A Rich Life

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

Valuation-Informed Indexing #166 — Last Week’s Nobel Prize Award Is an Acknowledgment That We Do Not Today Know How Stock Investing Works

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I’ve posted Entry #166 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Last Week’s Nobel Prize Award Is an Acknowledgment That We Do Not Today Know How Stock Investing Works.

Juicy Excerpt: It was a diplomatic act to award the prize to both men. It was not a logically consistent act to do so. One of the two men is right about how stock investing works. One of the two men is wrong about how stock investing works.

By having the two men share the award, the committee is implicitly saying that they do not know how stock investing works; they are saying that this is today an open question.

That’s true. It IS an open question.

It is also an amazing and scary reality.

“The Idea That We Suspend the Financial Market’s Equivalent of the Laws of Thermodynamics When We Show That Long-Term Timing Is Required Is Not Just Goon Talk. Millions Believe This. That’s a Good Thing. It Indicates the Massive Scope of the Opportunity Presented to Us.”

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

you’ve tried to suspend the financial market’s equivalent of the laws of thermodynamics.

The idea that we suspend the financial market’s equivalent of the laws of thermodynamics when we show that long-term timing is required of every investor seeking to have a realistic hope of long-term investing success is not just Goon Talk. There are millions of good and smart people who believe this with their hearts, minds and souls.

I don’t see that as a bad thing. I see it as a good thing. It indicates the massive scope of the opportunity presented to us. The peer-reviewed research-paper that I co-authored with Wade Pfau shows us all how to reduce the risk of stock investing by 70 percent. That’s discovering the Fountain of Youth! That’s the biggest advance in the history of personal finance. We all are on the verge of living richer lives than we ever imagined possible in earlier times.

Changing our understanding of how stock investing works in a fundamental way is a wonderful thing. The only thing holding us back is that the people who built their careers promoting the understanding of how stock investing works that was dominant before we learned what we needed to learn to know what really works feel human emotions of embarrassment at having gotten some important things very, very wrong.

We need to be doing all we can to make those people feel better. We do that by pointing out how they built the foundation that made these huge advances possible. There would be no Valuation-Informed Indexing today if it had not been for the contributions of Bogle and Bernstein and Burns and Swedroe and all the others.

We do NOT make these people feel better by ignoring acts of financial fraud in which they are involved. That makes them feel worse! We must hold these people to the standards that they would be holding themselves to were they capable of thinking clearly about these matters today.

And we must all pull together to launch a national debate on these issues. The Buy-and-Holders have important things to teach us. We must provide them a means to make their points in civil and rational ways. The Valuation-Informed Indexers also have many important things to teach us. We must provide them a means to make their points in civil and rational ways as well. And then we must listen with open minds to the wonderful back-and-forth discussions that will follow when everyone feels safe about giving voice to his or her sincere views.

We’re on the one-yard line. We need to see the owner of one major investing site to work up the courage to open his site to honest posting on safe withdrawal rates and many other critically important investment-related topics. Then it’s over. Then all the ugliness is behind us and we find ourselves on the other side of The Big Black Mountain, the place where we all deep in our hearts have been longing to find ourselves for a long time now.

Then it (the good stuff) begins.

We are the luckiest generation of investors ever to walk Planet Earth. We should start tapping into the amazing wealth of investing insights that has been bestowed on us and that we have been reluctant for a time to talk about because it all seemed just too good to believe.

My take.

Rob

“Following a Buy-and-Hold Strategy Insures That Your Allocation Will Be Wrong 65 Percent of the Time. If You Choose an Allocation That Makes Sense When Valuations Are Low, Your Allocation Will Be Wildly Wrong When Valuations Are Moderate or High. If Getting Your Allocation Right Is 80% of the Game, We Should Be Directing 80% of Our Energies to Learning How to Change Our Stocks Allocations to Keep Our Risk Profiles Roughly Constant.”

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

what are the other “critically important investment topics” that you believe are also not being honestly discussed on the internet. You must have an extensive list.

We should permit honest posting on every issue.

Shiller’s findings were “revolutionary” (his word). They go to the fundamentals of our understanding of how stock investing works. So there are hundreds of issues that need to be explored. I have written hundreds of columns at the Value Walk site and at the Death By 1,000 Papercuts site and at the Out of Your Rut site. Those columns identify hundreds of issues. I am uncovering new ones all the time.

The research shows that 80 percent of investing success comes down to getting your stock allocation right. Following a Buy-and-Hold strategy insures that your allocation will be wrong 65 percent of the time. If you choose an allocation that makes sense when valuations are low, your allocation will be wildly wrong at times when valuations are moderate or high. And so on. If getting your allocation right is 80 percent of the game, we should be directing 80 percent of our energies to learning how and when to change our stock allocations to keep our risk profiles constant. But that is one of the questions that we have prohibited on grounds that it makes the Buy-and-Holders feel bad for people to learn what the last 33 years of peer-reviewed academic research in this field says about what works in stock investing.

