A Rich Life

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

“For 80% of Investors, There Is One Factor That Determines Whether They Obtain Good Results or Not & It Is a Factor to Which They Pay Close to Zero Attention. That Factor Is the Valuation Level That Applies When the Stock Purchase Is Made.”

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Set forth below is the text of an answer that I posted to a question (How Does One Know Whether They Are a Good Investor Or Just Got Lucky?” posed at the Quora site:

This is a super question. The answer gets at the reason why so many humans (including most of the Big Shot “experts”) FAIL at stock investing.

With most endeavors, we look for feedback to determine whether we are going about things properly or not. If you do not know how to drive and yet still try to do it, you are soon going to receive some harsh feedback telling you that you need to enroll in driving school. It’s the same with cooking dinner or with hitting a baseball or with going on a date. With most activities, when you are doing things right, you obtain good results, and, when you are doing things wrong, you obtain poor results.

It does not work this way with stock investing. There is now 32 years of peer-reviewed academic research showing this.

There are a small number of investors (Value Investors — 20 percent of the population at most) who apply genuine skill to the task of stock investing and obtain good returns as a result. The rest are fooling themselves (according to the research). Nothing they do or fail to do makes much of a difference. For 80 percent of stock investors, there is one factor that determines whether they obtain good results or not and it is a factor to which they pay close to zero attention.

That factor is the valuation level that applies when the stock purchase is made.

There are long stretches of time in which it is almost impossible to fail as a stock investor. We were in one of those stretches from 1982 through 2000. There are other long stretches of time in which it is almost impossible to succeed. We have been in one of those stretches from 2000 forward. The difference is that in 1982 stocks were selling at one of the lowest prices at which they have ever sold. And in 2000 they were selling at what was BY FAR the highest price they have ever sold.

Stocks ALWAYS provide amazing long-term returns when they are selling at low or fair prices. There has never once been an exception in 140 years of stock market history. Stocks ALWAYS provide horrible long-term returns when they are selling at high prices. Again, there has never been one exception in 140 years of stock market history.

If you look at valuations when setting your stock allocation, you are a good investor. That one factor is 80 percent of the game. Do that and you can’t lose. Fail to do that and you can’t win. All the rest that people talk about will have only a relatively small effect.

All investors who do not take valuations into consideration and yet appear to be doing well just got lucky. But only for a time! To buy stocks at a high price and then do well means to end up owning not just overpriced stocks but insanely overpriced stocks. Those “lucky” investors end up losing all the gains that they enjoyed for a time.

Luck doesn’t matter much in the long term. What matters in the long term is whether you pay attention to price when setting your allocation or not.

The tricky part is that it can take decades for this eternal truth to reveal itself once again. Paying attention to valuations does not help you gain good one-year or two-year or three-year results. Valuations only help you in the long term (time-periods of ten years and longer).

So you cannot go by personal experience or what your friends tell you or what is written in magazines or on web sites. You MUST look at the entire 140 years of stock market history to see how this eternal truth reveals itself over and over again. It’s only peer-reviewed academic research that provides feedback worth listening to in this field.

Rob

 

“The ‘Experts’ Won’t Tell You This. Most of the ‘Experts’ in This Field Make Money Only When People Buy Stocks. So They Are Compromised. You Need to Become Personally Familiar With What the Academic Research Really Says, Not Just What the People Quoted as Experts in This Field SAY That It Says.”

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Set forth below is the text of an answer that I recently posted to a question (“When Will the Stock Market Crash Again?”) at the Quora site:

There are two popular schools of thought re market timing. One is that it is impossible to time the market effectively and a waste of effort to try. The other is that knowing when crashes are coming is so valuable that you just have to give the objective of predicting them your best possible shot.

I hold a third view, a view which I believe is strongly supported by the research of Yale University Economics Professor Robert Shiller and research (including one paper that I did most of the work on myself!) done over the past 32 years (and largely ignored so far!). That view holds that short-term timing (predicting when crashes will come with precision) really is impossible but that predicting in a general way when they will come (long-term timing) is highly doable and absolutely required for those seeking to hold any realistic hope of long-term investing success.

