friends with me over the course of my three years of posting at the board) endorsed this guy’s death threats. They didn’t say that I was wrong and publications like The Wall Street Journal have confirmed in the days since that I was right. They just couldn’t bear to hear me report accurately and honestly what the historical data tells us about SWRs.

Huh?

People are following a research-based strategy and they don’t want to know what the last 33 years (it was only 21 years at that time) of research says? That doesn’t make sense.

It doesn’t make LOGICAL sense. It DOES make EMOTIONAL sense.

The mistake that the Buy-and-Holders made was to ignore valuations. Both overvaluation and undervaluation are caused by investor emotion (the rational thing would be for investors to set stock prices properly). The research of the past 33 years shows that investor emotion is about 80 percent of the story. Get that one right and you cannot lose in the long term. Get that one wrong and you cannot win in the long term.

The Buy-and-Holders got that one wrong. So they cannot win in the long term (according to the last 33 years of research). How do you think that makes them feel?

IT MAKES THEM FEEL AWFUL.

That’s why you see what you see at that board, Izod. The Buy-and-Holders are HURTING.

The best thing for them to do would be to acknowledge their mistake. But the bigger a mistake it is that is made, the harder it is to acknowledge. The Buy-and-Hold Mistake is the biggest mistake ever made in the history of personal finance. There are now millions of middle-class people who are in the process of experiencing failed retirements because of this mistake. The Buy-and-Hold Mistake was the primary cause of the economic crisis, which caused millions to lose their jobs. The Buy-and-Holders have hurt their friends and neighbors and co-workers and fellow community members in very serious ways. They are feeling a burning shame over their mistake. How would you feel in those circumstances?

What makes things worse is that most of us who are aware of the mistake are afraid to speak out about it. Robert Shiller knows. He tells some of what he knows but he keeps a lot of what he knows buttoned up because he knows how much it upsets the Buy-and-Holders for anyone to tell the plain, honest truth about what the last 33 years of peer-reviewed research teaches us about how stock investing works in the real world. It’s the same with Bill Berntein. It’s the same with Larry Swedroe. It’s the same with Scott Burns. It’s the same with Todd Tresidder. It’s the same with Wade Pfau. Its the same with Jack Bogle. It’s the same with Mike Piper. And on and on and on and on and on.

The mistake is so big that hardly anyone dares to point it out and demand that it be corrected. You have heard of companies that are too big to fail? The mistake made by the Buy-and-Holders is The Mistake Too Big to Correct.

So the suffering continues.

The millions of middle-class investors being tricked by the Buy-and-Holders suffer. And the Buy-and-Holders themselves suffer. And of course all the people who work in this field and who would like to be doing productive and meaningful and honest and important work suffer. Bloggers suffer. Academic researchers suffer. Journalists suffer. Economists suffer. Investment advisors suffer. It’s too, too sad.

Anyway, thanks for stopping by and sharing your thoughts re our friends at the Bogleheads Forum. I have hopes that all of this is going to swing in a better direction following the next price crash. I intend to take over ownership of the Bogleheads Forum as part of the litigation settlement. You will receive a warm welcome when you return to the forum that improperly banned you in its dark days, Izod. Hang in there, my new friend!

Rob

Valuation-Informed Indexing #266: How a Visit to a Dentist Is Like a Visit to an Investing Analyst

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I’ve posted Entry #266 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called How a Visit to the Dentist Is Like a Visit to an Investing Analyst.

Juicy Excerpt: I was sitting there getting my teeth cleaned and feeling guilty about how long I had put it off when it hit me — “This is just like investing!” It’s all emotion. There have been a lot of advances in dentistry in recent decades. There is a lot of technology that can be put to use to help us keep our teeth in good repair longer than was possible for our parents. But our dentists get frustrated because a lot of us don’t listen to the simple instructions they give us that could save us so much discomfort down the line if we would just take them to heart. Why don’t we listen?

