A Rich Life

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

“It Is Possible That a Big Reason Why the Buy-and-Hold Pioneers Did Not Say That Price Should Be Considered in the Setting of One’s Stock Allocation May Have Been a Feeling That It Would Be More Simple to Have Investors Stay at the Same Stock Allocation at All Times. Valuations Were at Rock-Bottom Levels. There May Have Been a Feeling That No Harm Was Being Done.”

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

I should add that I think it is possible that a big reason why the Buy-and-Hold Pioneers did not say that price should be considered in the setting of one’s stock allocation may have been a feeling that it would be more simple to have investors stay at the same stock allocation at all times. Back in the early 1980s, when Shiller published his research, valuations were at rock-bottom lows. People may not have been able then to imagine the P/E10 ever going above 20 again. There may have been a feeling that there was no harm being done in ignoring valuations.

If that is the case, the idea didn’t work. We not only went to 20. We went to 44. Things got out of hand. And it was Buy-and-Hold that caused things to go out of hand. People saw stocks delivering big payoffs and they of course liked that. They never heard the other side of the story, that unjustified payoffs lead to big problems down the road. Now that we are living through the big problems, more and more people are coming to believe that ignoring price didn’t turn out to be such a hot idea.

I like your comment because it is at least rooted in something real, Sensible. I think this simplicity concern was probably a real consideration in why things were done the way they were done. People were not bad to want things to be simple. But people need to accept that it was a mistake or at least that there is a POSSIBILITY that it was a mistake. No one gets it all right in the first draft. THere is a lot of interest among investors in the idea of incorporating valuations into their strategy. We have to permit discussion of the idea. To not do so makes people look unethical. THat’s not a line you want to cross.

It makes sense to tell people to limit their valuation-induced changes. I can see something like that being done for the sake of simplicity. And it is entirely possible for VII to work with only one valuation change every ten years or so on average. But people need to know when things get out of hand. The problem with not looking at valuations at all is that you look up one day and the most likely annualized 10-year return is a negative number. None of us should ever want to see that happen.

Bogle says that allocation changes for valuation reasons can be considered six times in an investor’s lifetime. That’s exactly correct. That’s once every ten years or so. The problem is that Bogle says that the changes should not be more than 15 percent. That’s not even close to being right. In 1982, the most likely annualized return was 15 percent real. In 2000, it was a negative 1 percent real. 15 percent just doesn’t do it.

But that’s the only point on which there is a difference between me and Bogle. And if we had all been calling for occasional allocation changes (once every 10 years on average) all along, we never would have hit 44. We hit 44 because people just stopped worrying about valuations. Had people been aware of the danger, we might have been able to get away with allocation changes not much greater than 15 percent.

There’s a lot of common ground here. If people came to this with good intent, it could all be worked out with mutual respect and warmth. If you are signaling a willingness to play it that way, I obviously am 100 percent on board. You next post will tell the story. If people want to work it out, it certainly can be worked out. The hard part is getting people interested in following a path that leads in time to a mutually positive result. Anyway, I am certainly supportive of the idea of taking such a path.

Rob

I’ll take this a step further.

Bogle has said that changes should not be more than 15 percent. That’s not enough to get the job done. But I think it could be possible to come up with a reasonable approach that doesn’t ever call for changes too much bigger than that.

Benjamin Graham suggested a 75-50-25 scheme. So long as the investor is always sure to not wait until things are so out of hand that he needs to make two switches at once, he would never need to make a switch of more than 25 percent under the Graham scheme. That’s not far off from what Bogle has recommended and the additional change can be justified on grounds that valuations ended up getting more out of hand in recent years than people realized they would in earlier days.

I’ll see what comes back.

Rob

 

Goon Poster: “You May Be Surprised to Hear This From Me, But, Yes, Valuations Do Matter. Bottom Line Is Your Approach to Investing Takes Something That Works and That Is Simple and Makes It Needlessly Complicated.”

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

You may be surprised to hear this from me but yes valuations do matter. There are a number of indexers who believe that the reason you shouldn’t invest in individual stocks is because it’s straight-up gambling and even Warren Buffett himself is nothing more than a lucky gambler. Buffett of course has repeatedly mocked these true believers in the Efficient Markets Hypothesis in his letters. He doesn’t mind them because he figures if his competition isn’t even trying, it’s easier for Berkshire.

But indexing is a different beast than individual stocks. You’ve probably heard of Bogle’s phrase “the majesty of simplicity”. Simplicity is what truly makes indexing special. Any idiot can do it and be a success. Market timing, while possible, is much harder than many people including you seem to think it is. If market timing was so easy then I’m sure you wouldn’t have missed the 2009 buying opportunity. Thing is as hopeless as you (and I, and many others) are with this stuff all is not lost. Over time buying and holding the index has yielded very good results, results superior to those of most who either pick their own stocks or buy managed funds. Buffett can beat the index, one of my favorite bloggers a young Buffett wannabe Joshua Kennon can beat the index. These people are the exception, not the norm. Buffett (and Kennon) both realize this and that’s why, even though they reject some of the core beliefs of indexers, they recommend indexing for almost everyone else.

Bottom line is your approach to investing takes something that works and that is simple and makes it needlessly complicated. The end result of VII is the opposite of what you intend it to be. Just look at your own performance over the past 18 years and compare it to any diligent indexer’s performance.

We are in complete agreement re the need for simplicity, Sensible. That’s what I love about Bogle. He is the only major figure who cares enough about the little guy to devote his efforts to promoting a simple approach. If I thought that VII were more complex than Buy-and-Hold, I would not advocate it.