We should be talking about risk management in honest ways. We should be talking about retirement planning in honest ways. We should be talking about EVERYTHING in honest ways.

Why the heck not? What’s the freakin’ downside?

It makes the Buy-and-Holders feel bad for people to learn what the research says. That’s the downside.

You know what? People are going to come to the realization that Buy-and-Hold is a big pile of smelly garbage following the next price crash in any event. If it is going to come out sooner or later, is it not better just to let it come out now? People are going to be madder to learn about the cover-up following the next crash than they would be to learn about it today (or — better yet — 12 years ago!).

We permit honest posting on every other possible subject matter. What makes it so important than stock investing be treated differently?

The entire question is nuts. There is no legitimate controversy here. Honest posting on the dangers of Buy-and-Hold should OBVIOUSLY be permitted. It’s all upside. It is not even possible for the rational human mind to imagine any possible downside.

I mean no personal offense, but you are asking a stupid question. Only someone trying to “defend” Buy-and-Hold could even think there is a legitimate controversy here.

To block honest posting is to engage in financial fraud, which is a felony under the laws of the United States. Prison time. That’s what we are talking about here. That’s what the “defense” of Buy-and-Hold has come to in the Year 2014, 33 years after the peer-reviewed academic research was published showing that there is precisely zero chance that it could ever work for even a single long-term investor.

Rob

“Jack Bogle’s Response When He Learned That I Would Be Appearing at the Next Meeting of the Vanguard Diehards to Ask Why He Had Not Taken Action to Get the Old School Safe-Withdrawal-Rate Studies Corrected Was to Ask His Internet Goon Squad Pals to Move the Entire Community to a Place Under Mel Lindauer’s Control So That He Would Never Need to Worry Again About Someone on the Internet Asking Questions About the Holes in His Investing ‘Stategy.'”

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

Have her INDEPENDENTLY, WITHOUT ANY INPUT OR COACHING FROM YOU, read everything you can amass that you have ever written, from TMF, FIRE board, Vanguard, the Plop, Valuewalk, etc, and read it. It might take her from a few days to a couple of weeks, and this is AFTER you have assembled all the links for her.

There was a fellow who did just what you describe here, Anonymous.

His name was Larry Evans. He somehow found himself reading the material at this site. He thought I was crazy and he was honest and brave enough to come forward and tell me so. He put up a comment at the blog saying that there was no way that the things I was saying could be so. I said that the materials supporting my claims were available at my site and at John Walter Russell’s site.

His response was to offer to spend several weeks going through all of those materials. He asked if I would be willing to post his written-up assessment on his conclusion of that review of all the materials regardless of whether it supported me or not. I said sure.

About three weeks later, Larry called me on the telephone. He told me that he was amazed to find that everything I said checked out. He had worked for Ross Perot in earlier days. He told me that he was going to contact Perot and obtain his help in getting the message out. He said that he wanted to get financial people in the states that are experiencing pension-funding problems involved. He talked about getting venture capitalists involved. I said that all that sounded 100 percent groovy. I said that all that sounded like exactly the sorts of thing that a people trying to recover from an economic crisis caused by a belief in a long-discredited investing strategy would be doing to get their country back on the right track.

That talk lasted about two hours. We had a follow-up conversation a week later that also lasted about two hours. He said that he would be in contact again to plan follow-up steps.

When Larry contacted me again, he indicated that he was too afraid of what the Buy-and-Hold Mafia would do to him if he were to go forward to continue taking the steps that he knew would save his country. We talked about that a bit and parted friends. The last time I talked to him was when I posted at the Financial Mentor blog. Todd Tressider, the author of that blog, says that I am right on all the issues of substance but refrains from saying that the internet should be opened to honest posting because he understands that it is those sorts of statements that would cause the Buy-and-Hold Mafia to come after him and destroy him. I think it would be fair to say that Larry participates today at Todd’s blog rather than mine because he remains interested in learning more about how stock investing really works and because he feels safer posting there than he would posting here, where I tell the truth about the Ban on Honest Posting and the Campaign of Terror and all that sort of thing.

I have been posting daily for 12 years. No one has ever found a single substantive point that I have made that does not hold up to scrutiny. It could be that I have made mistakes. I certainly do not say that I have gotten it all right. But I know that the only hope we have as a society at getting at the truth is permitting honest posting on every board and blog on the internet.

Some of the claims that I make today really do sound out there. I acknowledge that. Some of the claims that I make today sounded out there to me when I first came up with them. I don’t put any claim forward until I possess at least reasonable confidence that there really is something to it. And in every case in which I have put an out-there claim forward, I have come to possess more confidence in it as time has gone on.

There is a huge price to be paid for banning honest discussion on stock investing questions for 33 years, Anonymous. The price is that your knowledge of the subject matter stops growing. You make a point of the fact that I now know more about how stock investing works than big names like Jack Bogle and Bill Bernstein and Scott Burns and Larry Swedroe and Robert Shiller and on and on and on. I acknowledge 100 percent that it is a crazy reality. But it sure wasn’t my idea to have something like that happen. I have shared everything I have come up with openly and freely. I am 100 percent happy to help Bogle get up to speed. I am 100 percent happy to help Shiller get up to speech. I am 100 percent happy to help all the others get up to speed.