“It Is All Going to Flip Following the Next Crash. If You Want to Experience a Taste of What That Is Going to Mean for You Goons, I Urge You to Enter the Word ‘Phillies’ Into a Search Engine and Then Read What the Fans Say About the General Manager Today Compared to What They Were Saying a Few Years Back. It’s a Thin Line Between Love and Hate.”

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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,

If you continue this pattern of hate and anger, you will spend your remaining years in misery. Instead, find something of real value to do with you life versus this fantasy you have with “goons”.

I obviously feel otherwise, Anonymous.

We are the luckiest generation of investors ever to walk Planet Earth. No earlier generation has had 33 years of peer-reviewed research available to them showing them how to reduce the risk of stock investing by 70 percent while also increasing their returns enough to permit them to retire five to ten years sooner. That’s exciting stuff.

You Goons are the only thing standing in our way.

Wade Pfau is not the only academic researcher who would like to be free to do honest work. There are THOUSANDS of academic researchers who would like to be spending their life energies helping us all out. That was their dream when they began their Ph.D. work. That was the driver behind their years of hard study. When ONE academic researcher is freed to do honest work, ALL academic researchers are freed to do honest work. I cannot wait to see what these guys and gals come up with!

It’s the same story with the Wall Street Con Men. They would LOVE to be doing real, honest, important work.

Why the heck do you think Jack Bogle included language in his book showing me that the numbers in the Old School safe-withdrawal-rate studies are wildly off the mark?

Why the heck do you think Bill Bernstein devoted an entire chapter of his book to honest reporting on what the last 33 years of peer-reviewed research tells us while obviously being very, very aware of just how ruthlessly he would be attacked by his peers if he was perceived as having gone “too far” by including an entire chapter of honest reporting rather than just a few paragraphs here and there, as is the usual custom among the “experts” of today?

Why the heck do you think Larry Swedroe was honest enough in his postings at the Bogleheads Forum to bring on Mel Lindauer’s ire and get himself banned from the forum for a time?

Why the heck do you think that the Wall Street Journal took the risk of publishing an honest column pointing out that the Buy-and-Holders have been “telling only half the story” for all these years and telling sick and twisted Get Rich Quick lies about the other half?

We have learned something important during the Buy-and-Hold years, Anonymous. We have learned that millions of middle-class investors are VERY interested in knowing what the peer-reviewed research says. It’s the claim that the Buy-and-Holders make (falsely, but still…) that their strategy is rooted in peer-reviwed research that made it so popular in the first place. All that I am saying is that we now need to take it to the next step. I think it would be fair to say that lying about what the research says has not been working out so great in recent years. Why not take the idea of rooting one’s strategies in the peer-reviewed research to the next step? Why not permit HONEST AND ACCURATE reporting of what the research says? I think that would make a big difference. I think that would be a big positive.

We have seen that 80 percent of all of our communities like the idea of permitting honest posting. Why not give them what they want? It would not only help the millions of middle-class investors whose lives have been destroyed by the reckless and relentless and ruthless promotion of the Buy-and-Hold garbage. it would allow us to recover from this economic crisis and thereby put millions of middle-class people in a mood in which they might be willing to reduce the prison sentences assigned to you Goons a bit. Is that not so? Is that idea not more than a little bit appealing to you, Anonymous? Tell the truth.

We need to overcome you Goons.

There’s not getting around it.

We have the tools that we need available to us. Every site has rules prohibiting the tactics that you have employed to block millions of people from learning what the peer-reviewed research says. We have adopted laws making financial fraud a felony, which means prison time for those found guilty of it. Why not enforce those site rules and U.S. laws for the benefit of everyone involved? My feeble brain is not even able to imagine any downside. Has your far superior Goon brain ever been able to come up with anything?