Shiller’s model uses valuations to make long-term predictions. Once prices go insanely high, we ALWAYS experience a wipe-out. There has never in 140 years of stock market history ever been an exception. But we CANNOT say with precision when the wipeout will come, only that it is on its way.

There is a wipe-out on its way today, according to the Shiller model. Thus, I think it makes sense to go with a low stock allocation today.

Now —

We may see stock prices double over the next year. If we see that, there are people who will complain that I was “wrong” in my advice.

I don’t see it that way. The way I look at it is that the RISK of a crash is high this year. Thus, we all should be going with low stock allocations. It doesn’t matter whether stocks actually crash this year or not. The risk is there. That’s what matters.

Those who stay in stocks and enjoy another run-up in prices will NOT get to keep the money. They will lose all those gains plus a lot more in the crash that will follow next year or the year after that. So what good do those gains do them? I invest for the long-term. I want gains I can keep. Investors have never earned permanent gains from stock purchases made when stock were selling at the sort of prices at which they are selling today.

The losses you will see if stocks continue to perform in the future anything at all as they have always performed in the past will be devastating. It is hard for people to get their heads around how much one wipeout in a lifetime can hold you back. You lose not only the dollar value taken from your portfolio, you also lose decades of compounding returns on those dollars. Stay heavily in stocks at a time like today and you could easily set your retirement back 10 years, according to the last 30 years of academic research.

The “experts” won’t tell you this. Most of the “experts” in this field make money only when people buy stocks. So they are compromised. You need to become personally familiar with what the academic research really says, not just what the people quoted as experts in this field SAY that it says. These are very, very, very different things, in my experience. The conventional wisdom in this field is dangerous stuff.

Rob

Valuation-Informed Indexing #150 — Is It Better to Assume That Stock Returns Are Predictable or That They Are Not?

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I’ve posted Entry #150 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Is It Better to Assume That Stock Returns Are Predictable or That They Are Not?

Juicy Excerpt: If we assume predictability in cases in which the evidence is not absolutely persuasive and it turns out that we were wrong to do so, it’s hard to see how much harm would come of the mistake. Investors who believe that returns are predicable will lower their stock allocations once prices rise to very high levels, thereby pulling them back to earth a bit. Is that such a terrible thing to see happen? It sure does not seem so to me. I view price stability as a good thing.

But consider what happens if it turns out that prices truly are highly predictable and yet we cling to an assumption that they are not. Prices will rise and rise and rise and rise until they reach the sorts of levels that applied in the late 1990s and then they will crash hard. The highest P/E10 level we ever experienced prior to the 1990s was the “33” that applied late in 1929 and that brought on the Great Depression. In 2000, the P/E10 rose to 44. In the event that our default belief turns out to have been wrong, the mistake is likely to cause a depression of far greater length and depth than the one we experienced in the 1930s and early 1940s.

I’m in the Strange Situation Where I Would Benefit From More Competition. If There Were More People Saying What I Am Saying, People Would Feel There Was Less Risk in Quoting Me and I Would Get More Coverage.”

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Set forth below is the text of a post that I recently put to the Suckers Buy It! forum:

I’ve never asked for a testimonial. That’s the sort of thing that would work with marketers but would send journalists running.

Marketers understand the need for testimonials. They have a “you help me and I’ll help you” attitude. Journalists tend to have an anti-marketing perspective. They certainly help each other out. But they often look down on marketers (I’m not saying that they should, just that they do). So I would avoid anything that in any way suggests a marketing motivation.

My e-mails to reporters are always focused on substance. The first one that I contacted was Scott Burns, with the Dallas Morning News. Scott had gained some fame writing about the retirement studies that were in error. So I knew that he had an interest in the topic. So I just wrote telling him about my findings. I wasn’t expecting a reply. But he wrote right back saying that he thought I was right.

