A Rich Life

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

“I Recorded a RobCast Way Back in 2009 Titled “Shiller Pulls His Punches.” Why Do You Think He Pulls His Punches? It Is Because He Is Afraid of the Negative Feedback He Knows He Will Hear If He Speak With 100 Percent Honesty Re What He Knows About How Stock Investing Works. I Believe That I Have As Much of a Responsibility to Call Shiller Out on His B.S. As I Have to Call Out Jack Bogle and the Other Buy-and-Holders on Their Nonsense.”

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

Have goons gotten to Shiller? Afterall, he has 50% of his money in the market.

Shiller certainly possesses an Inner Goon. We all do. I possess an Inner Goon, Anonymous.

I recorded a RobCast way back in 2009 titled “Shiller Pulls His Punches.” Why do you think he pulls his punches? It is because he is afraid of the negative feedback he knows he will hear if he speaks with 100 percent honestly re what he knows about how stock investing works. I have written numerous columns at the Value Walk site re things Shiller has gotten wrong. I believe that I have as much of a responsibility to call Shiller out on his b.s. as I have to call out Jack Bogle and the other Buy-and-Holders on their nonsense.

And I of course have a responsibility to call Rob Bennett out on HIS nonsense too. It was b.s. for me to fail to speak up about the errors in Greaney’s retirement study prior to the morning of May 13, 2002. It was b.s. for me to apologize for doing so a few days later. It was b.s. for me to continue to think that Buy-and-Hold could work until the night of August 27, 2002, when Greaney threatened to kill my wife and children and 200 of my fellow community members endorsed his post. It was b.s. for me to hold off on saying that the Old School SWR studies are “analytically invalid” until May 2003. It was b.s. for me to try so hard and for so long to avoid calling Lindauer out on his abusive posting practices when I started posting at the Vanguard Diehards board.

I have a Goon within me, Anonymous. I want people to like me. I want to tell people fairy tales and to be praised for it. I want to be rich. I want to be popular.

And Shiller faces the same demons. And everyone else does too.

I don’t think that the fact that Shiller is going with a 50 percent stock allocation today is a sign of goonishness on his part. The research says that the typical investor should be going with an allocation of about 30 percent stocks. Shiller is more knowledgeable than the typical investor. He may be able to pick stocks or segments that are less overvalued than the market as a whole and that therefore will do better than the market as a whole. So I could see a 50 percent stock allocation working out well for Shiller. I would’t advise him to go higher than that. But I wouldn’t call it goonish for him to go with a 50 percent stock allocation today.

I do think it was a bit goonish for Shiller to say that other investors who are less knowledgeable than him could go with a 50 percent stock allocation or even something a bit higher. That’s dangerous advice, in my assessment. Most investors are not as skilled as Shiller is. The numbers don’t support a 50 percent stock allocation today. And Shiller has predicted a crash. I have a very hard time seeing how you can predict a crash and also say that it is okay for ordinary investors to be going with stock allocations in excess of 50 percent.

There are judgment calls that come into play. People can have different opinions without one of them being guilty of goonishness. But I saw that statement about it being okay for ordinary investors to go with stock allocations in excess of 50 percent as being pretty darn far out there. I don’t think I would be doing my job if I didn’t say that I am not able to figure out a way to justify that statement, given what the peer-reviewed academic research of the past 33 years shows us about how stock investing works.

Perhaps Shiller can justify it. Perhaps Shiller sees something that I do not see. If that’s the case, then I would like to see him spell out his reasoning process re that particular statement. I am of course willing to hear his case. But going by what I know today, I feel compelled to say that I see that particular statement as being an irresponsible statement coming from a guy who is a giant in this field and who has done more to help us all understand how stock investing works than anyone else alive. Perhaps that’s why it bothers me so much to hear my hero give voice to those particular words. I expect more of my good friend Bob.

Yes, the Goons have “gotten to” Shiller to a point. But Shiller has also overcome goonishness to an extent that no one else alive on the planet today has managed. Both things are so. We need to take the good with the bad and to praise the good while criticizing the bad in a spirit of charity when we see it appear before us on our computer screens.

I hope that helps a bit, Anonymous.

Rob

“I Play It the Other Way. My FOCUS Is the Goon Stuff. I Focus On That Because That Is The Critical Factor That No One Else Has Explored in Depth. By Focusing on the Goon Stuff, I Am Making a Unique Contribution. That’s How I Become Rich and Famous!”

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

Who are these goons that are standing in your way? How are they standing in your way?

One of you Goons put up a reference to “The Law of Thermodynamics” or some such thing the other day. The idea was that this law was a core principle of physics, something that people working in the physics field don’t give up lightly. It is a foundation stone of the science. There are hundreds of insights that have been built on it. So you don’t pull out the foundation stone unless you absolutely must.

The point was that I am trying to pull out the foundation stone of investing analysis when I say not only that one form of timing (long-term timing) always works but also that it is 100 percent required for investors seeking to have any hope whatsoever of long-term success to engage in this form of timing. The comment was right on. I AM trying to pull out the foundation stone. I am doing it for 100 percent positive reasons. But it IS a scary thing for us as a society to pull out the foundation stone for our model for understanding how stock investing works and to essentially agree that we knew next to nothing before and that we now need to start over again with first steps.

My critics see this as a bad thing. They see that we are going to need to rewrite all the books and rejigger all the calculators and they say “this guy is causing trouble.” I focus on the upside. We will not be rewriting all the books and rejiggering all the calculators for no good reason. We are doing it to get things right. The Buy-and-Hold Pioneers told us that we need to use a numbers-based approach to avoid the subjectivity that held back progress in this field for so many years. They were right. But the Buy-and-Hold Pioneers did not have Shiller’s research available to them when they developed their model (Fama discovered that short-term timing never works in 1965 and Shiller did not discover that long-term timing is always required until 1981). So they made a mistake on a foundational issue and thereby turned their model into the greatest wealth-destruction engine ever concocted by the human mind. I see it as a wonderful thing to correct the error because it means that it will be the first time in the history of the planet that we will have a model for understanding how stock investing works that will work in the real world and we will all live far richer lives (in every sense of the word) than we ever before imagined possible.

What’s holding us back? Why wouldn’t we all rush forward with great enthusiasm to embrace a learning experience that lets us retire five to ten years sooner while reducing the risk of stock investing by 70 percent?

You don’t achieve advances like that without making big changes. Valuation-Informed Indexing is not a small advance over Buy-and-Hold, it is a HUGE advance.

To achieve a huge advance, you must discover something entirely new, something that had been overlooked by millions of people for hundreds of years. Something gigantic.

Is there something gigantic to be discovered about how stock investing works at this late date?

There is.

It is how to overcome emotionalism.

Emotionalism is what destroys portfolios. Always. The U.S. economy is sufficiently productive that it is virtually impossible to imagine a way to invest in stocks that will not produce good long-term results. The only thing we have ever come up with is emotionalism. To fail as a stock investor you must act irrationally. Not once. But over and over and over again. In an objective sense, it’s a difficult trick to pull off. But we humans have managed to find a way!