VII is more simple.

Buy-and-Hold is an emotional roller coaster. One day you are riding high, the next day your retirement account is wiped out. That’s not simple. That’s panic-inducing. For a strategy to work long-term, it has to take human emotions into account. Ignore human emotions and you make the thing 10 times more complicated than it needs to be.

The research that Wade and I co-authored shows that the biggest portfolio loss ever suffered by a Valuation-Informed Indexer is 21 percent. For the Buy-and-Holder it is 61 percent. The strategy where you see 61 percent of your life savings wiped out is the more complex strategy.

Even Bogle acknowledges that investor should aim to Stay the Course. Investors who are permitting their risk profiles to jump around wildly are not Staying the Course in any meaningful way.

But say that an angel came down from heaven and told us you were right. You should STILL be in favor of permitting honest posting. If you are right, people will see that and have even more confidence in Buy-and-Hold after hearing both sides of the story. Your opposition to the idea of permitting honest posting shows that you lack confidence in Buy-and-Hold. If those who advocate Buy-and-Hold lack confidence in it, how should those who are critics of it feel about it?

If you were making an argument against short-term timing on simplicity grounds, I would agree strongly. There’s no place for it for the average investor. Long-term timing is not even a tiny bit complicated. You have to spend five minutes per year checking the P/E10 level. Then once every 10 years or so, you need to make an allocation change. For the peace of mind that comes from knowing you will never see a portfolio drop of more than 20 percent, those five minutes per year are the best five minutes you will ever spend on investing stuff.

There is nothing even a tiny bit complicated about long-term timing. What is complicated are the convoluted arguments that Buy-and-Holders try to come up with to persuade people that it is not necessary.

And this goes beyond just giving advice for ordinary investors. Greaney was pushing his SWR study to early retirees. There were people at the Motley Fool board who believed that study was accurate. Those people are today well down the path to suffering failed retirements. No desire for simplicity can justify something like that.

If there are investors who find Buy-and-Hold more simple, it is certainly their business. They should go with what sounds good to them. But no desire to market something as simple can justify deception on a fundamental issue. We need to be honest with people. That is 100 percent imperative. There never should have even been any question about that.

VII is perfectly simple. The only reason you are being stubborn about it is that your pride is hurt. If those of us who believe in research-based strategies had warned people of the dangers of high valuations back when valuations first went to insanely dangerous levels, we would not be in an economic crisis today. We all would be 50 times better off. People don’t find it complicated to consider price when they buy a car or a sweater or a banana. There’s no reason why they should find it complicated to consider price when buying stocks either.

Rob

“The Most Important Economic and Political Issue Before Us Today is the Question of Whether Fama or Shiller Is Right. We Should Be Discussing That at Every Board and Blog on the Internet Every Day. Going By How You Buy-and-Holders Act, One Would Think That Nothing Has Happened.”

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

Rob, Shiller never called it a Ponzi scheme.
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You’re wrong, Anonymous. You need to read the book. And lots of others need to start talking more frankly about the difference between the model rooted in Fama’s research (Buy-and-Hold) and the model rooted in Shiller’s research (Valuation-Informed Indexing). Both Fama and Shiller were awared the Nobel prize. They teach opposite things. So they can’t possibly both be right.The most important economic and political issue before us today is the question of whether Fama or Shiller is right. We should be discussing that at every board and blog on the internet every day. We all need to know the answer to this one. The only possible way to figure it out is to talk it over.

Say that Bogle truly believes in Buy-and-Hold (I believe he does). He should get up on stage, talk about the arguments that Shiller and I make as to why Buy-and-Hold is a Ponzi scheme and then respond to them. Then all the people listening in get to decide who is right and how to invest their retirement money. That’s how our system works.

Shiller identifies his findings as “revolutionary.” Please tell me one way in which Buy-and-Hold has changed as a result of these revolutionary findings. There is not one. Buy-and-Hold today is the same thing as it was before Shiller published his research or wrote his book. Going by how you Buy-and-Holders act, one would think that nothing has happened. Your claim that Shiller has not identified Buy-and-Hold as a Ponzi scheme lacks credibility because you cannot identify any way that anything that Shiller has said has had any effect on anything. So far as the Buy-and-Holders are concerned, Shiller has never said anything that wasn’t known to the Buy-and-Holders long before Shiller published his research.

I say otherwise. I say that Shiller is right that his findings are “revolutionary.” I say that Shiller’s research has changed everything we know about how stock investing works in a fundamental way. I say that Buy-and-Hold needs to be entirely redone to reflect the last 33 years of peer-reviewed research in this field.

And I say that I have every right to talk about the implications of Shiller’s findings on every discussion board and blog on the internet. The continued promotion of investing strategies that have been entirely discredited by the academic research for three decades now is killing us. We need to move on. There are millions of people whose lives have been ruined by the Buy-and-Hold Crisis and we all need to start pulling together to help them. If we don’t, we will be getting a taste of what it is like to be in their circumstances when the continued promotion of Buy-and-Hold brings on the next price crash.

Do you ever stop to think that maybe you are wrong, Anonymous?

Rob

“I Am Not the One Who Is Alone. If I Were Alone, I Would Pose No Threat to You Goons. It Is Precisely Because There Are So Many Millions Seeking to Understand for the First Time How Stock Investing Really Works That You Hate Me With Such a Burning and All-Consuming 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, you seem to be alone in this VII crusade. Haven’t you ever considered that you might be wrong about this?I have considered whether I might be wrong and looked for evidence to support that view every day of the past 12 years of my life, Sensible.I am not alone.