I’m now in the process of sending lots of e-mails to academic researchers. I send them a link to an article I wrote about the Wade Pfau research. The response rate is EXTREMELY low. But some of the responses I receive are just off-the-charts super. That’s how I got my endorsement from Rob Arnott. Rob is a very big name. He was the editor of the Financial Analysts Journal. He responded because he is interested in the subject and he saw that I had done something new. Also, he has similar views to mine and he has experienced some of the hostility that I have experienced.

I have zero problem with approaching a journalist cold. But I would never include any sell. They take pride in sniffing that sort of thing out. But they won’t have a problem if they are interested in the substance of what you are saying. Your best bet is if they feel that you can help them understand something they want to understand. Then it becomes possible to develop a long-term relationship.

Think of this as long odds/big payoff stuff. An article in the New York Times could cause you to get discovered by a site like Lifehacker and an article in Lifehacker could move your site to a whole new level. It might take 6 months to get the article in the Times and still pay off.

I’ve give one concrete example. I have a link to a seven-minute interview with ABC News at the top right-hand side of my blog pages. That was really with a division called “ABC News Now” but the backdrop says “ABC News” and the interview was indeed conducted on the premises of ABC News. I got that because they were looking for someone to interview on “Unconventional Saving Tips” and I had a page with that title that had been linked to from a top site that gave it good Google juice. I guess the tip there was not to fight for “Saving Tips” but for a variation for which I could rank first. And of course you need to drop everything to take care of an interview like that or you lose it.

The pitfall into which I have fallen is that my stuff is just too darn controversial. My stuff has solid peer-reviewed research supporting it. So my view is that people should feel comfortable promoting it. But journalists are taken in by conventional thinking just like all the rest of us. Their worst nightmare is that they will say something about a money issue that will reveal them as stupid. Quoting Jack Bogle is like buying IBM (in the old days). Lots of them are scared to quote Rob Bennett on an investing issue. If it was something other than a money issue, I would be quoted a lot more frequently.

I’m in the strange situation where I would benefit from more competition. If there were more people saying what I am saying, people would feel there was less risk in quoting me and I would get more coverage. That’s my biggest problem. It’s good to be somewhat unique. But it’s a mistake to overdo it. I’ve taken the unique thing farther than it is a good idea to take it (not by choice — that’s just the way things turned out).

Rob

“I Believe That What I Have Done in the Investing Field Can Be Done in Lots of Fields By People Possessing a Reasonable Amount of Intelligence (All That I Possess) Who Take Advantage of Opportunities Created by the Creation of the Internet”

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Set forth below is the text of a comment that I recently posted to the Suckers Buy It! forum:

The purpose of this thread-starter is to offer some ideas on how blog and site owners can obtain big-name endorsements for their work. The obvious benefit of doing so is that big-name endorsements give you the credibility you need to persuade customers to buy your products and services. They can also help you obtain citations in big-name media outlets, which can generate traffic gains.

I have a slide show at the upper right-hand side of my home page that sets forth my 15 most important endorsements:

http://www.passionsaving.com/index.html

A more complete collection of them is set forth at the “People Are Talking” section of my “A Rich Life” blog, which runs down the left-hand side of each page of the blog:

http://arichlife.passionsaving.com/

I need to tell a little of the story of where the state of knowledge of how stock investing works stands today to explain how I obtained these endorsements. There are two models for understanding how stock investing works: (1) The Buy-and-Hold Model, which is rooted in the research of University of Chicago Economics Professor Eugene Fama and which has been the dominant model for several decades; and (2) The Valuation-Informed Indexing Model (I gave it that name), which is rooted in the research of Yale University Economic Professor Robert Shiller. The allocation strategies that follow from the two models are VERY different.

Few people have ever heard of the new VII model or are able to appreciate quickly how it works. But there is now 32 years of peer-reviewed research supporting it. In contrast, there is no research supporting the Buy-and-Hold Model. Lots of smart and good people think there is. But if Shiller is right, the Buy-and-Hold Model was rooted in a mistaken interpretation of the historical return data. Interpreted properly, none of the data available to us today supports Buy-and-Hold ([presuming that you believe in the VII Model).