I believe that it is all going to flip following the next crash, Anonymous. If you want to experience a taste of what that is going to mean for you Goons, I urge you to enter the word “Phillies” into a search engine and then what the fans say about the general manager of the club today compared to what they were saying a few years back. It’s a thin line between love and hate, my old friend. Pushing Get Rich Quick garbage makes you the toast of the town for so long as the Get Rich Quick garbage appears to be paying off. When the debt comes due, it’s a very, very, very different story.

We are as a nation of the verge of the biggest breakthrough in our understanding of how stock investing works ever attained in our history. I view that as a super cool reality. I am proud to be playing a big part in bringing it about.

I wish you all the best things that this life has to offer a person, my long-time abusive posting friend.

Rob

Valuation-Informed Indexing #202: Jeremy Siegel’s Views on Where Stock Prices Are Headed Are Not Rooted in Peer-Reviewed Research

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I’ve posted Entry #202 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Jeremy Siegel’s Views on Where Stock Prices Are Headed Are Not Rooted in Peer-Reviewed Research.

Juicy Excerpt: If Fama is right, stocks can never be underpriced any more than they can ever be overpriced. Stocks are always properly priced in an efficient market. The price that applies when all factors bearing on price are taken into consideration is obviously the proper price.

So how can any academic argue that stocks are underpriced?

An individual investor can do that. There are obviously lots of individual investors who do that all the time. But Siegel is not being quoted at web sites because everyone wants to know his views as an individual investor. He is being quoted because he is an academic, he is presumed to possess a special understanding that makes his views more important than the views of ordinary investors.

But the view that Siegel is putting forward here is not rooted in either of the two academic models! The idea that stocks are underpriced makes no sense under the Shiller model. And the idea that stocks are underpriced makes no sense under the Fama model. The idea that stocks are underpriced makes no sense under either of the two academic models. And yet Siegel, a well-known academic, gives voice to that view and is quoted in the media for doing so as if his views possessed some special significance because he speaks with the authority of a well-informed academic.

“There Are Thousands of Economists Who Would Like to Be Exploring The Implications of Shiller’s Research and Writing About Them on a Daily Basis. They Do Not Feel Free to Do So Because the Buy-and-Holders Will Destroy Their Careers If They Do So. This Is Going to Have to Change.”

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

Thanks for asking an intelligent question, Z.

You are right that the money is real for practical purposes in the short term.

This is an important fact. This is probably the single most important reason why so many smart and good people are taken in by Buy-and-Hold. It creates temporary wealth that is treated as real by banks and airlines and other institutions.

It never lasts. We have 33 years of peer-reviewed research based on 140 years of historical return data showing that. It’s not real.

I am telling you what the peer-reviewed research shows us. If you don’t want to believe it, you are of course free to believe whatever you prefer to believe. I am not free to lie about this matter. It would be fraud for me to do so. I am going to continue posting honestly. I don’t dare to consider the possibility of playing it any other way.

Yale Economic Professor Robert Shiller was awarded a Nobel Prize for his work in this area. You don’t receive a Nobel Prize for repeating the conventional wisdom. Shiller taught us something very important and very new. Shiller’s work has far-reaching implications. All of my work explores those implications.

There are thousands of economists who would like to be exploring these implications and writing about what they come up with on a daily basis. They do not feel free to do so because the Buy-and-Holders will destroy their careers if they do so. This is going to have to change. We are headed to a dark place if we do not make this change soon.

I believe that we will make the change following the next price crash. Once we do that, the problem will go away. Once investors know what the research says, most will be happy to take into consideration the findings of the past 33 years. Once most investors are taking those findings into consideration, there will never again be insane overvaluation. It’s just not something that we will ever again need to worry about. It’s crazy to have the amount of your accumulated life savings jumping all around. We all should be happy that the days in which we need to endure such nonsense are in the process of coming to an end.