My work is rooted in the research of Yale Economics Professor Robert Shiller. Shiller was awarded the Nobel prize in Economics last year. Having the support of a winner of the Nobel prize in Economics ain’t being alone.

I am the co-author of the most important piece of peer-reviewed research published in this field in the past 30 years. Having your name on a piece of research that shows millions of middle-class investors how to reduce the risk of stock investing by 70 percent ain’t being alone.

I have over 200 quotes posted at the “People Are Talking” section of the site. Many of the quotes are by top-name experts in the field. Having that many supportive quotes by top-name experts ain’t being alone.

Jack Bogle, whom I rank as the second most important figure in this field, thinks enough of my work that he went along with having the entire Bogleheads Forum moved to another location rather than take the risk of appearing at an event with me in which he would be expected to respond in an effective way to my questioning. Impressing the second most important figure in the field to that extent ain’t being alone.

Former Financial Analysts Journal Editor Rob Arnott wrote me to tell me that my investing ideas are “sound.” That ain’t being alone.

Thousands of my fellow community members have expressed a desire that honest posting be permitted on our boards and blogs so that they can hear what I have to say about how investing works. That ain’t being alone.

Millions of people lost their jobs in this economic crisis, an economic crisis that my work shows was caused by the reckless promotion of Buy-and-Hold strategies. Those millions all want what I have to offer to become known to every person on this planet. That ain’t being alone.

Thousands of entrepreneurs saw their businesses fail in the Buy-and-Hold Crisis. Those thousands want what I have to offer to become known to every person on this planet. That ain’t being alone.

Millions of people from both the left (The Occupy Wall Street Movement) and the right (The Tea Party Movement) have begun to lose confidence in the ability of our political system to be responsive to the concerns of millions of its citizens because of the foolishness we saw in the wake of the onset of the economic crisis with people ignoring the obvious cause of the crisis (Buy-and-Hold caused $12 trillion in Pretend Money to be created and the loss of that $12 trillion in buying power caused the economy to collapse) want what I have to offer to become discussed at every board and blog on the internet so that we can begin to see some healing. That ain’t being alone.

Millions of middle-class people are in the process of seeing their retirements fail as a result of the 12-year cover-up of the errors in the Old School safe-withdrawal-rate studies. Those people are looking for the explanations of what happened to them that are contained in the thousands of pages of this web site. That ain’t being alone.

I’ve written e-mails to 30,000 academic researchers letting them know about the threats you made to intimidate Wade Pfau into silence on the realities of stock investing when he “crossed” you by publishing honest research and a good number of them sent back to me exceedingly kind and intelligent and helpful responses. That ain’t being alone.

I gave a presentation to the last Financial Bloggers Conference reporting on why Buy-and-Hold is the past and Valuation-Informed Indexing is the future and heard the applause of hundreds of my fellow community members learning about the truth in this area for the first time and enjoyed the hours of discussion of these issues that followed from a small group that came up to share a beer with me after the event. That ain’t being alone.

I have written scores and scores of Guest Blog Entries which have inspired wonderful, thought-provoking discussions and which earned me the effusive praise of my peers. That ain’t being alone.

I have done work that fulfills the boyhood dream of my good friend and hero Jack Bogle, making the change in his model for understanding how stock investing works that makes his approach workable in the real world for the first time. Thousands of my Buy-and-Hold friends have been looking for years for the resolutions to the contradictions in the Buy-and-Hold concept that were needed to make that long-deferred dream a reality and those people will be celebrating my work for many decades to come. That ain’t being alone.

I am alone in only one sense.

People are afraid to speak out about the intimidation tactics of you Goons. People hate seeing death threats. People hate seeing demands for unjustified board bannings. People hate seeing tens of thousands of acts of defamation. People hate seeing threats to get academic researchers fired from their jobs. I am not entirely alone even on that score. I share the feelings of repulsion that virtually every person living on this planet feels toward that sort of behavior. The only sense in which I am alone even in this respect is that I believe that the way to overcome you Goons is to expose your behavior to the sunlight. Most others are still too afraid to speak up. That will change following the next price crash, when they see how serious the threat is that you pose to our way of life. Then I will not be alone even on that score.

You are the one who is alone, Sensible. You are the one going to prison. To be sent to prison is to have your peers reject you completely, to have the society you live in declare that your behavior is so sub-human that you can no longer be permitted to walk freely among others. That is an isolation that I don’t wish on my worst enemies (and indeed I have worked hard to get your prison sentence reduced to the extent possible).

I have a battle to fight. There is evil in the world. There have always been people who see the accomplishments of others and feel drawn not to learn from them and achieve great things on their own but to equalize things by tearing down the good work that in their minds makes them look small and insignificant. But I am not the one who is alone. If I were alone, I would pose no threat to you Goons. It is precisely because there are so many millions seeking to understand for the first time how stock investing really works that you hate me with such a burning and all-consuming hate.

Bernie Madoff is alone, Sensible.

And you are Bernie Madoff times 5,000.

I want no part of it.

I offer the hand of kindness. Always. But not once in 12 years have I given a second’s thought to betraying my country. I won’t do that in the next 12 billion years either.

Why? Because when I violate the laws of the United States, when I betray my country, then I truly become alone in a way that I never want to be alone.