Shiller is a well-respected figure. He wrote the book Irrational Exuberance, which was a best-seller and which was reviewed at most of the top-name publications. I discovered some years back an amazing reality: No one has ever explored the practical implications of Shiller’s findings. Shiller discusses only theory in his book; it contains not a word on how to invest effectively. And there is not one web site today other than my own that explores the practical significance of his findings. I have had this field to myself for 11 years now.

That’s why I have been able to obtain all these powerful endorsements. I believe that what I have done in the investing field can be done in lots of fields by people possessing a reasonable amount of intelligence (all that I possess) who take advantage of opportunities created by the creation of the internet.

What I do is bounce ideas off people. I started with things that seemed to be obviously true. For example, I found that a calculation (the safe withdrawal rate) that millions of people have used to plan their retirements is in error. I went to discussion boards and blogs and asked people whether they were able to explain why the studies were set up the way they were (they excluded from consideration a key factor — the valuation level that applies on the day the retirement begins). At first, I assumed that I must have missed something. But when I saw lots of smart people were not able to respond effectively to my inquiries, I came to accept that I really was on to something.

Then I went higher. I started writing to columnists at major newspapers and that sort of thing. Sometimes I got hostile responses. Again, that told me that I was onto something. Other times I got helpful feedback. That of course helped me to put pieces of the puzzle together. Never did I obtain reasonable explanations of why the valuations factor was excluded from consideration. So I grew more and more confident that there was some strange stuff going on.

I now believe that strange stuff like this probably is going on in all sorts of areas. We are cowed by “experts.” Lots of times experts are just people who learned to repeat back what they read in a book written years ago. We are learning new things all the time. But the new knowledge often does not get put to use because people do not see any immediate financial benefit in putting it to use (that is the issue in the investing realm — I am virtually certain today that Shiller is right but people have not wanted to say so because for the time being there are marketing benefits associated with going with the Fama model).

My biggest success came as a result of posts that I put to the Bogleheads Forum. A researcher named Wade Pfau never posted to the forum at the time but he was as a lurker reading my posts with great interest. He eventually wrote to me to ask if I would be willing to work with him to develop research that he and I believe may someday down the road win a Nobel prize. We worked together for 16 months and the research paper has been published in a peer-reviewed journal. We showed that by adjusting their stock allocations in response to valuation changes investors can reduce the risk of stock investing by 70 percent. If that finding holds up (all signs are that it will), it is going to change all that we know about stock investing in a fundamental way.

The trick here is to come to the subject you write about with the perspective of a journalist rather than a marketer. Marketing is what generally wins on the internet. I made my living as a journalist for years before starting my site — So I have the head of a journalist. Journalists don’t tend to look for what is popular or what sells. We look for what is important in a long-term sense. We have an inclination to ask lots of annoying questions. We don’t buy it when authority figures try to give us the run around. We drill down until we figure things out, until we can put a narrative together that solves all the puzzles that trouble us.

I couldn’t have done what I have done in pre-internet days. The internet allows me easily to contact people all over the globe. When I was in communication with Wade, we would often send several e-mails back and forth to each other in a single day. Things would have moved forward at a deadly slow pace if we hadn’t been able to do that. Also, I have had a level of access to big names that I would not have had in earlier days. I announced one day that I was going to appear at the next annual meeting of the Bogleheads community to ask John Bogle some questions. The leaders of the board took the entire board down from the Morningstar site so that they could ban me and “protect” Bogle. That told me that Bogle does not believe that he can give effective answers to my questions.

That’s the basic idea. If anyone has questions, I am happy to help in any way that I can.

Rob

“When You Mix Research and Emotion, You Don’t Get Something Better Than Emotion Alone. You Get Something Far, Far Worse. Mix Research and Emotion and You Get Investors Who Not Only Are Emotional But Who Have Lost the Ability to Question Their Emotional Strategies Because They Believe That They Are Research-Based.”