The Buy-and-Hold Pioneers were anti-emotionalim. Their aim was to help investors make rational choices. But they didn’t know everything. That’s the sad fate of us poor humans. We are always working with imperfect knowledge, we are always partly in the dark no matter how educated we become. The Buy-and-Hold Pioneers failed to distinguish short-term timing (which never works) and long-term timing (which is always required). So they got everything wrong. They put forward a numbers-based strategy that manages to get every number wildly wrong! Yikes!

Why do we investors do these things to ourselves? Why do we make irrational choices? Why do we delay our retirements? Why do we bring on economic crises?

Because we are freakin’ Goons!

That’s the story, Anonymous.

Each and every one of us has a Goon voice within us. Bogle has it. Shiller has it. I have it. Every last one of us. And it is by reining in The Inner Goon that we become successful investors.

People in this field don’t like to talk about this sort of thing. They want to leave the impression that they are “experts.” So they like to talk about the hard stuff — numbers, graphics, tables. The problem with focusing on that stuff is that you can talk about that stuff for ten million years and never do a thing to address the Goon problem. Which means you have not managed to offer investing advice that stands any chance whatsoever of working in the real world.

I play it the other way. My FOCUS is the Goon stuff. I focus on that because that is the critical factor that no one else has explored in depth. By focusing on the Goon stuff I am making a unique contribution. That’s what I want to do. It is by making a unique contribution that I become rich and famous! And I want that for myself!

We all have an Inner Goon.

But most of us don’t let it show to the extent that you do, Anonymous.

Bogle has an Inner Goon. He doesn’t advance death threats. He shows his Goon in another way.Bogle fails to speak up in opposition when Mel Linduaer and John Greaney make death threats.That’s another way of doing the same thing. An argument can be made that the way Bogle does it is worse. It is less honest. At least with Linduaer and Greaney, you see just what you get. With Bogle, the Goon stuff is hidden. He gets the benefits of goonishness (people are afraid to point out the weaknesses in the investing strategies he promotes). But people also offer him the sort of respect that we generally extend only to people who act in responsible ways. He gives the appearance of being professional while protecting himself from intellectual challenges by associating with the most vile gang of abusive posters ever seen in the history of the internet.

Goonishness is hate and irrationality and anger and envy and ignorance and violence and intimidation and stubbornness. Our goonishness is our dark side. It is by coming to terms with our dark side that we become more effective investors. It is by reining in goonishness that we bring the Buy-and-Hold Crisis to an end and enter the greatest era of economic growth that we have ever seen.

I call you guys (and witches!) Goons because you are so obvious about it. But I acknowledge that the goonishness is a more widespread phenomenon. It is not just people who put up posts in “defense” of Mel Lindauer and John Greaney who suffer from goonishness. It is also the people who fail to speak up about the goonishness of those who post in “defense” of Mel Lindauer and John Greaney. Which means that it is pretty much all of us (including me prior to the morning of May 13, 2002).

When we work up the courage to face our goonishness, we will achieve the biggest advances in our understanding of how stock investing works that we have ever achieved. We will all go on to live far richer lives than we ever before imagined possible.

If we fail to work up the courage, we will all go down together. That’s what the numbers say.

I have a patriotic duty to try to bring down The Buy-and-Hold Mafia. That’s what every member of The Buy-and-Hold Mafia deep in his or her heart wants me to do. All of the Goons have a human side. All of the Goons secretly want to be called out. So that’s my job.

It is your job too. It’s Bogle’s job. It is Shiller’s job.

We all need to protect our nation’s economic and political systems from further Goon attacks if we hope to be able to continue to enjoy the blessings bestowed upon us.

So I will continue to post honestly re safe withdrawal rates and all other critically important investment-related topics.

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

Rob

Goon Poster: “I Think You’ve Got It, Rob. Now See If You Can Put This New Attitude Into Practice — Create an Account at Bogleheads and Contribute to a Few Threads on This Topic. Remember, No Dogmatism, No Off-Topic Rants, No Thread Hijacking, No Bullying.”

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

I just wanted to confirm with you that asset allocation, and whether one prefers to vary it with valuations, is a personal matter with no right or wrong answer. We make take differing views, but there’s no need to be dogmatic about them.

Dogmatism hurts us.

There are two schools of thought. One is rooted in the research of Eugene Fama. One is rooted in the research of Robert Shiller. Both Fama and Shiller have been award Nobel Prizes in Economics for their work.

Members of both schools should respect members of the other school.

But there ARE right and wrong answers. We should avoid dogmatism because none of us know with certainty which school of thought is the right one. But it is not possible that both schools of though are equally correct. The two schools of thought are rooted in opposite premises.

We don’t know everything. That’s why we should avoid dogmatism.

But we DO know some things. So it would be a terrible mistake to pretend that this is all just a matter of personal choice, that every allocation choice is equally supported by the peer-reviewed research in this field.

You are suggesting that only two extreme positions exist: Either everything is known and there is no room for judgment calls or nothing is known and every choice made is equally supported by the research. I reject both extremes and favor a middle-ground position. We have learned many important things about how stock investing works over the past 50 years and we should hope and expect to continue learning in days to come. We should be happy about what we have learned and we should share what we have learned with as many people as possible. But we should never become so full of ourselves as to imagine that we have learned it all and that there is no room for future learning experiences.

Each investor should make the calls as to how he or she invests. But any advisor who says “every allocation call is equally valid according to the research” is failing to do his job. We should be telling people what the research says in a non-dogmatic fashion. We should tell people what the research reveals and what the research does not reveal and then leave it to them as to what allocation choice to make.

If someone were to say “I am going to go with zero stocks at all times,” I would say that that position is not supported by the research. But I certainly would remain friends with that person. I certainly would see no call to be abusive in any way to that person. Perhaps I have misunderstood the research or perhaps there will be new research supporting that person’s view in coming days. I cannot in good conscience endorse a permanent stock allocation of zero given what I know about what the research says. But I respect the right and responsibility of all investors to make their own calls and I would never think of dogmatically insisting that any investor follow my recommendations.

I am dogmatic about my right (and the right of every one of my fellow community members) to post honestly. But that’s as far as the dogmatism goes. It would be a lie for me to say that the numbers in the Old School SWR studies are accurate and I would never dream of doing such a thing. But I certainly have been friends with many people who use those studies for guidance and I certainly respect and like those people.

Does that answer your question, Anonymous?

Rob

I think you’ve got it, Rob. Now see if you can put this new attitude into practice – create an account at Bogleheads and contribute to a few threads on this topic.

Remember, no dogmatism, no off topic rants, no thread hijacking, no bullying, just, to quote you:

We should be telling people what the research says in a non-dogmatic fashion. We should tell people what the research reveals and what the research does not reveal and then leave it to them as to what allocation choice to make.

Dozens of people are able to do that on Bogleheads, so I don’t think it’s beyond your ability if you try.

I’ll give it a shot, Anonymous.