The people of the United States are traveling down some rocky road today. That much is so. We will overcome. We will prevail. It is those who doubt that our economic and political systems work any longer who will find themselves in days to come the lonely ones.

We humans made a mistake. It happens. We will figure things out and we will turn things around. You are too far down the dark path to turn around. To be lost in that terrible dark place must be a lonely feeling indeed.

I ask myself every day whether I have gotten something wrong, Sensible. Every day. Because I never want to find myself in the lonely place that you find yourself in today.

When I discover that I have gotten something wrong (it has happened on a few occasions over the past 12 years), I quickly ask to be able to come to the front of the room and say the magic words “I” and “Was” and “Wrong.” Because those words end the loneliness. Once I have said those words, I no longer have anything to hide. Once I say those words, I am again playing a role in the community of people living under an economic and political system that works.

I pray that I never face a temptation to play it the other way. I am a flawed human and so I cannot dismiss entirely the possibility that it could someday happen. So I pray. Not as often as I should but now and again at least. I will have to hope that that gives me enough strength to make it safely to the other side.

And I pray for you, my lonesome friend. I pray that there is a spark of kindness within you for your friends and co-workers and neighbors and fellow community members that will one day save you. It happens. People tell me to give up on you Goons. I don’t feel comfortable giving up on anyone. That’s not the answer. Love is the answer. Love is the thing that keeps me from feeling alone through those times when a good number of my friends are afraid to speak up.

Love prevails in the end, Sensible. You cannot fathom how, but it does. You keep forgetting that I read the last page of the story before I dared to venture forward with that crazy-brave post of the morning of May 13, 2002. I would have had to have been off my meds to have dared try that one without reading the last page first! I mean, come on!

Rob

“Shiller Is a Great Guy, As Bogle Is a Great Guy. Ask Them Your Questions! Put Them on the Hot Seat! You Are Helping Shiller and Bogle When You Do This. They Both Want to Help People. They Both Have Blind Spots.”

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

Is Shiller emotional since he is heavily invested in the market?Shiller certainly has emotions. All humans have emotions.The statement you are referring to is one in which Shiller said that he is currently going with a 50 percent stock allocation. That is certainly on the high side for where things stand today. But it is possible for someone with particular stock-picking skill to do not awful with a 50 percent stock allocation even at today’s prices. I think a 30 percent stock allocation would make more sense today. But I wouldn’t call a 50 percent stock allocation an insanely “heavy” allocation.

That said, you are making a good point in noting that Shiller’s stock allocation does not seem entirely consistent with the things he wrote in his book about how stock investing works. Why don’t you bring the conflict to Shiller’s attention and see if sense can be made of it?

You want to know how stock investing works, don’t you? Why not try to find out what Shiller is thinking? I can speculate. But Shiller knows better than I do what he is thinking. Perhaps he will say something that will help us all come to a better understanding.

The sense I get is that you don’t want to know. Bogle puts forward tons of contradictions in his public statements. None of the Buy-and-Holders ask him about them. It’s the same with Bernstein. It’s the same with Swedroe. Now you are focusing on Shiller. Ask!

And reporters should be asking! Isn’t that the darn job? Don’t we want to know? Don’t we want to work through the puzzles that present themselves to us and learn now to become better investors?

Ask! And don’t accept answers that don’t add up. Ask and then ask again until you have something that makes sense.

I am NOT suggesting that you be rude or that you try to hurt Siller’s feelings or Bogle’s feelings or anyone else’s feelings. Yes, Shiller is emotional, as you suggest. Perhaps he doesn’t see some of his own contradictions. Many of us are blind to our own contradictions. If you point them out to him, he may well enjoy a great learning experience. And he may share that experience with you and with lots of others.

There is never any harm done by asking any of these questions to the people who are far more likely to know the answers than I am. You direct them to me because you hate me and because you want to trip me up. But you should not be spending your time hating people on the internet or trying to trip up people on the internet. You should be spending your time trying to get answers to these questions. And you are more likely to get good answers by asking Shiller than you are by asking me.

I sometimes feel that we are under a spell. The Buy-and-Holders did lots of wonderful things. Then they made one mistake. Then lots of people were hurt by that mistake. And somewhere along the line a wicked witch cast a spell on us that we would never say the words “I” and “Was” and “Wrong.” Instead, we would just let the mistake take us lower and lower and lower until we were totally destroyed.

Shiller is a great guy, as Bogle is a great guy. Ask them your questions! Put them on the hot seat! Don’t take phony baloney explanations for answers. Dig deep. Find out what is really going on.

You are not just helping yourself when you do this. You are helping Shiller and Bogle too. They both want to help people. They both have blind spots. They both need to be put on the hot seat from time to time to do their best work.

That’s my sincere take, in any event.

Rob

“Jack Bogle Is Afraid of Rob Bennett. He Doesn’t Believe That He Can Offer Good Answers to My Questions. That’s Sad.”

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

Don’t worry. Jack, Larry, Wade and Bill aren’t afraid. They are just fine.

Their behavior tells a different tale, Anonymous.

The entire Vanguard Diehards community was moved over to the Bogleheads Forum when I announced that I would be attending the annual meeting and asking Jack some questions about the effect of valuations on long-term returns.

That happened because Jack was afraid to be in the same room with me and to try to answer the questions that he knew I would put to him.

Nothing could be more obvious.

When one of the leading figures in investing analysis is afraid to face questioning from some fellow whose only claim to expertise in this field is that he figured out how to get his words posted to the internet, there is a good bit of funny business going on.