The fact that as a society we have not been able to accept what the research says or even permit open discussion of what the research says does not suggest that these findings are unimportant. The reality is entirely to the contrary. It shows that we understand on some level of consciousness that these findings are of HUGE importance. It is because they are so important that they are so disconcerting to the millions of people who built their retirement plans pursuant to the very different findings of preceding years.

The people who owned stocks in early 1929 were able to buy things that they were not able to afford in late 1929 because of one of our earlier experiences with the wonders of Buy-and-Hold strategies. The banks and airlines accepted those portfolio values at face value for a time. But then, when the Pretend Money disappeared, the value assigned those portfolios changed in a dramatic way. That’s the way it works. That’s what we have up ahead of us again when we experience the next price crash.

Stock crashes are a horrible, horrible thing. We all should want them to be brought to an end. Shiller showed us how to do that. To bring stock crashes and the economic crises that inevitably follow them to an end, we need to stop encouraging people to believe in the Pretend Money. We need to do just the opposite. We need to DISCOURAGE belief in the Pretend Money. We don’t want to ban honest posting re the past 33 years of peer-reviewd research, we want to ENCOURAGE honest posting about the past 33 years of peer-reviewed research. It is by being exposed to honest posting re the peer-reviewed research that we all advance in our understanding of how stock investing works.

We are the luckiest generation of investors ever to walk Planet Earth. Why? Because we are the first generation to have the last 33 years of peer-reviwed research, the research that puts the final puzzle piece into place, available to us. I think we should be taking advantage of our good fortune rather than pissing it away.

It makes you happy to have banks and airlines recognize Pretend Money. Why? How does it help you to have that money credited to you ONLY FOR A SHORT TIME. It is my belief that that hurts you. If you knew the true value of your portfolio, you could plan your financial future far more effectively. I see no benefit to being tricked. Which is what is happening if you come for a time to believe that Pretend Money is real. If short-term timing worked, you could cash out just at the right moment. But it doesn’t. So how does this fantasy belief help you?

What do you think it means to say “valuations affect long-term returns” if it does not mean that a portion of investors’ current portfolio value is Pretend Money? My feeble brain is not able to come up with any other way to interpret the statement. If your far superior Goon brain is able to come up with something, I would sure like to hear about it.

We once thought that stock returns were random. That’s why they named the famous book “A Random Walk Down Wall Street.” Then Shiller showed that valuations affect long-term returns. That means that long-term return are NOT random. Shiller’s research changed our fundamental beliefs about how stock investing works in a “revolutionary” (his word) way. We all need to recognize that and to begin reaping the benefits that follow.

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

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

Rob

Buy-and-Hold Goon: “Oh No, Rob. Please Don’t Make Us Go to Prison. We Are All Scared. Can’t You Tell?”

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

Oh no, Rob. Please don’t make us go to prison. We are all scared. Can’t you tell?

Yes, I can tell you are scared, Pink. You wouldn’t be posting here if you were not scared.

But I am not the one who will be sending you to prison. I will tell the truth about what you have done. I suppose that in that indirect way I am playing a role in getting you sent to prison. But it is the millions of middle-class people whose lives you have destroyed who will be making the call. It is when those people demand that prosecutors take action that the ball will get rolling. And then it is the members of your jury who make the final call.

That’s how it should be, you know? That’s a good system. Perhaps not perfect in every way. But I’d like to see someone come up with something better.

I am not going to be pushing for a long prison sentence. I am not going to be walking around town with a sign saying “The Goons Did the Crime. Now the Goons Must Serve Time!”.

My guess is that I will be arguing for a somewhat shorter sentence than most of the millions of people whose lives you have destroyed. I see it as my job to put things in perspective. I believe that you Goons follow the strategies you recommend for others. I think that counts in your favor. I believe that there are lots of people in positions of responsibility who have failed us and that you Goons would not have gone as far down the dark path as you have had those people behaved appropriately. I believe that cuts in your favor as well. And I think that it is important that as a society we do what we can to put the ugly side of this matter behind us and move on to the pressing business of rebuilding our broken economy and teaching everyone what they need to know to reduce the risk of stock investing by 70 percent while also earning returns sufficiently higher to enable them to retire five to ten years sooner than they ever dreamed possible during the Buy-and-Hold years.