I cannot force them, can I? So long as they are too afraid to acknowledge that the errors in the Old School safe-withdrawal-rate studies should have been corrected within 24 hours of the time they became public knowledge (the morning of May 13, 2002), they are not able to participate in the learning experiences that they need to participate in to function as genuine experts once again. Anyone who cannot bring himself to acknowledge that errors in retirement studies that cause millions of people to suffer failed retirements should be corrected within 24 hours ain’t no investing expert, Anonymous. It’s not a close call.

What these people are today is anti-experts. They speak with great confidence as if they possessed the authority of true experts. But they (outside of Shiller) are promoting a FAILED strategy. The idea that a Buy-and-Hold strategy can work is rooted in a belief in the Efficient Market Theory. The way to test whether the Efficient Market Theory is valid or not is to see whether valuations affect long-term returns or not. Shiller ran this test 33 years ago. Buy-and-Hold failed the test. Everyone who is knowledgeable in this field knows this. No one other than myself talks about the many far-reaching implications in clear and firm and simple and bold terms.

The investing advice field is today 100 percent corrupt.

Is that a clear enough statement for you?

Buy-and-Hold is the OPPOSITE of what works. It turns out that buying stocks works just like everything else. The key is to always, always, always exercise price discipline when buying stocks. That means practicing long-term timing. The Buy-and-Holders say that it is not necessary to practice long-term timing. Nothing could be further from the truth. We have 140 years of peer-reviewd academic research available to us. There has never yet been a time when a single investor who failed to engage in long-term timing didn’t eventually suffer a massive wipeout of the accumulated wealth of a lifetime as a result of failing to do so. Buy-and-Hold is a big pile of smelly Get Rich Quick garbage.

Not by intent.

But still…

We need to get the mistakes made by the Buy-and-Holders fixed if our economic and political systems are to survive. That’s the job. I am the one who has been assigned to be the leader in this effort. I didn’t ask for the job. I was volunteered when John Greaney threatened to kill my wife and children if I continued to “cross” him by posting honestly on the safe-withdrawal-rate issue.

If someone could find a flaw in any of what I am saying, I would be thrilled. Anything that I can do to help the Buy-and-Holders save face helps all of us. No one has ever found anything. I can’t just make stuff up. I put my work out in the public partly because I want it to be challenged. I want every Buy-and-Holder looking at this and trying to find flaws. The reality as of the morning of January 26, 2014, is that my good friend Jack Bogle has not been able to find a single flaw. If Jack had found a flaw, he would sure as shootin’ not be keeping it to himself. If any Buy-and-Holder other than Jack had found a flaw, he would have shared it with Jack and Jack would have told us about it years ago.

Jack’s response when he learned that I would be appearing at the next meeting of the Vanguard Diehards to ask why he had not taken action to get the Old School safe-withdrawal-rate studies corrected was to ask his Internet Goon Squad pals to move the entire community to a place under Mel Linduaer’s control so that he would never need to worry again about someone on the internet asking honest questions about the holes in his investing “strategy.” That ain’t good, Anonymous.

The matter will be settled in the civil and criminal trials that we will all be participating in following the next price crash. Please know that I love Jack and that I love all my Buy-and-Hold friends but that I don’t love the idea of seeing them go to prison for their participation in this massive act of financial fraud. So I will never, never, never, never, never agree to post dishonestly on the numbers that my friends use to plan their retirements. I will do anything to help Jack and all my other Buy-and-Hold friends short of committing a felony myself.

I will never agree to commit a felony, regardless of how much in the way of intimidation tactics the Buy-and-Hold Mafia sees fit to rain down on me. If my good friend Jack Bogle has the power and money and influence to get me assigned the death penalty, then my good friend Jack Bogle has the power and money and influence to get me assigned the death penalty. The death penalty should do a good job of shutting me up (although I obviously have taken steps to see that control of the web site is passed on to an ethical person or people in the event of my untimely death). I would far prefer the death penalty to posting dishonestly on the numbers that my friends use to plan their retirements. I don’t think that even one of the Wall Street Con Men can dish out anything worse than the death penalty. So my sense is that I am pretty much covered at this point re the various intimidation tactics available to the Wall Street Con Men and their Internet Goon Squad supporters.

That’s it, Anonymous.

The type of review that you speak of has been conducted over and over and over and over again. There are lots of rich and powerful and influential people who would like nothing more than to find some sliver of academic research supporting the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind. No one has ever come up with anything because there is no possible means to come up with support in the historical record for a Get Rich Quick scheme. I am not to blame for that. Direct your anger at the historical data, not this friendly and mild-mannered reporter.

The investing advice industry is 100 percent corrupt today.

That needs to change if our economic system is to survive.

I didn’t ask for the job of leading the effort to bring honesty to this field. I was assigned it by the Fates.