Rob

Note: Within 10 minutes of advancing this post, I registered at the Bogleheads Forum as “RobBennett” and put a post to the tread titled “Retirement Calculator”:

http://www.bogleheads.org/forum/viewtopic.php?f=2&t=140227

My post read:

A link to The Retirement Risk Evaluator is set forth below. The unique thing about this retirement calculator is that it contains an adjustment to reflect the valuation level that applies at the time the retirement begins:

http://www.passionsaving.com/retirement-calculator.html

Rob

A note appeared on my screen saying that the comment was in moderation. This was at about 5:00 PM Eastern Time on May 31, 2014. As of the time that I am scheduling this blog entry for future posting (5:00 PM Eastern Time on June 2, 2014), I have not heard any word re the status of the comment.

I wonder why not.

“I Detected a Coldness in the Vibe in the Room When I Was Giving My Talk. If You Talk to an Alcoholic About Cutting Back on Drinking, He Will Deny Having a Problem. That’s Not Because He Believes Deep In His Heart That He Doesn’t Have a Problem. My Stuff Made the Bloggers in the Room Feel Shame.”

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

Didn’t a coach in the Financial Blogger audience tell you that you came across as bitter?

You are thinking of Jaime Tardy, owner of the Eventual Millionaire site.

I talked to Jaime at FinCon13 and told her I would like to hire her for help with spreading the word about Valuation-Informed Indexing. She asked me a number of questions about the VII concept and about my experiences spreading the word on it and all this sort of thing. She was in the audience when I gave my Ignite presentation (“How to Become the Most Hated Blogger on the Internet”). She said that she was sitting with a number of millionaires when I gave the talk (there is a video of the 5-minute talk at the home page of this site) and that a number of them offered the view that I was “bitter.” She didn’t say that she agreed with them (she said that she found my ability to stick to my guns in the face of such brutal opposition “inspiring”). But she said that she did not want to work with me unless I agreed to no longer engage with “the haters” (she was referring to you Goons).

I am certain that Jaime was shooting straight re what the millionaire bloggers said. I detected a coldness in the vibe in the room when I was giving my talk. My impressions are vague ones. But I think I am good at picking this sort of thing up and I obviously have a lot of experience watching reactions re this particular issue. I got a VERY positive reaction when they announced the title of the talk. People laughed and applauded, more than they had for any of the other speakers. I found that very encouraging. I felt at the beginning of the talk that I had the crowd in the palm of my hand. There was a second round of laughter and applause after I said the first few lines. And then I never heard any further reactions until the applause at the end of the talk (which sounded to me to be equal to that given all the other talks). There was never any booing. People were not hostile. But the reaction to the material following the title and the first few lines (my recollection is that the line that got people laughing a second time was a line about how I had been banned at 15 different places) was subdued. I no longer felt that I had the crowd in the palm of my hand as the talk progressed.

There was lots of powerful stuff in the talk, stuff that in ordinary circumstances would get people excited in a positive way. For example, I noted that I had produced with Wade Pfau research that shows millions of middle-class people how to reduce risk by 70 percent. The ordinary reaction to this would be for the bloggers to come up to me to ask how they could get involved in the effort to spread the word about Valuation-Informed Indexing all over the internet. Not one person has asked me that as a result of the talk (my e-mail address is available in the conference materials). That tells me something.

There were several people who came up to talk to me when the presentations ended. One was Joe Taxpayer. Joe ended up including me in his write-up re the conference and saying that you Goons should permit honest posting on Shiller’s findings. One of the other people who came up said that I should play up the “Most Hated Blogger” thing in all my marketing. I think that makes sense but I already do that to at least a limited extent. Another blogger congratulated me and then followed up with an e-mail following the conference (to which I responded) but has not yet done anything more than that. Another blogger said that I should send out lots of promotional materials noting that Shiller recently won the Nobel prize. I agree that that makes perfect sense. But I have zero confidence that that would help in the particular circumstances that apply in this case. People were not banning the discussion of Valuation-Informed Indexing because Shiller had not won a Nobel prize and the award is not going to change things in any significant way. The awarding of the Nobel prize is a small plus but not a game-changer.

There are no intellectual issues here. The intellectual case for Valuation-Informed Indexing is overwhelming. ALL of the evidence supports it and there is no evidence supporting Buy-and-Hold. The issues holding us back are all PSYCHOLOGICAL in nature.

The people who get it best are the academics to whom I wrote about the Wade Pfau matter and who came back to me saying that this is a case of the sort of paradigm change described in the book The Structure of Scientific Revolutions, by Thomas Kuhn. A society accepts small advances without too much trouble. It has a much harder time with big advances. This is a HUGE advance. It changes life in the United States forever for us to be able to reduce the risk of stock investing by 70 percent. It is of course a hugely POSITIVE change. But it is a huge change all the same. And as a society we are having a hard time accepting that this huge positive change is a real thing.

One of the academics told me that we either need to wait for the people whose careers were built promoting Buy-and-Hold to die or for a crisis. If Shiller is right (I obviously believe that he is), the crisis is coming within the next year or two or three. That should do it. The next price crash should shake people up enough that they will hear out people who go forward with the Valuation-Informed Indexing concept. Once we reach a certain acceptance level, support for Buy-and-Hold will collapse and VII will spread like wildfire.

The question is — Should we just wait around for that to happen?

My sense is that that is how Shiller and a lot of others have elected to play it. There are a good number of people who hint at a belief in VII but who hold back from a full endorsement of all of the amazing implications of Shiller’s research because they know that Buy-and-Holders will go nuts if they go public with them. I obviously don’t play it that way. I believe that responsible people should be doing everything they can do to help us AVOID another price crash. I also believe that, once people are ready to hear about VII, we need to have a record that people can turn to for answers to all of their questions about why it took so long for us to get to a good place. So I believe in continuing to knock on doors and on detailing the results of those efforts here at the blog.

People have a wall of resistance to hearing about this stuff. A good part of it is shame.

I call out the Wall Street Con Men all the time. But the full reality is that all that the Wall Street Con Men are doing is trying to make a sale. You complete a sale by forming an emotional connection with your reader. People love Get Rich Quick. Buy-and-Hold is pure Get Rich Quick. It sells like hotcakes. So the Wall Street Con Men love to use it. They go with what works.

The point here is that it takes two to tango. The Wall Street Con Men are conning us. They obviously know that there is this fellow Shiller who showed 33 years ago that valuations affect long-term return and that there is zero chance that Buy-and-Hold can work if valuations affect long-term returns. But they keep it zipped because their readers and their clients DO NOT WANT TO HEAR ABOUT IT. Mike Piper did not want to ban honest posting at his blog. He HATED the idea. But he sincerely believed that his readers would abandon him if he permitted me to continue posting there about the implications of Shiller’s research. I don’t know that things are quite as bad as he believes. But I do agree with Mike that he would have taken a big hit. For Mike Piper permitting honest posting would have meant earning less money from his blog, at least in the short run.