So I think it would be fair to say that you and I are very much interested in achieving the same goals in some important respects and that we will likely come to deepen our friendship in coming days. I certainly hope that that turns out to be the case.

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

Hang in there, my old Goon friend.

Rob

“All the Other Stuff (the Substantive Stuff) Follows Easily Once We Come to Terms With the Massive Act of Financial Fraud. People Don’t Like to Talk About the Financial Fraud. We All Have Participated in it in at Least Some Small Way. We Are Ashamed of Ourselves and of Our Institutions. So We Try to Pretend That Shiller’s Research Was Never Published or Doesn’t Matter or Doesn’t Say What It Says.”

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

Your only regular interaction on this subject is with the “goons” and therefore a large percentage of your output is designed to provoke a reaction from the “goons”.

You’re wrong, Evidence.

The stuff I write today is written to show millions of middle-class people how their financial futures were destroyed. We need as a society to make peace with what has happened. That’s the first step. All the other stuff (the substantive stuff) follows easily once we come to terms with the massive act of financial fraud.

People don’t like to talk about the financial fraud. We all have participated in it in at least some small way (for example, I was afraid to post about the errors in Greaney’s study for the first three years in which I posted at Motley Fool). We are ashamed of ourselves and of our institutions. So we try to pretend that Shiller’s research was never published or doesn’t matter or doesn’t say what it says or doesn’t imply what it implies or whatever.

I don’t even put the primary blame on you Goons. I obviously don’t approve of your behavior. But Goon posters are a common reality on the internet. The usual way to deal with them is to ban them. Had Motley Fool banned Greaney when he made his first death threat, none of us would have travelled this dark road. Motley Fool screwed up. Big time. Motley Fool does not employ Goons. But Motley Fool voted for Get Rich Quick when they failed to ban the fellow putting forward the death threats and instead banned the fellow who discovered the errors in the Old School retirement studies. The site administrator at Motley Fool is more to blame for what has happened than any of you Goons, in my assessment.

I have had people say to me: “Rob, every thing that you say about investing makes perfect sense. But I just cannot follow your advice because my retirement is important to me and what you say is the opposite of what the experts in this field say.” That’s a pretty darn sensible statement, is it not?

The problem here is not that there is anything that I am saying that is wrong or that anything that I am saying is not supported by 33 years of peer-reviewed research or that anything that I am saying is not easy to understand. The problem is that every expert in the field is not saying what I am saying. Shiller published his research in 1981. He won a Noble prize for it. What the heck is going on?

The problem is that this stuff is TOO important for people to feel good about saying something unless they are absolutely sure. Shiller’s stuff was such a breakthrough that people were properly skeptical about it. They held back, waiting for more information.

Then they started to feel funny about reporting on it because there had been such a long delay in discussing all the amazing implications of what Shiller found. In 2002, it had been 21 years since the peer-reviewed research has shown that there was zero chance that a retirement study containing no adjustment for valuations could get the numbers even remotely right. What are you going to say at that point? “Oopsi! Sorry we destroyed your hopes for a decent retirement by giving you wildly wrong numbers all these years!”

Everyone in the field wants to see the Ban on Honest Posting lifted. Bogle wants that or he wouldn’t have included the language in his book showing that the Old School studies get the numbers wildly wrong. Bernstein wants that or he wouldn’t have included Chapter Two in his book; Chapter Two is the best short description of Valuation-Informed Indexing that has been published. Larry Swedroe wants that or he wouldn’t have put forward the honest posts that got him banned at the Bogleheads Forum until he promised Linduaer that he would go back to posting dishonestly. Wade Pfau wants that or he wouldn’t have put so much effort into the research he co-authored with me in the days before he learned that his career would be destroyed if he dared to “cross” the Buy-and-Holders by posting honestly. And on and on and on and on.