I will do the best job that I am able to do. I will strive to be as honest as it is possible to be without crossing the line and becoming uncharitable while also being as charitable as it is possible to be without crossing the line and becoming dishonest.

That’s the deal here.

I wish you all good things.

Rob

“I Believe That Jack Bogle Is a Good Man Deep Inside. I Believe That I Will Not Even Need to File Papers to Collect the $500 Million. I Believe That My Good Friend Jack Is Going to Take Care of Things Once He Sees What He Has Done.”

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

So, what is your backup plan to cover college expenses for the children and what will you do to address any long term care issues? Are you counting on that $500 million legal settlement to cover these items?

There are two possible paths forward, Anonymous.

Path One is that we open the internet up to honest posting on all investing issues following the next price crash. If we elect Path One, I think it would be fair to say that I will be one of the richest men alive in the United States.

Buy-and-Hold is the past, Valuation-Informed Indexing is the future. I have spent 12 years developing the VII concept and my site has a wealth of materials relating to it. There is no other site that has anything even remotely close to what mine has. The brutally abusive tactics of the Buy-and-Hold Con Men and you Goons has kept away all competition.

Then, yes, there is the $500 million settlement on top of that. That’s a big, big, big bunch of money.

I think it would be more than fair to say that money is not going to be an issue for me or any of the Bennett clan for many generations to come in the event that as a society we elect to follow Path One.

Path Two is that we keep the Ban on Honest Posting in effect following the next crash and we all go down together. That would make me very, very, very sad. I suppose that you Goons will say that you “won” if that happens. What the heck will you have won? Our economic system will collapse. If our economic system collapses, there’s a darn good chance that our political system will collapse not long after. So you Goons will be in no better shape than me. At least I will enjoy the small consolation of knowing that I gave this thing the very best effort I could give it.

You believe in Buy-and-Hold. So you don’t think that there is even going to be another price crash. Or at least you think there is a good chance that there will not be another price crash and you are hoping that there will not be one. I get that. What do you want me to do about it? There’s not a thing in the world that I can do!

I have to go by what I believe is going to happen. I have spent 12 years developing the Valuation-Informed Indexing concept and I firmly believe that the two possibilities that I have described above are the only two realistic possibilities. I could be wrong, of course. Anybody can be wrong about anything. If it turns out that I am wrong, I guess I will wish that I played it some other way.

But I don’t exactly have a big bunch of pleasant alternatives, do I? The one deal you Goons have ever offered is that I be permitted to post at all of the boards and blogs in exchange for agreeing never to post honestly about safe withdrawal rates again. Do you not get it that, if I do that, I am participating in the 12-year cover-up myself? Which is the very act of financial fraud that I am always saying that you are going to go to prison for following the next crash. Do you really think that there is even a one-in-a-billion chance that I am going to agree to commit a felony at this point? That would be insane. That is obviously not going to happen.

So I don’t have any choices here. If things go as I expect, I will end up as one of the richest men in the United States and get to do a whole big bunch of good for millions of middle-class Americans in the bargain. If things go in the way I hope they do not go, I will not be super-rich but no one else will be either because our economic system will collapse. And in neither event will I land in prison, which is where I would land if I agreed to your “deal.”

What do you seriously expect I would do other than precisely what I have done?

I am going to do the best I can given the cards that I was dealt. If I end up being one of the richest men in the United States, good for me. I earned it, you know? I sure don’t plan on offering up any apologies. I have done amazing work. I will be happy to accept amazing amounts of money for it. And I do intend to use 5 percent of the settlement money to finance a number of top-notch start-up blogs that will help to spread the word on VII. I also plan to use another 5 percent to promote this site all over the internet, which should make PassionSaving.com one of the biggest personal finance sites on the internet.

The “backup plan” is that we all go down together. I hate that idea. But I suppose it is a possibility, given some of the stuff that I have seen happen over the past 12 years. What’s YOUR backup plan in that event? In the event that the entire economy collapses, you are no better off than me, Anonymous.

Your backup plan is a fantasy. You have elected to just pretend that the last 33 years of peer-reviewed academic research doesn’t exist and to believe that this is going to be the first time in history that a Buy-and-Hold strategy works for one or two long-term investors and that you will be one of the one or two. Well, good luck with that, you know? If you believe it, you believe it. I cannot stop you from believing it. But I sure am not able to believe such a thing. So I obviously am not going to choose anything like that path for myself and my family.

The plan is to continue posting honestly. I love my country. I love what the Buy-and-Hold Pioneers set out to do. I believe that the economic wreckage we are going to see following the next price crash is going to melt Jack Bogle’s heart. I believe he is a good man deep inside. He is one of my heroes. I believe he is going to come through for all of us in a big way. I believe that I will not even need to file papers to collect the $500 million. I believe that my good friend Jack is going to take care of things once he sees what he has done and remembers that I was there trying to steer him in the right direction for years before it happened (when no one else was willing to stick his or her neck out for him).