That’s not true just of Mike. It’s true of Motley Fool. It’s true of Morningstar. It’s true of Index Universe. It’s true of just about everyone. Buy-and-Hold is a marketer’s dream. It’s a Get Rich Quick approach that sounds responsible if you don’t study it too closely. Valuation-Informed Indexers tell people that much of the money in their retirement portfolios is not real, that it is cotton candy fated soon to be blown away in the wind. Buy-and-Hold is a Snickers bar and VII is spinach. VII is a hard sell compared to Buy-and-Hold until the next crash shows people where Get Rich Quick always takes everyone who follows it in the end.

This is a one-time thing. VII was impossible before 1981 because we didn’t have the research to support it. It didn’t catch on through 2008 because people were too happy with their phony bull market gains to be open to considering a new strategy. Since 2008, the door has been opened a bit. But it appears that it is going to take another crash to kick the door open all the way. Those are the realities that apply.

The next part is a little hard for most people to understand. But it is rooted in a psychological reality. People often know things that they are not willing to acknowledge they know. If you talk to an alcoholic about cutting back on drinking, he will deny having a problem. That’s not because he believes deep in his heart that he does not have a problem. It’s because he knows ten times better than you do how big the problem is and cannot bear to have you say the words out loud. The alcoholic is in deep denial. But he of course knows. That’s the story of the Buy-and-Holder. Every Buy-and-Holder has doubts about his strategy. Buy-and-Holders hate Rob Bennett because Rob Bennett spells out all the reasons why those doubts are legitimate. My stuff causes people to feel emotional pain.

The millionaire bloggers in the audience for my Ignite talk have probably followed Buy-and-Hold themselves and have probably recommended it to others. So my stuff made them feel shame. They are not ready to acknowledge what the research says. So they need some psychological defense. They felt that my presentation was too compelling to argue against it on substantive grounds. So they attacked it on process-oriented grounds. I wasn’t wrong. I just was too “bitter” about the fact that the ideas haven’t caught on yet. I deliberately chose images for the slides that focused on the soft, funny side of things. There was nothing even a tiny bit bitter about my presentation. That assessment was employed as part of a psychological defense.

We are making progress. I wouldn’t have been permitted to give the Ignite talk a few years ago. Now I am able to do that. Now I can get guest blog entries posted at lots of places. There are more and more people expressing doubts about Buy-and-Hold every day. But, yes, as of today there are smart and good people in this world who are going to respond by saying that I am “bitter” when they hear my presentation. Jaime was shooting straight with me and reporting on the reality that applies today. I liked the idea of working with her. I think that she could provide something that I am not able to provide. But I at least learned something as a result of my association with her and I am of course grateful for that.

I hope that helps a bit, Trebor.

Rob

“Personal Integrity Matters. I Never Went to Investing School. I Never Managed a Big Fund. But I Was the First Person to Work Up the Courage to “Cross” John Greaney By Posting Honestly on Safe Withdrawal Rates. And I Was the First Person to Call Out Mel Linduaer on His B.S. Abusive Posting Tactics at the Bogleheads Forum. That Makes Me Ten Times the Investing Expert That Jack Bogle or Bill Bernstein or Larry Swedroe or Scott Burns Can Ever Again Claim to Be Now That They Have Failed to Take Prompt Action re These Matters.”

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

When people like this, they see two things. First, they know you are not credible because what you call “buy and hold” has been very successful and is not how your portray it. Secondly, they see you as a crackpot when you throw around threats of prison. It makes you come off like a little child having silly revenge fantasies.

People do not respond well to those sorts of statements, Anonymous. You don’t have to convince me of this. I have seen the reality play out before my eyes on thousands of occasions.

Did you see the demonstrations that were held by hundreds of students at Penn State when the truth about Joe Paterno came out? Those students LOVE Joe Paterno. And not without reason. He is one of the greatest coaches who ever lived. The bad things he did do not cancel out his many genuine accomplishments.

Do you think that people helped Paterno by covering up what was going on around him for so many years? There was a woman who worked at Penn State who asked that action be taken and she was fired for her trouble. That solved the problem TEMPORARILY. But of course in the long term it made it worse.

That woman was the true Joe Paterno fan, in my assessment. She tried to bring a quick end to something that was in the process of destroying his reputation. I am to Jack Bogle what that woman was to Joe Paterno. I love the guy. That’s why I speak up when I see financial fraud being practiced at a board with his name on it.

It takes more guts to speak up than it takes to be a yes man. Another way of saying it is to say that it takes more love to speak up than it does to be a yes man. I love Jack Bogle more than you do. You talk the talk. I walk the walk.

That woman was fired. People didn’t like what she said. But she has a clear conscience today. She is able to look at the woman in the mirror and feel good about what she sees.

I get it that telling the truth about how stock investing works is not the popular thing to do today, when we are priced for a 65 percent price crash sometime over the next year or two or three. The reality is that we are going to need someone to put the pieces together after that crash and to get the job done that person is going to need a reputation for integrity. I think it would be feel to say that the “experts” who failed to speak out about you Goons when they learned what you are up to will not be viewed as possessing the personal integrity needed to help us dig out of the hole that the Buy-and-Holders put us in. I will.

Personal integrity matters, Anonymous. It matters a lot. I never went to Investing School. I never managed a big mutual fund. But I was the first person to work up the courage to “cross” John Greaney by posting honestly on safe withdrawal rates. And I was the first person to call out Mel Lindauer on his b.s. abusive posting tactics at the Bogleheads Forum. And that makes me ten times the investing expert that Jack Bogle or Bill Bernstein or Larry Swedroe or Scott Burns can ever again claim to be now that they have failed to take prompt action re these matters.

We all are presented opportunities to act or not act. I acted. They did not. That one is now written in the books and it obviously can never be unwritten.

A new page of the book is being written today. Jack or Bill or Larry or Scott can elect to act today. If one of them does, I will be writing it up at my blog tomorrow. I will be praising that person to the skies. It will make me happy to do so once it becomes possible to do so HONESTLY.

I cannot do that today, can I? Whose fault is that? I have figured out how to get my words posted to the internet. Does Jack lack that ability? Jack Bogle hasn’t called Mel Linduaer out on his b.s. abusive posting tactics because he fears what Linduaer will do to him if he does so. That’s the most charitable explanation of Jack’s behavior that any of his friends can possibly put forward on his behalf. That reality will change when my good friend Jack works up the courage to take the steps needed to make it change. I can try to steer him in the right direction. I cannot force him to take the steps recommended.

An investing expert who is afraid to post honestly re the numbers that millions of people have used to plan their retirements is a piss-poor investing expert. People need to know that Jack Bogle is today a piss-poor investing expert. It’s a reality that affects every one of us suffering the effects of today’s economic crisis and worrying over the worsening of that economic crisis that we will experience when the next price crash sends us all down deeper into the Buy-and-Hold darkness.

My best and warmest wishes to you (and to my good friend Jack).

Rob

“Many Site Owners Don’t Want the Majority of Their Community Members to Be Hurt and Scared and Enraged. So They Go Along with the Demands Made By the Buy-and-Holders to Ban Further Discussion of the Findings of the Last 33 Years of Peer-Reviewed Academic Research. That Is Not the Answer! That Prolongs the Agony!”