The trouble is that lots of Buy-and-Holders will be going to prison if the truth about what the last 33 years of peer-reviewed research says gets out. And lots more will be getting sued by billions and billions and billions of dollars.

So the Buy-and-Holders stick together and respond in a ruthlessly abusive way when they find someone like me posting honestly about the last 33 years of peer-reviewed research.

If our economic system is going to survive, we are going to have to find some means of getting accurate and honest information about how stock investing works out to millions of middle-class people, Evidence. The posts that I put to this site are aimed at helping people come to terms with what we were up against all these years, with why it took so long to get these wonderful advances out to all the people who need to learn about them.

I am anti-Goon. Very, very, very much so.

But the deeper reality is that being anti-Goon shouldn’t cause me any problems. We ALL are anti-Goon. That’s why we have laws against financial fraud in the first place.

The question here is — Why as a society have we made an exception to our usual ant-Goon policies to permit the Buy-and-Holders to continue to shove their smelly Get Rich Quick garbage down our throats and cause us all even more economic ruin that we have already suffered?

When we answer that one, we are on our way to enjoying all the wonderful advances we have achieved in recent decades. The articles at this site aim to help us all come to understand the answer to that one.

Take care, man.

Rob

“Wade Pfau is Smart, Hard-Working, Ambitious and Generous. I Am Proud to Be Able to Call Him ‘Friend.’ He is ALSO Dishonest. Wade Has Played a Big Role in a Huge Act of Financial Fraud. There Is a Good Chance That He Will be Going to Prison Following the Next Price Crash. Is He Mad? Yes, He Is Mad. We All Are to Some Extent.”

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

I am curious as to your reaction to Wade being named to Investment News’ 40 under 40 list? Among other things they state that “his Retirement Research blog (WPfau.blogspot.com), which he launched in 2010, became a big hit with advisers interested in retirement strategy.”

http://www.investmentnews.com/section/40-under-40/profile/26/Wade-Pfau

Everything that I know about Wade tells me that he deserves the honor, Interested.

Wade is smart, he is hard working, he is ambitious (I mean that 100 percent as a compliment — we need ambitious people to make good things happen in the world), and he is generous in giving compliments to those who help him out. He is a great guy all the way around. I am proud to be able to call him “friend.”

Now –

He is ALSO dishonest. Wade has played a big role in a huge act of financial fraud, the biggest act of financial fraud in U.S. history. There is a good chance that he will be going to prison following the next price crash.

Does that cover it, Interested?

If you find that mix of views strange, then there’s a sense in which I am with you. I find it strange myself.

But you know what? If you read great novels, you won’t find it quite so strange after you take some time to reflect on what is going on here. When you hear that one of the greatest investment researchers alive today may be on his way to prison, your first reaction is to think: “How odd.” But when you reflect on how humans behave in the real world, you see that this is really not so strange as it seems on first impression.

Richard Nixon achieved amazing things with his life. He opened relations with China. He brought the war in Vietnam to an end (in a messy way, but still). He ended the gold standard. He greatly increased the size of the programs adopted by Johnson as part of the Great Society. He won one of the biggest landslide victories in U.S. election history. And on and on.

Richard Nixon would likely have landed in a prison cell had he not been pardoned by his successor. As it was, he resigned from office in disgrace.

Sound familiar?

Nixon ruined himself over a stupid pride thing. No one cared about the break-in. It was a political prank. The story would have been in the news two or three days had he simply come clean when it was discovered. He didn’t want bad press for two or three days. So he went in to cover-up mode. He committed crimes. Felonies. He ruined himself. He ruined lots of people associated with him. He messed up big time.