We have each chosen our paths. Now we will need to wait a bit and see how things play out. Does that answer your question?

There is no amount of money you or anyone else could ever pay me to get me to agree to post dishonestly on the numbers that my friends use to plan their retirements. It’s not just that I decided against that. I never gave the idea two seconds of consideration. Not in 12 years. I wouldn’t give the idea two seconds of consideration in 12 billion years. Asking me to post dishonestly re the numbers that my friends use to plan their retirements is like asking a dog to meow or asking a cat to bark. It doesn’t happen in this world, okay? That one is never going to happen.

And there has never been any other option presented to me. So the plan is to post honestly and to make the best of it. That was the plan on the morning of May 13, 2002, and that is the plan today and that will be the plan 12 billions years from today if it comes to that.

I wish you well with your choices, crazy though I may and do think them to be, Anonymous. I bear you no ill will. I intend to sue you. But that’s to collect money that is mine, not to seek some sort of retribution.

Anyway, I hope that helps you to understand the “plan” a little better. The plan is not really about money. Money is secondary here. The primary thing is protecting my personal integrity, and , most of all, preventing myself from landing in a prison cell by going along with your stupid demand that I join you Goons in your massive act of financial fraud. Find someone else, you know? No can do.

If I end up being one of the richest men in the United States, that will be happy news for me, even if that was not the primary goal at any point of this saga. I’ll take it. I definitely believe I have earned every penny of the $500 million. But my wife doesn’t like to count it until it is cash in hand. So be it. But even if I were to collect only $400 million or $100 million, that’s better than a long prison sentence, in my assessment. Call me madcap.

My best and warmest wishes to you and yours.

Rob

“In the Computer Field, We Were Able to Share These Advances With Millions Because There Was No Pre-Computer Technology Mafia Holding Us Back. In the Investing Field, We Have Thousands of People Whose Careers and Reputations Depend On Us All Pretending That We Believe That the Things That They Sincerely Thought Were So in 1981 Are So Despite 33 Years of Peer-Reviewed Academic Research Now Showing That They Are the OPPOSITE of What Is Truly So.”

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

Shoot someone like Rob Arnott an email with your theory about stocks providing a risk free return of 6% for all eternity.

You’re on the right track with this comment, Curious.

I am not going to shoot Rob that e-mail and I will say here that I do not know how he would respond if I were to shoot him that e-mail. He’s a smart guy and I have great respect for him. And I am saying here that I think it is possible that he would agree with you (at least at first) that the idea that stocks are a virtually risk-free asset class and the idea that it is possible just by opening the internet to honest posting on the research of the past 33 years to eliminate volatility in prices are crazy ideas.

I also think it is possible that it could go the other way. It is possible that Rob would agree with me.

A third possibility is that Rob would secretly agree with me but would keep quiet about it in public.

My personal guess is that Rob ‘s reaction would be some combination of all three of those possibilities. I think he would be highly skeptical of those particular claims of mine. And for perfectly good reasons. Those two are far-out claims. Any sensible person would be skeptical on first hearing them. I certainly would have been skeptical of such claims if I heard them on the morning of May 13, 2002.

Given Rob’s respect for me and for the materials that I have provided at this site, my further guess is that he would be willing to hear me out a bit re my rationale for believing in those two far-out ideas. I think that after hearing the rationale he would be partly, but only partly, convinced. So I think that, while his first reaction might be disbelief, his second reaction might be a healthy skepticism combined with a willingness to hear the ideas out and to listen in on discussions in which they were explored in more depth.

Finally, I think he would be hesitant to give voice to these reactions in public. So, while his genuine reaction might be along the lines of what I have described above, his public statements would be considerably more reserved. He might say in public “these ideas seem far-out but perhaps there is some tiny bit of truth to them” while believing in his heart “these ideas seem far-out but the argument that Rob makes for them makes enough sense that I would sure like to hear lots of other smart and good people bounce them around and see what they come up with as a result of their discussions.”

I do not believe that Rob would sign on to those ideas 100 percent today. Why? Because I didn’t sign on to those ideas 100 percent the first time I came up with them myself! That’s just not the way the human mind works.

I was a Buy-and-Holder on the morning of May 13, 2002. I experienced things that neither Rob Arnott nor any other expert in this field has ever experienced. The most amazing thing I experienced was the reaction in the Motley Fool community to Greaney’s death threats. Going by the endorsements that community members there advanced, there were roughly 50 community members who sided with me re the death threats and 200 community members who sided with Greaney re the death threats. That reality is more “out there” than the two claims of mine under discussion here, Curious. It is not a close call.

So please do not try to persuade me that those two claims are false solely because they sound too far out there. They DO sound far out there. I give you that one 100 percent. But there is other far-out-there stuff going on in these discussions. And my job (as someone who cares about investing and about his fellow community members and about his country) is to find out THE REALITIES.