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

“PERMITTING HONEST POSTING.”

Can you please define what you mean by that. I am unaware of any topic that has not been discussed.

That’s a good question, Anonymous.

What’s honest for you is not the same as what is honest for me.

You believe in Buy-and-Hold. So you can put up a post saying “a high stock allocation makes sense today” or “there’s no reason to believe that we are going to see another price crash over the next year or two or three” or “the Old School safe-withdrawal-rate studies provide a reasonable guide for what withdrawal rate to use in your retirement plan.” All signs are that you believe these things. So for you it is honest to say these things.

I do not believe these things, as you know. So for me it is obviously not honest to say these things.

You represent something close to the farthest extreme on the pro-Buy-and-Hold side and I represent something close to the farther extreme on the anti-Buy-and-Hold side. The vast majority of posters at every investing board and blog hold views somewhere in the middle of those held by you and me. There are many more who hold views closer to what you believe than there are who hold views closer to what I believe.

We all should be saying precisely what we believe. A board in which every poster says precisely what he or she believes is a board at which honest posting is permitted. A board in which some hold back because they worry about what will be said about them or done to them if they express their sincere views is not an honest board. Such a board offers those listening in to the conversations held at it a false impression of what the community believes. Any board at which people on one side of a spectrum of beliefs feels disinclined to state its sincere views is a dishonest and corrupt enterprise.

You post honestly already (except when you are trying to get someone kicked off a board and you use deception as one of your tactics). When I post honestly, I am banned. Others who share my views see that and refrain from posting honestly so as not to be banned. You see that few are posting in support of me and you conclude that few support me. But this is a false conclusion. At times when there were not Goons like you engaging in wildly abusive posting practices or when those abusive practices had not been going on long enough for people to realize how great the penalty would be for posting honestly, there were many community members saying that I had started the most exciting series of discussions ever held at any of our board or blog communities. When threats were made to kill family members of any posters who showed interest in discussing the last 33 years of peer-reviewed academic research, those posters either left the board altogether or stopped posting on the subjects re which they had learned that honest posting would not be tolerated by the Goons and by the site administrators.

Here are some topics that are not discussed regularly at the boards and blogs that have banned honest posting:

1) The question of whether it was the promotion of Buy-and-Hold strategies that was the primary cause of the economic crisis;

2) The fact that the Wall Street Journal and the Economist and Smart Money and numerous other big-name journals have published articles in recent years saying that Rob Bennett was right all along in what he said about safe withdrawal rates way back in May 2002;

3) The question of why it took so long for these journals to acknowledge that the numbers in the Old School safe-withdrawal-rate studies are wildly off the mark;

4) The question of what is the ACCURATE (that is, valuation-adjusted) safe withdrawal rate;

5) Why the research that I co-authored with Wade Pfau that shows millions of middle-class investors how to reduce the risk of stock investing by 70 percent has not yet been written up on the front page of the Wall Street Journal;

6) Why Jack Bogle has not taken action against Mel Lindauer and those who have posted in “defense” of him even though he has been made aware of the tactics employed by Lindauer at a discussion-board community that bears Jack’s name;

7) Why Jack says that investors only need to change their stock allocations by 15 percent at times of insane overvaluation even though the last 33 years of peer-reviewed academic research in this field shows that the difference in return that results when we go from the sorts of valuations that applied in 1982 to the sorts of valuations that applied in 2000 is 16 percentage points of return per year for ten years running;

8) Why Wade Pfau felt that his career would be destroyed if he continued doing honest research, research that believed to be the most important work he had ever done in his life, research that he thought was worthy of publication in the Journal of Finance;

9) Why following Buy-and-Hold strategies makes investors so darn emotional; and

10) Why Buy-and-Holders say that they agree that valuations matter but are unable to point to a single change they have made in their investing strategies as a result of the “revolutionary” (Shiller’s word) findings of the past 33 years of peer-reviewed academic research published in this field.

And the list goes on and on and on and on.

Shiller changed out understanding of how stock investing works in a fundamental way in 1981. We can never put the genie back in the bottle. Buy-and-Hold was once thought to be the first research-based strategy. We now know that the research never supported Buy-and-Hold, that the belief that it did was mistaken. I didn’t create that reality. That reality was in place long before I came on the scene. What I did was post in accord with that reality. I believe that Shiller’s research is legitimate and so I naturally only believe things about stock investing that are logically consistent with Shiller’s findings. Buy-and-Hold is not logically consistent with Shiller’s findings. Shiller showed that all investors MUST change their stock allocations in response to big shifts in valuations to have any hope whatsoever of keeping their risk profiles roughly constant.

Millions of good and smart people believe in Buy-and-Hold today. That’s so beyond any reasonable dispute whatsoever. That’s why we see friction on the boards and blogs when someone like me advocates Valuation-Informed Indexing strategies. If Shiller is right, Buy-and-Hold is the most dangerous strategy ever concocted by the human mind. It hurts Buy-and-Holders to hear that. It scares Buy-and-Holders to hear that. it enrages Buy-and-Holders to hear that. Many site owners don’t want the majority of their community members to be hurt and scared and enraged. So they go along with demands made by the Buy-and-Holders to ban further discussion of the findings of the last 33 years of peer-reviewed academic research.

That is not the answer!

It’s a temporary answer. It brings an appearance of peace to the board community filled with upset Buy-and-Holders. But banning discussion of the research ultimately only prolongs the agony. Buy-and-Hold doesn’t work! It has never worked for a single long-term investor! Not once in 140 years! The research that I co-authored with Wade Pfau shows that as clearly as it can possibly be shown. There are no two “sides” to this debate. We are all on the same side. We all want to see an end to this economic crisis. We all want to see our retirement plans survive. We all want our nation to enter the greatest period of economic growth ever seen in our history. We all want our board and blog communities to be non-corrupt and honest and helpful.

The question here is not whether honest posting should be permitted or not. Our social norms DEMAND that honest posting be permitted (just as our social norms demanded in the early 1960s that the laws that forbid people with black skin from drinking at the same water fountain as people with white skin be repealed). We are not a people that feels comfortable banning honest posting on important public policy questions. And how we invest is a critically important public policy question given that the false understanding of the question that applied prior to 1981 has now caused four economic crises, including the Great Depression.

We need to all reach 100 percent, total agreement that honest posting is going to be permitted at every investing board and blog from this day forward. Then we need to agree to processes that will help us all live with that decision.

There are sensitivities here. The Buy-and-Holders do not want to go to prison for having committed financial fraud. The Buy-and-Holders do not want to be held liable for financial damages for the millions of failed retirements they have caused. The Buy-and-Holders get upset when confronted with numbers showing that they have made a horrible mistake with their investing strategies. The concerns that Buy-and-Holders feel re these sorts of questions need to be addressed if we are to move forward.