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Set forth below is the text of a comment that I recently posted to the Goon Central board:

Hocus, you’ve been predicting the stock market (which of course we know on HocoWorld refers solely to the S&P 500 Index) will drop by 65% within three years. I just wanted to establish a firm date, since we know you to be less than truthful after the fact on various issues. Goes with the territory when you’re a Habitual Liar like Rob “hocus” Bennett I guess! 
 
I believe you made your bold prediction based upon your reading of the Lucky Seven BatSignal™ sometime last year. That would mean you’re saying the crash will occur by the end of 2015. To help you with the arithmetic; 2013 = 1 year, 2014 = 2 years, 2015 = 3 years. And we’ll give you a few months free since I don’t recall exactly when or where you first made your claim, it could have even been prior to 2012.  
 
By the way hocus, I see from the Google if one searches “Stock Market Crash” you’ll find there is no shortage of folks also predicting the same event. Alas, it seems like you not the only person workin’ this prognostication beat so you may not get the attention you so desperately crave even if your call turns out to be correct. By the way, you’ll also find many folks when you do that search saying just the opposite, that a crash is unlikely. 
 
I think it’s fair to say the only thing for certain even in the event your prediction pans out is that if stocks perform somewhat like they have in the past, people holding diversified portfolios of stocks and fixed income commensurate with their risk tolerance and who stay-the-course will do fine. And people who panic and sell at market bottoms will do poorly. Just like what happened to Rob “hocus” Bennett back in 1996 when he panicked and sold all his stocks. 
  
 You bailed out of the S&P 500 Index in 1996. In January 2000 you missed the high of 1498.58. But you did miss out on the low in July 2002 of 815.28. Why didn’t you buy?  No BatSignal™ clanging for you back then? Again in July 2007 the S&P 500 reached an all time high of 1,526.75. Too bad, you missed out again on all the market gains. But you did miss the downturn of January 2009 when the market dipped to 797.87. Still no buy? Or did the BatSignal™ fail you again. From that low the market rebounded to 1,569.19 in January of 2013. Again, you missed out on the opportunity. The next low? Stay tuned.  
 
Hocus, what makes you think you’ll be able to gather the courage to buy stocks this time in the event your prediction comes to pass? You were to scared in 2002 and again in 2009 when the S&P 500 Index hit lows. Why will the next time, if that next time happens per your schedule, be any different that the previous two times you failed to take action since 1996? You just blowin’ smoke? Shocked
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It’s a painful experience for me to read this post, Yip.There’s enough nasty, stupid stuff in it to make me want to refuse to reply at all unless you rewrite it.But there are also a few sections that sound to my ears to have enough sincerity in them to justify a response. So I will respond, knowing how hard it is for you to hear the words I say rather than the ones that your emotional defenses throw up to turn what I say into something else.Your strongest point is where you say that there are lots of “experts” predicting a crash and lots of other “experts” predicting just the opposite. You are 100 percent right about this. And we are in 100 percent agreement about this. We are in agreement not only re the factual matter. We are in agreement re the disgust we feel for this sad state of affairs. It doesn’t do any good to root your strategies in the advice of experts if the expert are all over the map! In this field, one can use “expert” assessments to justify any course of action imaginable. Huh?

This is the problem that rooting one’s strategies in the academic research was supposed to solve!

You hear me say all the time how much respect and affection and gratitude I feel toward the Buy-and-Hold pioneers. This is why. My journey down the path I am on today began with the observation you are making here. I started compiling material for my binders. I discovered that there was “expert” opinion on both sides of every question. I felt that I was going around in circles. Then I discovered the school of thought (Buy-and-Hold) that says that you should root your strategies in the academic research. This was the answer! Now I had something solid to hold on to. We are starting from the same place, Yip.