Jack Bogle is afraid of Rob Bennett. He doesn’t believe that he can offer good answers to my questions. That’s sad. All of us who are Jack’s friends should be trying to do something about that.

My sincere take.

Rob

“My Famous May 13, 2002, Post Ended Not With a Period But With a Question Mark. That Was Fear. My Apology on the Night of Day Three Was Rooted in Fear. I Held Back for a Long Time From Saying That I Know More About How Stock Investing Works Than Jack Bogle. That Was Fear. I Held Back for a Long Time From Saying That You Goons Are Headed to Prison. That Was Fear. There Is No Intellectual Debate Here. It’s All About Fear.”

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

The lack of any supporting comments on this board speaks volumes, Rob. No, people are not afraid to post here as they would be anonymous.

The lack of supporting comments certainly tells us something important, Anonymous. You and I do not agree re what it tells us. But we are 100 percent in agreement that it is a telling reality.

You are of course correct that people are free to post anonymously here. So it is not that they are afraid that the Goons are going to come after them and kill their family members or whatever. That is not the sort of fear we are dealing with in this case.

We’ve talked about Joe Taxpayer recently. I have said that I would like to see more from him. He had been supportive. He opposes the Ban on Honest Posting. But I would like to see him go another step. I would like him to write a blog entry saying that he thinks the Ban on Honest Posting is a shameful thing and that all bloggers should oppose it. I would like him to try to organize all his blogger friends to speak up against this stuff.

Is Joe afraid? Yes, he is afraid. If he wasn’t afraid, he would do what I describe above.

He is not as afraid as some others. He worked up the courage to say that he believes the Ban on Honest Posting is wrong. He worked up the courage to call you Goons out on your nonsense. So he is less afraid than most. But he takes some steps and then he fails to take others. He is a hero. But he is not a perfect being. None of us are, of course.

I was afraid. I didn’t post about the errors in the Old School studies from May 1999 to May 2002. What do you think was up with that? It’s hard to believe today that I kept it zipped all that time, isn’t it? But I did. Why? What was I afraid of? I never dreamed that any of the Goon stuff that we have seen over the past 12 years was even remotely possible back in those days. But I never spoke up. Why? What held me back?

Humans are social creatures.

If you don’t get that, you cannot get any of the rest of it. That part is fundamental.

Bull markets are social phenomena.

You could never have a bull market if people were not afraid to speak up. We obviously had a huge bull market. So there obviously were a lot of fearful people. That’s by definition. You know that just by looking at the P/E10 level. When you have a P/E10 level of 44, you have millions of fearful people. You couldn’t have it any other way.

It’s not cartoonish things that people are afraid of. People are not afraid that you are going to come to your house and shoot them. People are afraid that they will be out of step with the majority. People are afraid that lots of people will think they are dumb. People are afraid that people will yell at them. People are afraid that, if they talk openly about another crash, that will somehow cause one to come. People are afraid that we are going to see a deepening of the economic collapse and don’t want to talk about it or hear about it because it scares them. People are afraid that there are groups starting to lose confidence in our political system. People are afraid that they will not have enough money to retire and that they will lose access to the comfort offered by the Buy-and-Holders if they think things through carefully and come to realize why those comforts are illusory.

People are afraid of all sorts of things, Anonymous.

Wade talked about it in the comments he posted here after his flip. He wrote one on which he said: “I don’t see how you are going to end up being seen as the good guy.” He said almost the same thing at the Bogleheads Forum. He said: “Some of you see anyone pushing market timing as a snake-oil salesman and you are disdainful of it. I don’t want you to think of me that way.”

He does’t want you to dislike him, Anonymous. That’s his fear.

I know how it goes. I don’t want you to dislike me either. The difference with me is that I have an even bigger fear of selling out my fellow community members. I feel that I am worthless to you and to everyone else if I do not post honestly. So I stick to that one no matter what. I don’t give an inch on that one.

My famous May 13, 2002, post ended not with a period but with a question mark. That was fear.

My apology on the night of Day Three was rooted in fear.

I held back for a long time from saying the words “analytically invalid.” That was fear.

I held back for a long time from saying that I know more about how stock investing works than Jack Bogle. That was fear.

I held back for a long time from saying that you Goons are headed to prison. That was fear.

It’s all about fear. There is no intellectual debate here. If you Goons believed that Buy-and-Hold could survive a civil and reasoned debate, you would invite a civil and reasoned debate. You don’t believe that for two seconds. You believe that Buy-and-Hold can survive only for so long as effective challenges to it are prohibited. That’s why you behave as you do.

You follow Buy-and-Hold yourselves. Following a strategy is a sign that you believe in it. You pass that test. There is a sense in which you believe.

But you do not possess confidence in the strategy you follow. It causes you great emotional pain to hear it challenged effectively. Confidence is another marker of belief. You fail that test. There is a sense in which you do not believe at all.

You are in the worst of all worlds. You believe enough that you cannot bear to listen to challenges. So you will stick with Buy-and-Hold until prices are at rock bottom. But you lack the confidence to continue holding when prices hit rock bottom and when every media organ is saying that no middle-class person should ever even consider putting money into stocks. The same social pressures that caused you to tune out the last 33 years of peer-reviewed academic research will cause you to sell your stocks when prices hit rock bottom.

That’s called capitulation. It’s when the last Buy-and-Hold Goon sells his shares that the market (that’s us!) is able to turn up again for an extended period of time.