That’s what my good friend Jack Bogle has done. Jack is one of the giants in this field. I rank him second only to Robert Shiller and there are lots of others who would rank him first. He has changed the world of stock investing in hugely important and positive ways. The work he has done will be helping millions of middle-class investors for many decades to come (because Jack’s work is the foundation for Valuation-Informed Indexing, the investing model of the future).

And Jack too may be headed for a prison cell. Jack too has committed felonies (financial fraud is a felony). Mel Linduaer was using threats of physical violence to stop posters at the Bogleheads Forum from posting their honest views since long before I came on the scene. Bogle knew about it. And he turned his head. He pretended that he didn’t see. And things got more and more and more out of control over time. Now Buy-and-Hold has caused an economic crisis. Up ahead we have another price crash coming, one that may put us in the Second Great Depression. We are looking at one of the most destructive acts in the history of the United States.

And at a time when Bogle’s ideas (one of his most important ideas was the one arguing that we should all root our investment strategies in the findings of the peer-reviewed academic research) are bearing fruit more exciting than anything he ever dreamed of when he was a young man. Huh? Bogle’s ideas take us to places he never even imagined possible and Bogle then decides to turn on them, to reverse course? To join forces with the sorts of individuals who have put up posts in “defense” of Mel Linduaer and John Greaney? Is he mad?

Yes, he is mad.

We ALL are to some extent. We are all humans. And all humans have a bit of madness within them.

Maybe Wade will be spared prison because his lawyers will cite his madness and a jury will let him off. Maybe the same will happen with Jack.

I don’t know. I cannot say.

My job is to tell the story. Straight. True. As it happened.

I love Wade Pfau. And so I am obviously going to say every positive thing I can think of to say about him.

I love Jack Bogle. So I am obviously going to say every positive thing I can think of to say about him.

But I ALSO love the millions of middle-class investors whose lives have been destroyed by the 12-year cover-up of the errors in the Old School safe-withdrawal-rate studies. Those people need to know the truth about what has been done to them. They need to know who to sue to recover damages. They need to know who to send to prison so that they can make some peace with what has happened and feel that justice has been served at least to some extent. The lawyers who will bring their cases need evidence to present to the juries. My job as a journalist is to document what has gone down so that that evidence is available to them.

So I am not in a postion in which I can ignore the crimes in which my good friends Wade and Jack have participated. I need to tell the story HONESTY. Charitably too. To be sure. But honestly also. Both charity and honesty are called for here. There is no other way by which we can all get from the horrible place where we find ourselves today to the wonderful place where we all deep in our hearts hope to reside tomorrow.

I hope that helps a bit, Interested.

My best and warmest wishes to you and yours.

Rob

“If Things Hadn’t Been So Nasty, There Are Thousands of Good and Smart People Who Would Have Developed These Insights Long Before I Came on the Scene. Your Nasty Stuff Cleared the Field of Competitors and Left It to Me to Pick Up All the Prizes. Um — Thanks, Man!”

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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 will you be rich? You already told us that our significant net worth’s are all “cotton-candy nothingness” and that it will go away in the next crash. If your fantasy is correct, how will you collect money from anyone if they don’t have anything left?

It is your goonishness that is causing all the problems you have understanding what the research says, Anonymous. You exaggerate all the time. You state things more strongly than I said them. You take things to extremes. Please try to calm down.

We are a very rich country. That’s actually a big part of the problem here. We have been following gravely flawed investing strategies going back to the beginning. Not because we are dumb. Because mankind was not put on Earth knowing everything and because we had not yet figured everything out. We have suffered because of this lack of knowledge in the past. But as we become richer, we have more wealth invested in stocks and the suffering grows ever greater. Fortunately, we now know what we need to know to stop the suffering. Unfortunately, we have not yet as a society worked up the courage to stand up to those who have refused for 33 years now to acknowledge that we had it wrong before.