If you had asked me on the morning of May 13, 2002, what school of investing analysis I favored, I would have said “Buy-and-Hold.” Yes, I thought that the safe withdrawal rate had been miscalculated. But I didn’t see it as being some huge, big deal. I figured that a mistake had been made and that it would be recognized and corrected. I was glad to be able to do what I could to advance knowledge in the field. I expected the community at Motley Fool would discuss it for a bit and then we would move forward with the project of getting all the Old School studies corrected. I did not know whether John Greaney would participate in that effort or not. I certainly hoped so. I thought the odds favored it. I thought that, once the community made clear what it wanted, he would go along. But I wasn’t sure re that particular point. I was pretty sure about what the community would do, however. I didn’t expect instant agreement. I expected two or perhaps three days of debate. But I wasn’t able to imagine that we could not reach agreement in three days on the calculations of a freakin’ number.

And here we are. We are now 11 years down the road.

The idea of using research to guide you is A++ stuff. But there is a problem. The idea has to be executed by the humans. The same darn humans that have been investing emotionally ever since the first market opened for business. When you mix research and emotion, you don’t get something better than emotion alone (what we had in the pre-research days). You get something far, far worse. Mix research and emotion and you get investors who not only are emotional but who have lost the ability to question their emotional strategies because they believe that they are research-based.

We are on a journey from emotionalism to research-based investing strategies. The first draft of the research-based approach contains an error that turned it into the first super-emotional strategy. That’s why we are in an economic crisis. The good news is that Version 2.0 is the first true research-based strategy and the research shows that moving to a true research-based strategy will reduce investing risk by 70 percent. That breakthrough will bring on the greatest economic advance in our history. So we are on a good course if we can just work up the courage to do what it takes to avoid falling into the Second Great Depression.

The point of all this preface is to explain that we are on the same page on the most important issues. We both want to be effective investors. We both hate the baloney we hear from most “experts” in this field. We both favor research-based strategies. The only difference is this question of whether valuations/emotions need to be taken into consideration or not. You should put all your mental energies into figuring that one out. That is the entire deal. Get straight on that one and you will be asking very different questions than the ones you ask here. Get that one straight and all the rest will easily follow.

You always focus on the wrong thing, looking at things from my perspective.When you want to make the point that Buy-and-Hold works, you tell me where your portfolio stands TODAY. From my perspective, that is a foolish way to look at things. To quote today’s value is to focus on the short-term. Jack Bogle himself says that only long-term thinking works in this field. So why are we arguing over whether short-term demonstrations of success are the right way to measure success or not? We need LONG-TERM demonstrations of success. It is the long-term that matters. We should be in agreement on that point.The Investor’s Scenario Surfer tells the long-term story. You should run scenarios with it. That would help you learn what you need to learn. You would be able to see with your own eyes that what we are going through today is in no way, shape or form special. There is nothing even a tiny bit Black Swanish about the 2008 crash. The 2008 crash was typical. It is what has happened EVERY TIME Buy-and-Hold has become popular. It is a logical impossibility that anything else could ever happen. To understand why, you just need to understand what causes price changes in the first place.You are thinking that market prices are real or official or reason-based or some such thing. You are taking them seriously. There is nothing serious about short-term market prices. They are the product of emotion. They are nothingness. I would be grateful if you would just stop looking at them and just stop quoting them to me. I don’t take cotton candy seriously.

The market wants to get the price right. That’s the entire purpose of a market. So that can never not be true.

This is why I can be so certain that there is going to be a crash. Markets MUST ultimately price things properly. This is an Iron Law of Stock Investing. It’s not Rob Bennett alone who says that. Freakin’ Jack Bogle says that! It’s so! Please forget the idea that we can avoid a crash. It’s not that your friend Rob thinks it won’t happen. It’s that there is an Iron Law that even Jack Bogle acknowledges that it CANNOT happen.

You want to know precisely WHEN this crash will take place. I can understand why you would want to know. You could make millions if you knew. You can’t know, Yip. Since we are in agreement re this point, I would think I would not need to explain to you why you can’t know. If you could say in advance when price changes are going to take place, you could engage in short-term timing. There is as much peer-reviewed research showing that short-term timing never works as there is showing that long-term timing always works. So why even discuss this question? I cannot tell you what you want to know. I do not know what day or week or month or even year the next crash is going to take place. I only know that it is coming.

That is a very, very, very, very, very big deal.