You happened to be born at a time that led to you investing heavily in stocks at the worst time in history for doing that. You know it on one level of consciousness (while fiercely denying it on another). You are scared out of your freakin’ wits. So scared that you can’t even let it in that you are scared at all. And you will be even more scared after the next crash.

I didn’t do any of that to you.

I don’t say that the people who did it to you meant to hurt you. I don’t believe that. Those people are scared too.

I say that I am not playing my role if I don’t post honestly. I am saying that it cannot possibly be the right answer for me to agree to say things I don’t believe for two seconds.

And I wish you well in all your future endeavors, my old friend.

Rob

Valuation-Informed Indexing #185: There’s a Lot of Money to Be Made Promoting the Valuation-Informed Indexing Concept

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I’ve posted Entry #185 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called There’s a Lot of Money to Be Made Promoting the Valuation-Informed Indexing Concept.

Juicy Excerpt: Once the dam breaks, people will see opportunities everywhere to do good while also doing well. Valuation-Informed Indexing totally rewrites the rulebook. We are going to need thousands of new books. We are going to need hundreds of new calculators. We are going to see new thought leaders replace old thought leaders, new web sites replace old web sites. Until now, the feeling has been that it is safer to align oneself with the conventional thinking. But there will be no saving the conventional thinking following another price crash. At that point, all those who have been holding  back from sharing their insights will be scrambling for position in the new order and even those who have advocated for Buy-and-Hold strategies in earlier days will be aiming to reposition themselves and thereby to remain relevant in a world in which everyone has become aware of the long unmentionable dangers of Buy-and-Hold strategies.

“I Am the Rosa Parks of Personal Finance”

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

Rob, don’t you think the comparing VII to segregation to be quite a bit extreme? No one but yourself has stopped you from practicing VII. Furthermore, you are free to spread the VII gospel not only on your own web site but on numerous other web sites (so long as you otherwise follow their terms of use).

This is a good question.

No, I don’t think it is extreme. I think it is a good comparison.

I am not saying that the two cases of ignorance are equally evil. Segregation directly affected people (not their money). Segregation was far more evil.

The similarity lies in the manner in which the ignorance manifests itself.

No one stops me from talking about Valuation-Informed Indexing at lots of web sites. That is so. You’re not right that I can continue doing so so long as I follow the terms of use. I always follow the terms of use. But you are right that I could continue so long as the owner of the site enforced the rules in a reasonable manner. When you Goons engage in trickery, the owner can certainly see what is going on.

And you would think that the site owner would want to enforce the rules in a reasonable manner. First of all, they are his own rules. He obviously believes in them. Second, all of the site owners invest themselves. So they need to learn how to invest effectively themselves. And, third, the site owners benefit if they give to the people who follow the site a good learning experience. Valuation-Informed Indexing is new and research-based and holds tons of promise and potential, that sure seems to fit the bill. So it should not be hard to spread the word re this.

It should have been easy to spread the word re the dangers of segregation too. What was it really about? We were holding people back. Blacks were about 10 percent of the population. We were taking 10 percent of the population and saying that that group was not going to get the same education or the same opportunities, so they were not going to get the same chance to develop their human potential.

What’s the downside? The downside is that we miss out on lots of great doctors and policemen and nurses and accountants and lawyers and politicians and athletes and musicians and artists and store clerks and factory workers and on and on and on. And friends. Segregation meant that white people did not interact with black people as often. So they missed out on making friendships that would bring comfort to their lives.

It wasn’t any harder to see how that bad situation could be changed than it is to see how the bad situation we are dealing with today can be changed. Why didn’t those Southern states just take a vote and end those dumb laws without having to be pressed to do it? Why did we need all that drama? The freedom buses and the speeches and the protests and the yelling — Why was any of it even a tiny bit necessary? Every reasonable person knew this had to be done. Why was it so hard to pull it off?

There’s a great story about Rosa Parks. She’s the black woman who refused to go to the back of the bus and generated a big commotion by refusing to do so. The story is that she did the same damn thing ten or twelve years earlier. The first time, she was just arrested and nobody ever heard anything more about it. Rosa Parks was not SuperWoman. She did not possess magical powers. She just knew inside that she had to do something. And she did it. And when it didn’t work, she waited ten or twelve years and did it again.

Lots of people could have been Rosa Parks. She wasn’t the only one who saw the injustice. She wasn’t looking to be a hero. She saw that something needed to be done and there came a time when she just did it. It’s not that she wasn’t afraid. It’s that things got to a point where she just couldn’t help herself. And because she acted, lots of others worked up the courage to act. And those lots of others inspired more lots of others. And when enough people had been inspired to act, things got done.

Things don’t happen as clean and pretty as we might be inclined to think they do when we read history books. Human advances are achieved through a messy process. It is often the case that someone has to stick his or her neck out to achieve change. And it is often the case that no rational case can be made in terms of self-interest for that person taking the action that needs to be taken.

The odds of Rosa Parks changing history were very small. She knew that. How could she not know it when she had tried the very act once before in her life and it had failed? What possessed her to take the chance she took when the odds of success were so tiny? She just couldn’t freakin’ stand it anymore. She had been placed in circumstances in which she felt compelled to do a crazy but wonderful thing and that crazy but wonderful act liberated millions of people, both black and white.

I am the Rosa Parks of personal finance.

Rosa Parks was a humble woman. So it may not sound entirely Rosa Parks-like to compare myself to a hero. But you asked the question and the question needs to be answered properly and there is no one else who has the guts to say it today. So I need to say it whether it sounds odd or not. I am the person who stood up to the injustice of how information on how to invest is conveyed today in a way that destroys millions of middle-class lives.