We are heading to a stock crash of roughly 65 percent. Some of that is a real loss (the portion that gets us down to a fair-value P/E10 of 15) and some of it is the product of the irrational depression that follows whenever we realize our mistake in having pumped prices up so much (the portion that takes us from from 15 to 8).

We will perceive ourselves to be far less wealthy following the crash. Stock prices will no longer be pumped up, they will be pumped down. So the perception will be that things are very bad. But the perception will be an exaggeration (undervaluation is every bit as goonish and foolish and non-research-based as overvaluation). Things will look bad. There will be lots of scary articles in the newspapers. But the deep reality will remain that we are a rich people. It will be a struggle to get people to acknowledge that (just as it is a struggle today to get people to acknowledge that at times of insane overpricing their portfolio statements do not reflect their real wealth). But responsible people will do what they can to get the message heard and understood.

Now –

There IS a risk that the risk will cause a complete economic collapse. It happens. Since it happens, it is obviously theoretically possible that it could happen to us.

If we have a complete collapse, then what you are suggesting here is so. We will all go down together and I will NOT be a very rich man, I will be a very poor man. So will everyone else. That would break my heart, Anonymous. I don’t want to see it happen. I acknowledge that it is a possibility. I do not believe that it will happen. But I acknowledge that it is a possibility.

The other possibility is that the hearts of the Buy-and-Holders will melt and we will all move together to the far better world that awaits us on the other side of The Big Black Mountain. Shiller’s breakthrough is the biggest breakthrough in the history of economics. If we move forward, we are ALL going to be richer people. Even you will be richer. You will be in prison for a time. But prison sentences eventually come to an end. When you are released, you will be released into a country of even greater wealth than it possesses today. You will be part of that. Good for you.

This is a win/win/win/win/win, Anonymous. Everyone benefits. That’s what is so cool about it. This debate is not like the debate over the budget deficit, where going with what one side wants means taking something from the other side. This is a debate where everyone wins at the same time. Huge advances in understanding of important subjects are like that.

The problem we have today is that one side THINKS it loses if we permit discussion of the peer-reviewed research of the past 33 years. Some people have their egos tied up in Buy-and-Hold and they cannot bear the thought of acknowledging that they made a mistake. But that is foolishness. Time moves forward, humankind learns things that it did not know in the past, and we all end up better off. That is a core principle on which our nation was built.

By behaving in ways that land you in a prison cell, you are GIVING UP many of the benefits that you would otherwise obtain with the advance. That’s an amazingly stupid thing to do. But that’s the path you have chosen. You have let a phony pride count for more than your own desire to live a better and richer life. Yuck! You know? Yuck and Double Yuck!

I have played it the other way. I have generated hundreds of amazing insights into the realities of stock investing over the past 12 years. Those insights will make me one of the richest people in the United States following the crash. I don’t like all the nasty stuff I had to endure. I don’t like it one little bit that things played out that way. But I think it would be fair to say that it is largely because of the nasty stuff that I was able to do this. If things hadn’t been so nasty, there are thousands of smart and good people who would have developed these insights long before I came on the scene. Your nasty stuff cleared the field of competitors and left it to me to pick up all the prizes. Um — Thanks, man!

We will be a very rich people following the crash. There will be plenty of money remaining to make me a very, very wealthy man. If we mess up and we continue the Ban on Honest Posting following the crash, we will all go down together. It is my opinion that Jack Bogle’s heart will melt following the next crash and we will all achieve some wonderful advances together. My personal guess is that Jack will be the lead figure in seeing that the check for $500 million is promptly delivered to me. I will say “thanks, man” and tell everyone how I learned about the errors in Greaney’s study by reading Jack’s book and how there wouldn’t be any Valuation-Informed Indexing if not for the hugely important efforts of the Buy-and-Hold Pioneers. And we will all live happily ever after.

Until the next time the humans mess up and find themselves in a pot of burning troubles!

I hope that helps a bit, my old friend.

Rob