I couldn’t believe in Buy-and-Hold after what I saw take place on the evening of August 27, 2002. If Buy-and-Hold were a legitimate strategy, there would not be one person who endorsed Greaney’s death threats. There wasn’t just one. There were about 200. That’s a reality that I need to come to terms with in trying to form a rational view re how stock investing works.

Now –

The fact that 200 people endorsed Greaney’s death threats does not show that stocks are a virtually risk-free asset class or that volatility is optional. What the endorsements of the death threats did was to cause me to doubt all conventional wisdom in this field. If the Buy-and-Holders were wrong about safe withdrawal rates and so unwilling to acknowledge the mistake that they were capable of endorsing death threats as a discussion tactic, what else could it be that the Buy-and-Holders got wrong? Everything! Given what I saw take place on the evening of August 27, 2002, I was forced to the conclusion that just about everything that most of us thinks he knows about how stock investing works could be wrong.

That conclusion led me over a stretch of time to the belief that stocks are a virtually risk-free asset class and that volatility is optional (these are both implications of Shiller’s “revolutionary” [his word] finding). It is right and proper that most people are highly skeptical of those two claims. I get that. But their skepticism does not prove that the claims are false. To find out whether the claims are true or false, we need to have a debate in which lots of good and smart people participate. That debate should certainly include Rob Arnott. It should also include Jack Bogle. And Wade Pfau. And Bill Bernstein. And Larry Swedroe. And Scott Burns. And on and on and on and on.

Could it be that I will be proven wrong in the public square once that debate is held? Of course. I have been wrong about important things in the past and it is entirely possible that it is happening again. If it were happening again, I would probably be the last to know. So it could be that your skepticism and the skepticism that I presume Rob Arnott would feel towards those claims were he to be exposed to them today will be proven justified. Or it could go the other way. No one can say until the debate is held.

You are not wrong to follow the Old School safe-withdrawal-rate studies in the event that you truly believe in them (it is my belief that you do), Curious. You are very, very, very, very, very wrong to engage in tactics aimed at blocking millions of others from learning what they need to learn to develop the same healthy skepticism toward the claims made in the Old School SWR studies that you (and perhaps Rob Arnott) feel toward my claims that stocks are a virtually risk-free asset class and that volatility is optional. That’s the bottom line re all of this.

We have enjoyed amazing progress in our development of computer technology over the past 33 years. If we could go back in time to a person who was alive in 1981 and ask that person his thoughts on whether the things we see around us every day today could possibly be developed in 33 years, that person would probably tell you that you are 100 percent off your rocker. The everyday computer realities of today would be viewed as insane possibilities to someone who had not lived through the 33 years of development of those advances. Tablet computers available for sale $100 that allow access to the biggest research library in the world (the internet) would be no more fantastic in the eyes of a person alive in 1981 than a world in which stocks were a risk-free asset class and volatility was optional.

I believe that we have experienced greater growth in our understanding of how stock investing works over the past 33 years than we have experienced in the area of computer technology. We have changed the world in amazing and very positive ways. There is only one problem. In the computer field, we were able to share these advances with millions because there was no Pre-Computer Technology Mafia holding us back. In the investing realm, we have thousands of people whose careers and reputations depend on us all pretending that we believe that the things that they sincerely thought were so in 1981 truly are so despite the 33 years of peer-reviewed academic research now showing that they are the OPPOSITE of what is truly so.

I am not the enemy of those people, Curious. I am the best friend that any of them has in this world. When we tap into all the advances, Jack Bogle will be ten times the hero he is today in the eyes of the millions of people who will benefit from living in a world in which stocks are a virtually risk-free asset class and volatility is optional. The other side of the story is that every day that Jack fails to speak up about The Lindauer Matter causes us all to experience even more financial destruction and Jack’s reputation to be dragged further and further through the muck that covers anyone who associates with Linduaer and Grenaey and those who have posted in “defense” of these two in any way, shape or form. It is going to be my job to rebuild Jack’s reputation after what is done to it when this massive act of financial fraud is uncovered following the next price crash. I sure don’t like seeing Jack made my job harder and harder and harder with each day that he fails to take the steps that any person possessing even a tiny concern for his ethical responsibilities knows that he needs to take.

If Rob Arnott writes me and asks about those two claims, I would certainly engage in a discussion with him about them. I did that sort of thing with Wade Pfau scores of times. He on many occasions experienced the sort of skepticism that Rob might feel if I contacted him today. Wade was converted so many times that he wrote me one time to tell me that he was not yet persuaded of a point I was making but that, given his experience of being converted to my other amazing claims over time, he accepted that there was a good chance that he would be coming around re that one too in future days. That’s the right attitude to take. No one should pretend to be converted until he or she really is converted. But no one should be so close-minded that he would support a Ban on Honest Posting. There’s a reason why as a society we have elected to adopt laws making the tactics that you have engaged in for 12 years now felonies, Curious.