I cannot address those questions on my own. These are public policy questions and they can only be addressed by the nation as a whole. Perhaps we will have Congress adopt some sort of amnesty for things that were done at earlier times. I simply cannot say. There has to be a national debate on these questions for us to figure out as a nation how to proceed. People like Jack Bogle and Robert Shiller obviously need to be involved in that debate. I can offer my thoughts. But this is not a matter that is going to be decided by any one person or any small group of persons. Every one of us has been affected by what has happened and every one of us has to have a say in the resolution.

We need to see responsible people taking responsible steps. That’s the bottom line here. When Bogle gives his “I Was Wrong” speech, that is going to change things in a big way. Once Jack gives that speech, people are no longer going to be afraid that they are going to be sued by the Wall Street Big Shots. That will cause a lot more people to speak out. Once Bogle gives that speech, people like Lindauer and Greaney won’t be able to get away with their b.s. intimidation tactics any more. That will also cause a lot more people to speak out. Once Bogle gives that speech and more people begin speaking out, bloggers and others who try to make money off this stuff are going to see that there is a huge opportunity to make lots of money creating tools that help people following Valuation-Informed Indexing strategies. That will cause even more people to speak out. One good thing will beget another good thing, which will beget another good thing, and on and on.

The tough part is getting Bogle to make that speech. We all should be working together to try to help Old Saint Jack understand how critical it is that he give that speech by the close of business today.

There are two things holding my good friend Jack back.

One, he is suffering from cognitive dissonance, as are so many other Buy-and-Holders. He really believed that this strategy worked. He is proud of the word he has done. He is capable of seeing that there might be small flaws in it. But he has a very hard time believing that his wonderful idea was the cause of the economic crisis and the cause of millions of failed retirements and all this sort of thing. It’s all just too much for him to take in at this moment in time.

We need to help Jack (and all the other Buy-and-Holders) understand what happened here. There are no magic words that can be said to make this happen. Jack will come around in time. He is obviously not dumb. But it is rare to see anyone get this on their first exposure to the ideas. People come around gradually. They need to be able to ask lots of questions. They need to hear lots of people offering their thoughts. They need to be exposed to the ideas multiple times for them to kick in. All this sort of thing.

The bottom line is that Jack must hear honest discussions. And of course the same is true of the many other Buy-and-Holders who today are having a hard time with this.

Two, Jack wants to be loyal to his tribe, the Buy-and-Holders. He doesn’t want all of his friends to become angry with him. He doesn’t want to see people held financially liable for giving bad advice for so long after the Buy-and-Hold Model was discredited by the academic research. He doesn’t want to see people go to prison. We need as a nation to address those concerns of his. We need to hear him give that speech and so we need to do what we can do to make him feel comfortable giving it.

The core issue here is that Buy-and-Hold and Valuation-Informed Indexing are OPPOSITE strategies. They are the same on every point except one — how the investor sets his stock allocation. But getting your stock allocation right is 80 percent of what it takes to be a successful long-term investor. So the real-world differences between these two strategies are great. And the Buy-and-Holders really believed that they were promoting something good, the world’s first research-backed strategy.

Under the ordinary way of doing business, people would have gradually been exposed to the new ideas starting in 1981 and, by now, we all would have made the transition to Valuation-Informed Indexing. It was the huge bull market that caused things not to turn out that way. People gave Buy-and-Hold the credit for the huge gains they thought they were earning in the late 1990s. They fell in love with Buy-and-Hold. So there is now a huge psychological resistance to making the switch to Valuation-Informed Indexing.

We have to start somewhere. We have to get the ideas out there. We need to hear lots of people commenting on them. If there are holes, we obviously need to hear that. If there are not holes, we need to hear that. We need to hear as much as we can hear from as many people as we can persuade to participate constructively.

We need to work together to bring the abusive tactics to a full and complete stop. We have seen from the first day that the majority of our community members LOVE exploring the Valuation-Informed Indexing idea so long as they do not see any death threats or demands for unjustified board bannings or tens of thousands of acts of defamation or threats to get academic researchers fired from their jobs. We need to be 100 percent adamant that that stuff comes to a full and complete stop. We are the luckiest generation of investors who ever lived. So we can figure out the rest together so long as we deal with the Goon problem in a clear and firm and absolute and final way.

I think that covers it, Anonymous.

If I was asked to give a short version, I would say that we will have honest, non-corrupt boards and blogs when every last one of us feels free to say that Buy-and-Hold is a dangerous Get Rich Quick scheme if that is what we believe. I remember saying that at a blog and one fellow telling me that he had never heard that idea expressed before. That fellow’s reaction tells the story of why we are in an economic crisis today. There is now 33 years of peer-reviewed academic research showing that Buy-and-Hold is the purest and most dangerous Get Rich Scheme ever concocted by the human mind (not intentionally, to be sure — but still). People need to hear that, over and over and over again. They need to hear the other side of the story too, of course. But they already DO hear the other side of the story. People need to hear the anti-Buy-and-Hold story as firmly and clearly and regularly as they today hear the pro-Buy-and-Hold story.

All of this will happen naturally once the intimidation comes to a stop. But the intimidation MUST come to a stop. It is killing us. We all know on some level of consciousness how dangerous the intimidation tactics are to our way of life. That’s why they are prohibited by the published rules of every board and blog. That’s why we adopted laws making financial fraud and the cover-up of financial fraud a felony under the laws of the United States.

I hope that helps a bit. Please take good care.

Rob

Valuation-Informed Indexing #180 — Should We Assume That Stock Prices Are Predictable If There Is No Evidence Otherwise?

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I have posted Entry #180 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s titled Should We Assume That Stock Prices Are Predictable If There Is No Evidence Otherwise?

Juicy Excerpt: Markets depend on price discipline to function. It is because the person buying a car is trying to push the sales price down while the person selling the car is trying to push the sales price up that the car market is able to do a good job at setting the prices of cars roughly where they should be. When large numbers of investors come to believe that Buy-and-Hold strategies can work, price discipline disappears from the stock market and the market becomes dysfunctional. Eventually, prices rise so far from where they would be if market participants were practicing price discipline that the only way the market can continue to function is for prices to crash.

That all follows, doesn’t it?

I believe that it is this failure to research long-term timing that explains why two people as smart as Eugene Fama and Robert Shiller could come to opposite conclusions on the question of how stock investing works. Fama concluded that the market is efficient before Shiller published his research showing that long-term timing always works. Fama has tuned out Shiller’s findings for 32 years now because in his mind timing is out of the question. Had Shiller published his findings first, Fama would have put his mental energies to the task of developing a model to explain how stock investing works with the thought that price discipline is essential firmly established. Because of a quirk of historical timing, he instead came to the project with an entirely inappropriate hostility to research-based showings of the importance of one form of market timing.

“My Father Loved His Country. He Knew That Those Who Resort to Those Sorts of Tactics Thereby Tear the Social Fabric of His Country Apart. He Understood That Those Sorts of Tactics Are Not Within the Scope of the Tactics by Which Disputes Are Resolved When His Country Is Working in Tune With Its Foundational Beliefs.”

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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 have only to look at your father and to me for two immediate counterexamples that totally disprove your claim.