Those people matter. I worked with them on a daily basis and saw how trickery and deceit was used to destroy their lives. And things got to a point where I simply could not bear to remain quiet any longer. I possessed zero desire to go down this road. That is evidenced by the fact that I kept quiet about the errors in the Old School SWR studies for three years after I put my first post to the Motley Fool board. I was afraid, like everyone else. But I cared about my fellow community members, the injustice was very, very clear to me and there came a time when I could not not act.

I am not the only person who saw the errors in the Old School SWR studies. That’s why the idea that I would get credit for this discovery causes so much envy in people. Scott Burns is the perfect example. His first words to me when I told him about the errors were “you’re right!” Then he asked for my telephone number so that he could conduct an interview. Scott wanted to be on top of this, he saw the importance of it immediately. But then he thought it over a bit and realized what he was going to be put through if he wrote an honest article on the situation. Then, when I continued down the honest path, he over and over again expressed this bitter envy that I had done so. I had behaved in a “catastrophically unproductive” manner. Not because I was wrong. Because I was right. Because I had done something that Scott Burns wished for years he had the courage to do but had never possessed the courage to do. That was my “crime,” in his assessment.

The similarity is that we are dealing with a situation that everyone who works in this field knows needs to change and a situation that makes everyone who works in this field look bad because he or she did not act to change it years ago themselves. What can I do about that, Sensible? People hated Rosa Parks with a burning hate because she showed them up. She didn’t want to. She couldn’t bring important change to the world without showing them up. So she did what she had to do. They hated her for it. Who was right? Who was wrong?

It is not my intent to bring shame to you or Jack Bogle or John Greaney or anyone else on this planet. I want to make the life of every person with whom I come into contact happier and better. Tell me a way to do that while still bringing on this important change and I will go for it. I search my brain every day trying to come up with things along those lines. That’s not the issue here.

The issue is whether the change is really needed. Your conclusion is that it is not, that we can continue on a few more years the way things are.

My conclusion is that you are wrong. The reason why my conclusion is different is that I have looked at the numbers and I have thought through the implications. We are living at a time when the Buy-and-Hold Era is coming to an end regardless of anything that you or I elect to do or not do. It is happening. Given that it is happening, I cannot bear to see my friends (both the Valuation-Informed Indexers and the Buy-and-Holders) go through such pain. I cannot not act. So I act. That’s the only alternative to the thing that I cannot do.

I care about you. You mock me for saying it over and over and over and over again. That doesn’t change anything. I care about Bogle. I care about Greaney. I care about all my blogger friends.

Give me an alternative that achieves the change and that hurts you less and I am going to grab it in two seconds. But I am going to achieve this change. Not for selfish reasons. Because this change must be achieved. You see that as clearly as I do when you are thinking straight. Every single one of us alive on this planet today needs to see this change take place. There is plenty of credit and an opportunity for thousands of people to become rich and famous here if we work together in a positive and constructive and life-affirming way. That’s what I want to see happen.

But please don’t fall victim to the temptation to believe that perhaps there is some way to put this off another year or another month or another day. The change happens. Once we all agree on that, we all win big-time. We are killing ourselves by putting off this change. We need to stop thinking self-destructive thoughts and start working together to bring as much joy and comfort and satisfaction to as many of us as possible while achieving the change that we all know deep in our hearts needs to take place at this moment in time.

I am the Rosa Parks of personal finance. You can be part of this wonderful, positive revolution in thinking about how stock investing works in the real world. Or you can go down in history as one of the haters. You can bring in your police dogs and your fire hydrants and your sticks and your guns and your nasty words or you can let that stuff go and enrich yourself and feel better about yourself and feel good about helping million of others. You choose. As your friend, I obviously want to do all I can to see that you make the right choice.

I hope that answers your question. I expect to become a very rich man as a result of this. I have zero desire to prevent others from enjoying the riches. I want to see all of my Buy-and-Hold friends turn the corner and become rich themselves while helping their clients and readers become rich as well. We need to take a sad song and make it better. That’s the story here.

I hope that helps a bit. We are living in a time of change. The choices we make affect millions of our friends and neighbors and co-workers and fellow community members. The change cannot be rejected. History does not permit that option. So we all need to figure out how we best fit in to the story of change. You are a part of the story. You need to see your way to playing a positive role, like those who first mocked Rosa Parks for being “uppity” and then realized that, no, she was just human, a human who saw something that just could not continue and who thus directed her humble efforts to seeing that that thing that could not continue was brought to an end.

If the humans never advanced, we would not be able to get up in the morning. Life would be too bleak without advances for us to be able to bear the pain that is also a part of life. This is the biggest advance in the personal finance field that any of us will see in our lifetimes. We owe it to ourselves to experience the joy that comes with doing the right thing here.

I hope that helps a bit, Sensible.

Rob

“The Buy-and-Hold Advocates Are All Lying. Nothing Could Be More Clear. This is OBVIOUS. But They Do Not Like Having to Lie About This Stuff. They Know It Is Wrong and They Don’t Like It. Mike Piper and Bill Bernstein and Jack Bogle and Larry Swedroe and Wade Pfau and Bill Schultheis and Carl Richards and Bill Bengen and Michael Kitces All Want to Do Honest Work.”

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

According to you, they are all lying and only you are truthful.

They are all lying, Anonymous.