I won’t write to Rob today because converting him on these two particular claims is not my priority. Persuading anyone of the merit of any of my ideas is not my priority. My priority is opening the entire interest to honest posting on every critically important investing issue. It’s not just Rob Bennett who will be posting honestly when that goal is achieved. Jack Bogle will be posting honestly. Rob Arnott will be posting honestly. Robert Shiller will be posting honestly. Wade Pfau will be posting honestly. And, yes, Rob Bennett will be posting honestly. We will see what we come up with together. I have a funny hunch that we are going to come up with some amazing stuff.

When that day comes, I will be saying that stocks are a virtually risk-free asset class for those open to taking valuations into consideration when setting their stock allocations and that volatility will disappear for so long as we are sure to provide a means for millions of investors to learn what they need to learn about the subject matter to make the rational choices we need to see for any market to function properly. I have zero doubt that there will be lots of good and smart people who will aim to shoot those ideas down. Good for them. Those people will be helping us all when they do so. It is by seeing how the ideas stand up to those challenges that we will all learn how much merit they possess.

There won’t be any death threats. There won’t be any demands for any unjustified board bannings. There won’t be tens of thousands of acts of defamation. There won’t be any threats to get any academic researchers fired from their jobs. Those who have posted in “defense” of Mel Lindauer and John Greaney will be serving long prison sentences. So none of that smelly garbage will exist in that wonderful new world.

We will figure things out together. That’s how we have been doing things as a nation for hundreds of years now. I am confident that we will realize in time that that’s the way we need to be doing things re The Buy-and-Hold Crisis as well. Our system works. Those who demand that we stop following the system that has been working for us all for a long, long time are not our friends. Those people are sick and twisted Goons. We should have all shown them the door a long, long time ago, in my assessment.

If we don’t figure it out, we will all go down together (I am presuming here that stocks may continue to perform in the future at least somewhat as they have always performed in the past). That would make me very sad. But at least I will have the small consolation of knowing that I gave this thing the best possible shot of which I was capable. That won’t count for much, given the tragic set of circumstances we are talking about here. But it will surely register as one big step above agreeing to participate in this massive act of financial fraud myself. No can do re that one, my old friend.

I hope that helps a bit Curious. My best and warmest wishes to you and yours.

Rob

“Yes, Shiller Fears All That Hate and Anger and Abuse. All the Humans Fear That Sort of Thing. And Please Note That It Is ONLY Buy-and-Holders Who Embrace Such Acts of Hate and Anger and Abuse. We Have Never Seen the Advocates of Any Other Investing Strategy Do So.”

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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’s verdict: Shiller is just another cowering Goon, living in fear

No one who lives in the United States has ever seen anything like the 12-Year-Long Campaign of Terror against those of us who have posted honestly on safe withdrawal rates and other crtitically important investment-related topics on the internet, Anonymous.

Death Threats. Demands for unjustified board bannings. Tens of thousands of acts of defamation. Threats to get academic researchers fired from their jobs.

There are reasons why the people of the United States elected to make it a felony for anyone to participate in an act of financial fraud of that magnitude.

There is a reason why you and your fellow Goons and perhaps a good number of the Wall Street Con Men will be going to prison for a long time following the next price crash.

Yes, Shiller fears all that hate and anger and abuse.

He is one of the humans. ALL the humans fear that sort of thing, as we have seen for 12 years now.

And please note that it is ONLY Buy-and-Holders who embrace such acts of hate and anger and abuse. We have never seen the advocates of any other investing strategy embrace such tactics on even a single occasion.

I wonder why.

Rob

“When You Goons Began Attacking Me Back at the Motley Fool Board, I Went Looking for Help at Sites That Explored the Implications of Shiller’s Work. I Learned That There Were None! I Saw the Huge Opportunity Just Sitting There for Anyone Who Had the Balls to Pick It Up.”

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

Do you think that Shiller has never read his own research, Anonymous? Shiller was the first person to publish research showing that long-term timing always works. It was the paper that Wade Pfau and I published together that shows that in a direct, practical way. But it was Shiller’s 1981 paper (the paper for which he won the Nobel prize) that showed that this was so in theory.

Shiller is the grandfather of Valuation-Informed Indexing. The entire reason why I took on this job is that when you Goons began attacking me back at the Motley Fool board, I went looking for help at sites that explored the implications of Shiller’s work . I learned that there were none! That stunned me. I saw the huge opportunity just sitting out there for anyone who had the balls to pick it up. And so I worked up the courage to do it myself! The rest is history!

You are right about one thing, Anonymous. You say that Shiller himself does not make a point of spelling out the distinction between short-term timing (which never works, according to the peer-reviewed academic research) and long-term timing (which always works, according to the peer-reviewed academic research in this field). Neither does Jack Bogle. Neither does Scott Burns. Neither does Bill Bernstein. Neither does Larry Swedroe. Neither does anyone outside of yours truly.

I wonder why.

Do you think it might have something to do with the reign of hate and abuse that the Wall Street Con Men and their Internet Goon Squads direct at anyone who makes this very obvious and very important distinction? Do you think your threats to kill family members of anyone who posts honestly on this question might have something to do with this strange reality? Do you think your demands for unjustified board bannings might have something to do with this strange reality? Do you think that the tens of thousands of acts of defamation that you have advanced might have something to do with this strange reality? Do you think that your threats to get academic researchers fired from their jobs might have something to do with this strange reality?