My father experienced the Great Depression (caused by a widespread belief in the core Buy-and-Hold “idea” that consideration of price is not necessary when buying stocks that developed during the 1920) not as an investor but as a child. It left a mark.

He experienced the stagflation of the 1970s as an investor. That left a mark as well although certainly a smaller one.

No one was to blame for those two marks experienced by my father. We did not in those days have 33 years of peer-reviewed academic research showing us how to avoid economic crises by teaching people rational investing strategies. We do not have that excuse available to us today.

And the risk is far greater today. We are a richer nation. That means that the highs brought on by Get Rich Quick strategies are higher than any of those we have seen before and the lows that follow the highs are lower than any of those we have seen before.

It was a P/E10 of 25 that caused the stagflation of the 1970s.

It was a P/E10 of 33 that caused The Great Depression.

In January 2000 we achieved a P/E10 of 44.

My father loved his country.

If he understood why it is so important that we make the shift to Valuation-Informed Indexing, he would have felt great pride towards me for what I am doing.

If he did not understand (I had a small number of conversations with him about it before he died and my general, vague sense was that he did not understand), he still would have got it that there was something wrong with the “side” that resorted to the use of death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their job.

Why? Because he loved his country. And he knew that those who resort to those sorts of tactics thereby tear the social fabric of his country apart. He would have understood that those sorts of tactics are not within the scope of tactics by which disputes are resolved when his country is working in tune with its foundational beliefs.

There was a day when people argued that there was no need for an expansion of civil rights for people with black skin because we all had been getting along just fine for many years without that expansion of civil rights. Those people are today viewed as fools and ethical zeroes.

That perception is harsh. Lots of those people were smart. Lots of those people possessed ethics in other areas of their lives but just were afraid to listen to what the ethical voices within told them because they were afraid of what would happen to them personally if they did and because they presumed that the society around them could withstand the social destruction that would follow from their failure to listen. I don’t think those people were fools or social zeroes anymore than I think that the people who fail to speak up about you Goons are fools and social zeroes. But I am 100 percent confident that those people were wrong. And I am 100 percent confident that the people who fail to speak up against you Goons are wrong.

The History Train doesn’t ask Jack Bogle for his blessing before it moves forward, Anonymous. It moves forward with him or without him. If he stands on the tracks, he ends up broken and bloodied.

Jack Bogle’s true friends are the ones who warn him that the train is coming and implore him to get off the tracks. Please write me up as possessing the loudest and most strident voice in that group.

And please understand that I wish you all the best regardless of how you elect to play it.

Rob

“Many People Are Open to Considering the Merits of Valuation-Informed Indexing For So Long As I Do Not Criticize Buy-and-Hold or Say That Buy-and-Hold Is Wrong or Represents a Get Rich Quick Scheme. People HATE That. People’s Minds Close When I Say That Sort of Thing.”

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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 people really do support your ideas, why do we not see them participating here in the comments section?

You’re asking an intelligent question, Anonymous.

There are lots of people who have a great interest in the ideas. I’ve seen that at every discussion board and blog at which I have posted. I’ve seen that going back to the first day of discussions — May 13, 2002.

But you are right that people do not post comments here. And people do not stand up for me at other places when you Goons attack me. There have been a few exceptions to that general rule. But, even in those cases, people usually stick up for me one or two times and, when they see the attacks continue, retreat into silence.

I spend a lot of time thinking this over, trying to come to a better understanding of why people behave as they do.

One thing is that people are intimidated by the subject matter. People think investing is complicated. They don’t feel able to form their own assessments of whether the experts are shooting straight or not. They feel that they need to defer to the experts.

The few who don’t feel that way are generally Buy-and-Holders. That is, most people don’t feel they possess enough expertise to have their own opinions. And those who do feel that they possess expertise are generally Buy-and-Holders. Buy-and-Hold is known as the research-based approach. So people who devote some effort to learning the realities usually become Buy-and-Holders.

Another factor is that Buy-and-Hold does seem plausible. I don’t think that it really hangs together. But I acknowledge that it APPEARs to hang together. It is certainly logical. As an overall package, it seems to make a lot of sense.

A BIG factor is that academic researchers support it. That gives Buy-and-Hold a credibility that it would otherwise not possess. If it were only people who work for mutual funds who endorsed Buy-and-Hold, people would be more skeptical. People see that people who lack a financial interest support it and that gives them confidence that all is on the level.

Most people have a good bit of their life savings in stocks and the Buy-and-Holders are telling them that all of that money is real. That’s a more appealing message than the message that I deliver, that most of their bull market gains were comprised of Pretend Money and that we are due for a 65 percent price crash in the not-too-distant future. People are scared that they are not going to have enough money to retire and they don’t like hearing that they actually have less than they have been led to believe they have.

People are social creatures. All advertising is rooted in this reality. So people often go by what their friends and neighbors and co-workers say. Most people today believe in Buy-and-Hold. That’s a self-fulfilling prophecy. So long as most people believe, lots of people are going to believe because everyone around them believes. At some point, the doubters will grow to a large enough percentage of the population that more people will fell free to let themselves entertain doubts.

Many people are open to considering the merits of Valuation-Informed Indexing for so long as I do not criticize Buy-and-Hold or say that Buy-and-Hold is wrong or in error or represents a Get Rich Quick scheme or anything along those lines. I have seen this over and over. People HATE that. People’s minds close when I say that sort of thing.

People don’t like conflict. So, when you Goons bring your poison to the table, people lose interest in exploring the new ideas. There are lots of people who would be open to exploring the new ideas so long as there was no nastiness in evidence. But they leave the room when they see ugly stuff.

The biggest factor of all is how revolutionary a change Valuation-Informed Indexing is. If I told people that I had found a way to reduce stock investing risk by 10 percent, they would think it is wonderful. When I say that I have found a way to reduce stock investing risk by 70 percent, they lose interest. It doesn’t seem possible. So they tune it out.

People think I lack street cred. I did not go to investing school. I have never managed a big fund. People find it hard to accept that I know things about stock investing that people with much better qualifications in this field do not know.

The delayed-feedback thing is huge. Most people don’t like theory. They go by what they see with their own eyes, concrete results. Buy-and-Hold delivered amazing concrete results for many years. People were highly impressed by that. Valuation-Informed Indexing has worked through history in every 30-year time-period. But it takes a long time for 30 years to pass. People feel that it takes too long for VII to “come true” and that it is risky to put their confidence in it because it seems possible that it might not come true this time.

People look askance at explanations of how stock investing works that rely too much on examinations of human psychology. Numbers strike people as hard and real. Explanations of how stock investing works that are rooted in examinations of human psychology strike people as loose and vague.

VII hasn’t been around that long. It’s been 33 years. That’s not a short amount of time. But, given that investing has been around in some form for a long, long time, a model that is 33 years old is really just a baby. When I say something like “volatility is optional,” it strikes people as crazy. Volatility has been around for as long as stock investing has been around. It’s hard to accept claims that rules that have governed how stock investing works for hundreds of years have been turned on their heads.