Nothing could be more clear. This is OBVIOUS.

Shiller’s book was a best-seller. It was reviewed in all the top publications. He was awarded a Nobel prize for the research reported on in the book. The Buy-and-Holders haven’t changed their investing advice ONE IOTA as a result of Shiller’s “revolutionary” (his word) findings. So OBVIOUSLY they are lying. Obviously they are not telling the full truth.

Now –

That doesn’t mean that they intentionally caused the economic crisis. Or that they intentionally caused million of people to suffer failed retirements. Or that they don’t follow Buy-and-Hold strategies themselves.

All the evidence that I have seen indicates that the Buy-and-Holders DO themselves follow the strategies they advocate for others. Which means that they DO to some extent believe in them. If they had zero belief in them, they wouldn’t follow them themselves. Does that not follow?

They don’t have full belief because there is 33 years of peer-reviewed research showing that there is zero chance that a Buy-and-Hold strategy could ever work for a single long-term investor.

And yet they don’t have zero belief either because they cannot bear to have zero belief. They have built careers in this field. And they have seen what happens to those who speak honestly about what the last 33 years of peer-reviewed research teaches us. So they keep it zipped.

They not only keep it zipped when talking to others. They keep it zipped when talking to themselves. They RATIONALIZE. They tell themselves things that they know on another level of consciousness make no sense. Because they don’t feel that they have any other realistic options. Talk about what the peer-reviewed research says and you no longer have a job in this field. These people have families. So they keep it zipped.

BUT THEY DO NO LIKE HAVING TO LIE ABOUT THIS STUFF. THEY KNOW IT IS WRONG AND THEY DON’T LIKE IT.

I’ve documented this over and over and over again. Mike Piper wants to do honest work. Bill Bernstein wants to do honest work. Jack Bogle wants to do honest work. Larry Swedroe wants to do honest work. Wade Pfau wants to do honest work. Bill Schultheis want to do honest work. Wade Pfau wants to do honest work. Carl Richards want to do honest work. Bill Bengen wants to do honest work. Michael Kitces wants to do honest work. And on and on and on.

And millions of middle-class investors very much want to hear what all these people would tell them if they were doing honest work. The relentless promotion of the smelly Buy-and-Hold garbage has caused an economic crisis (the full truth is that it has caused four of them over the past 140 years). We need to recover from it. To recover, we need to teach people the realities. To teach people the realities, we need to permit ourselves to be honest.

So this is going to happen, Anonymous. There is not a thing that you or Lindauer or Greaney or any other Goon can do about it.

We all know that it is going to happen. So our common goal is to make it happen in the least painful way possible. That means making it happen SOON. The longer the delay, the more pain for everyone. Let me put it in personal terms — The longer the delay, the longer the prison sentence that gets handed out to Anonymous. You don’t want the longest possible prison sentence. You want the shortest possible prison sentence. So we are on the same side re this matter, my long-time Goon friend.

There are complications.

That’s ALSO obvious.

If there weren’t complications, we wouldn’t still be talking about this 12 years after the morning in which I put forward my fateful post of May 13, 2002. One complication is that there are millions of people who have standing to bring civil lawsuits because of the long cover-up. Another is that there are a good number of people who have participated in acts of financial fraud and could be on their way to prison. Another is that there are many people who have built careers promoting the smelly Buy-and-Hold garbage and who feel that their reputations will be destroyed if the truth gets out. Another is that there are million of people who really have been taken in by the smelly Buy-and-Hold garbage and who for the time-being are not willing to help out those of us trying to get the truth out because they are suffering from cognitive dissonance.

The complications are realities. I certainly don’t say different.

But the complications don’t change the basic reality that there is 33 years of peer-reviewed research showing that there is precisely zero chance that a Buy-and-Hold strategy can ever work for even a single long-term investor. Complications or no complications, we need to move forward. Consideration of the complications can change HOW we elect to move forward. But it cannot change the reality that we MUST move forward. So we are all on the same side re this matter.

We’re all going to move forward together, Anonymous. There is no other way.

I have said 10,000 times that I will do anything in my power to make the trip forward as painless as possible for all of my many Buy-and-Hold friends. And I will of course do that. But never will I post dishonestly re the numbers that my friends use to plan their retirements. That’s obviously an insane demand and I obviously am never going to give that one two seconds of consideration. We will move forward together HONESTLY. Because we must. There is no other path for us to consider.

Now –

You can wait until after the next price crash if you like. I think that’s as dumb as dumb can be. But you clearly do not care what I think about this matter. You have it in your power to wait until after the next price crash. I cannot force you to take positive steps today. I would make it happen today if I could. But I can’t. So that’s that.

But if you are going to wait, then wait, you know? When you continue to put up the same nonsense here, you don’t persuade me to give in to your intimidation tactics. You persuade me of your desperation. You obviously get that at this point. So the sensible thing for you to do if you have made a final decision to wait until after the next crash hits is just to stop posting here.

Again, I cannot force you. If you want to continue to post, I will respond to some of your posts. I will delete some, I will respond to some. If that’s what you want, that’s what you’ll get. But it’s obviously stupid behavior on your part. I am not going to break and there are no signs that you are going to break. We are all going to have to wait for the next crash and then see how things play out then. Is that not so? Can we all agree re at least that much?

I wish you well.

Okay?

I hope it’s okay that I wish you well. Because I do.

That’s where things stand, you know? Like it or not.

I don’t like it either. But that’s where things stand. We might as well part friends and see where the future takes us.

Rob