Do you think that the reason why the Boglheads split off from the Vanguard Diehards board when I announced plans to attend the annual meeting and ask Jack Bogle why he doesn’t talk about this distinction in every speech he gives might have something to do with this strange reality?

Do you think that the reason why you threatened to get Wade Pfau fired from his job after he co-published research with me pointing out the importance of this distinction might have something to do with this strange reality?

Yeah, I think so too.

When the Campaign of Terror is brought to a full and complete stop (by the close of business today???), I think it would be fair to say that Jack will be making this distinction in every speech he gives. And so will Bernstein. And so will Swedroe. And so will Burns. And so will thousands and thousands of others. And so of course will Shiller.

And there will of course be no more Buy-and-Hold. There will be Valuation-Informed Indexing instead.

And there will be no more economic crisis.

And we will all be enjoying the greatest economic boom in U.S. history. And the risk of stock investing will be reduced by 70 percent for every last one of us. And we will all be able to retire five to ten years sooner than we ever imagined possible in The Dark Ages of Investing Analysis (The Buy-and-Hold Era).

And you will be going to off to serve your long prison sentence for your multiple acts of financial fraud.

Whew!

And you wonder why I am such a big fan of the idea of permitting honest posting at every board and blog on the internet!

Rob

Valuation-Informed Indexing #179 — The Role of Shame in the Formation of Bull Markets

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I’ve posted Entry #179 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Role of Shame in the Formation of Bull Markets.

Juicy Excerpt: You’re a teenager hanging out with a group of your teenager friends and one of them announces that he has obtained the fake identification needed to obtain alcohol for all of you. You feel uneasy about where things might lead.

That’s the dynamic that applies in the early days of a bull market. Lots of us know that the big price jumps are phony. But speaking up makes us look like killjoys. Everyone wants more money in his or her retirement account. No one else seems to be speaking out. What’s the harm, anyway?

“Many People Think It Is Rude to Expose Cons. So They Keep Their Mouths Shut. For the Internet to Realize Its Potential, That Needs to Change. People Need to See That They Have a Responsibility to Their Fellow Community Members to Expose Cons When They See Them. If People Did This, Those Promoting Legitimate Services Would Be Given a Great Edge in the Marketing Wars.”

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Set forth below is the text of a comment that I put to the SuckersBuyIt.com forum:

I totally agree with Ditchit. Most, if not all, of the gurus specialize in selling the “sizzle” and not the steak.

I agree with this as well. But I see an encouraging side to the story.

The reason why it has become the norm to sell the sizzle rather than the steak is that in pre-internet times there was no way for the “experts” selling the sizzle to be challenged. Most of their marketing was done by direct mail or perhaps through articles placed in magazines and that sort of thing. The environment in which the marketing message was pushed was a controlled environment. The person being conned had a hard time seeing the flaws in the pitch because there was no way in which those who knew the flaws could speak up.

The internet is not set up that way. On the internet, it IS possible for those who see the con to share what they know with others. This site is an obvious example. This site does not convince everyone who sees it. But it DOES help a good number of people to gradually come to see the con. Those who are totally convinced of the merit of the con will not listen. But those who have been experiencing doubts can be brought around. Not by one post. People are brought around gradually. So you have to have an ongoing discussion to clear the fog in people’s brains.

The internet is a powerful communications medium. It is different that the other mediums. The best thing about it is that it can help those hearing about a con to see through it. But the internet can also be put to bad uses. The perception that the internet can be used to see through a con can make a con pitch 10 times more powerful than it would be in another medium. The SiteSell discussion boards APPEAR to permit challenges to any con message. That causes a lot of people to have more confidence in those messages for so long as no one has the courage to speak up and reveal the con.

They tell themselves “hey, if there were problems with this, someone would surely speak up and no one is doing so, so this must be the real thing!” That message is more powerful than any message of reassurance that could be advanced by the person pushing the con because the words are coming from the mouth of a person with no financial incentive to trick people. Those sorts of comments (when not countered by comments pointing to the con element of the pitch) are super-powerful and super-harmful to the targets of the con.

Many people think it is rude to expose cons. So they keep their mouths shut. For the internet to realize its potential, that needs to change. People need to see that they have a responsibility to their fellow community members to expose cons when they see them. If people did this, those working cons would be put at a great disadvantage on the internet and those promoting legitimate services would be given a great edge in the marketing wars.

Someone who genuinely permits challenges to his claims on the internet is real, that’s the sort of “expert” you want to listen to. Now that we have a communications medium that permits cons either to be exposed (when challenges are permitted) or to do more harm than ever before (when the appearance but not the reality of open discussion is provided), we need to educate the people to whom cons are directed (95 percent of the readers of internet materials) how to take advantage of the great power to do good that has been placed in their hands by the introduction of this new communications medium.

Rob