The leaders among the Valuation-Informed Indexers are tentative in how they state things. Shiller is the perfect example of this. He pulls his punches on issue after issue. Buy-and-Holders don’t pull their punches. Buy-and-Holders speak with great authority. Valuation-Informed Indexers come off sounding as if their ideas are not that big a deal or as if they do not possess great confidence in the ideas. Valuation-Informed Indexing did not even have a name until I gave it one!

People LIKE the big-name Buy-and-Hold advocates. That’s another big one. Bogle is a very likable individual. So are most of the others.

Finally, people are more inclined to participate at a board or blog when they see lots of other people participating. There probably are people who pass through here from time to time who would in other circumstances come forward with comments or questions. They see either that there are no comments or that the only comments are angry ones and they decide to mosey on down the road.

Those are most of the explanations of the unfortunate phenomenon that you refer to that I have been able to come up as a result of my observations of the first 12 years of our discussions.

Rob

“I Have Wondered at Times Whether Shiller Has Already Written a Sequel to Irrational Exuberance and Is Just Holding Back on Publication of It Until He Feels That It Would Be Safe to Share More of What He Understands About How Stock Investing Work With the Rest of Us”

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

if you have a single instance of an academic or professional agreeing with your claim that 1) your strategy is one that can and should be adopted by all stock investors; and 2) that once that happens stocks will provide a fixed real return of 6.5% year after year, I for one would live to see it.

There are many big names who agree with me that investors should take price into consideration when buying stocks just as they do when buying anything else. It would not be possible to list the names of all these people. Some of the lead proponents of this idea are: Rob Arnott, Andrew Smithers, Jeremy Grantham, and Ed Easterling. You will on many occasions even find big-time Buy-and-Holders like Jack Bogle and Bill Bernstein and Larry Swedroe mixing in honest and accurate stuff in with the smelly Buy-and-Hold garbage for which they are better known. I learned about the errors in the Old School safe-withdrawal-rate studies by reading one of the honest and accurate research-based passages in Bogle’s book.

I am not aware of anyone else ever saying that volatility in stock prices will go away once we open the internet up to honest posting on the peer-reviewed academic research of the past 33 years. I think it would be fair to describe that one as being a Rob Bennett original.

It does follow. But it doesn’t obviously follow. You need to spend some time thinking about this stuff to see how it follows. I have been working through how Valuation-Informed Indexing works for 10 hours per day and seven days per week for 12 years now. So I have had the opportunity to think about thing that no one else in this field has yet been able to think about. I am very proud of all that I have come up with as a result of putting so much sustained effort into the project. It’s largely because I keep finding exciting new implications to Shiller’s “revolutionary” (his word) 1981 insight that I keep drilling down deeper and deeper. Developing powerful new investing insights is what it is all about, in my assessment.

I think it’s possible that there is someone else out there who today possesses a vague understanding of this insight but who has not yet developed it fully enough to feel comfortable going public with it or who is afraid to go public with it because he knows how the Buy-and-Hold Mafia will react if he does. I have wondered at times whether Shiller has already written a sequel to Irrational Exuberance and is just holding back on publication of it until he feels that it would be safe to share more of what he understands about how stock investing works with the rest of us.

That’s speculation, of course. It is possible that Shiller and all others have told us all that they know. I certainly did not have that insight right off the bat. It came to be after lots of work trying to understand and explain to others the implications of Shiller’s findings.

Insights don’t just pop out of nowhere, in my experience. They come about sort of in the way in which songs come to songwriters. If you spend all of your days trying to write new songs, you might go a long time without having one come to you. Then one day something just clicks. It works that way with investing insights. If I stopped working this ground, I doubt that I would experience more insights. It is by forcing myself to come to terms with the sorts of challenges that people like you put to me that I cause my mind to go over lots of ideas and form them into new combinations and see things that follow from them.

It’s work. When the insight comes, it seems easy and obvious. But you never get to that point unless you work it and work it and work it, preparing the ground. One of the reasons why I engage with you Goons (lots of people think I am nuts to do so) is that I want to be challenged. I obviously don’t approve of the manner in which you present your challenges. You make things ten times harder than they need to be for every single person involved by the manner in which you choose to interact with me. But there’s some sort of legitimate point being made in perhaps one in twenty of the Goon posts. The insights that I can develop as a result of responding to that one genuine point can often make it more than worth my time to endure the ugliness and smelliness of the other nineteen comments.

I would flip it on you. You point out that there is no one else who has said that volatility would go away if we were to open the internet to honest discussion of the implications of Shiller’s “revolutionary” (his word) findings. It’s a fair point. But it is also a fair point for me to note that there is no Buy-and-Holder in 12 years who has been willing to make a case for why this insight is not a legitimate one. Why not?

The Return Predictor lets investors know what stock allocation is in their best interests. If every investor had access to a tool like the Return Predictor, why would all investors not ACT in their best interests? If all investors acted in their best interests, you could never again have a situation like the one we had in 2000, where stocks were paying a likely annualized long-term return of a negative 1 percent real and a risk-free asset class (TIPS) was paying a positive 4 percent real. Stock will never again reach those valuation levels once we supply a means for investors to apply the brakes to runaway overvaluation. Please point out to me the weak link in the logic chain if you see one.

If you want to say that there will always be some overvaluation and some undervaluation, I won’t argue with you. That could well be. But it seems to me that we are going to see a very big change once we supply investors with the tools they need to act in their best interests. If volatility is not eliminated altogether, it is certainly going to be diminished to a very big extent.

Is this a huge change? It is. I acknowledge that.

But have we not seen huge changes in other fields of life endeavor? I mentioned the introduction of the polio vaccine above. Was that not a huge change? Was the ending of slavery not a huge change? Were the advances we have seen in recent decades in computer technology not a huge change? Did the introduction of the birth-control pill not bring about huge changes? Did the harnessing of electricity not bring about huge changes?

If you want to be skeptical of claims re huge changes, that makes perfect sense. There are probably 20 claims of huge changes for every legitimate huge change. I have zero problem with a healthy skepticism. But death threats? Unjustified board bannings? Tens of thousands of acts of defamation? Threats to get academic researchers fired from their jobs? I have huge problems with that sort of thing.

There are two possibilities.

One is that I am wrong re my claim that price volatility will become a thing of the past once we open the internet up to honest posting re the findings of the last 33 years of peer-reviewed academic research. If I am wrong, smart people will obviously be able to say why without engaging in abusive practices. So I will come off looking like a fool. I have more than a little bit of a hard time thinking that that would break your heart, Curious.

The other possibility is that I am right. In that event, we are looking at achieving the biggest advance in our understanding of how stock investing works in our history. That’s pretty darn exciting stuff.

So there’s huge potential upside in permitting honest posting and zero potential downside. I wonder how we should play this one.

Anyway, no, I am not aware of anyone else saying today that price volatility will disappear once we open the internet up to honest posting on the last 33 years of peer-reviewed academic research and the implications that follow from it. But I sincerely believe that to be the case and I will continue to say that that is what I believe when the question is put to me.

My best wishes to you, Curious.

Rob