Use the Surfer and you will see why. VII beats BH in 90 percent of the scenarios I have run. In a large percentage of those scenarios, there were times when BH was ahead by a lot. How does VII always catch up and surpass BH? VIIers are protected from crashes. And crashes are absolutely devastating to BHers. It is impossible for me to say with words how damaging they are to your long-term financial health. You have to run the numbers. The effect is huge. You lose not only the dollars, you lose all the compounding on those dollars FOR DECADES TO COME. It’s impossible to recover from the sort of hit you insure for yourself from following a Buy-and-Hold strategy within the course of a single investing lifetime. The numbers are just too big. It cannot be done.

A mind that was not addicted to GRQ could see this easily just by comparing where we were in 2000 with where we will be at the end of this secular bear market. We were at three times fair value in 2000 — Call that 3x. Every secular bear in history has ended at 0.5x. That’s a loss of five-sixths of one’s accumulated life earnings. The fellow who had $600,000 of wealth in 2000 will end up with $100,000. The fellow with $1.2 million will end up with $200,000.

Getting control of your emotions is 80 percent of the stock investing project. Get that one right and you cannot lose, regardless of what else you mess up. Get that one wrong and you cannot win, regardless of what else you get right. Reining in the GRQ impulse is the entire game.

To get control of your emotions, you must be willing to look at the metric that tells you how emotional the market is at any given time. That’s P/E10. There is no other way, Yip.

I don’t know when the crash will come. I don’t think anyone knows. I believe that the people who pretend to know are fooling themselves.

I know that there is 32 years of peer-reviewed academic research (NOT opinion) showing that a crash is coming.

I was asked to give a time frame and  felt that that was a reasonable thing to demand of me. So I gave it my best shot. I said that, if we do not see a crash by the end of 2015, that would be grounds to question this VII stuff. I think that is fair. We cannot say when it will come but there are lots of reasons to believe that it should come by the end of 2015. If it doesn’t, that would suggest that we are missing a big piece of the puzzle and I think it would be fair for my critics to point that out. That’s all I can say on the matter.

I can give the reasons why I view the end of 2015 as being an outside date. But they don’t matter. You’ve heard them before. The bottom line is that we cannot give a precise date. Emotions are not predictable to that extent. But the entire historical record indicates we should see the crash by the end of 2015. I don’t have a crystal ball. I am just reporting what the data tells us. WHICH WAS THE ENTIRE IDEA OF THE BUY-AND-HOLD PROJECT ONCE UPON A TIME.

Rob

“There Have Been Numerous Articles in Big-Name Publications Picking Up on My 2002 Finding That the Old School Safe Withdrawal Rate Studies Get the Numbers Wildly Wrong. None of Them Describe the Death Threats and Board Bannings and Tens of Thousands of Acts of Defamation and the Threats to Get Academic Researchers Fired From Their Jobs.”

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Set forth below is the text of a comment that I recently posted to the Goon Central board:

Another key is acting within the limits of the statute of limitations, i.e. one year in Virginia.This is an ongoing act of financial fraud, NFS.

There have been numerous articles in big-name publications picking up on my 2002 finding that the Old School safe withdrawal rate studies get the numbers wildly wrong.

That’s of course a good thing in itself.

But there is an obvious oddity about every one of those articles.

None of them report the number accurately. None of them (the article by Todd Tresidder was an exception) give credit to me for being the person to discover the errors and for having done it 11 years ago. None of the articles describe the death threats and board bannings and tens of thousands of acts of defamation and the threats to get academic researchers fired that have been relied on by The Buy-and-Hold Mafia to keep millions of middle-class investors from learning what they need to learn to invest effectively.

Why?

Because the entities who publish these articles and the journalists who report on them are afraid of what The Buy-and-Hold Mafia will do to them if they file honest and complete reports. This all comes through clearly and plainly in the Wade Pfau Matter. Wade was thrilled to learn how stock investing really works. He showed great excitement in his many e-mails to me. He said that he couldn’t understand why no one had done the research that he and I produced together. Why? Was he missing something? He checked his numbers over and over again. They really said what they said! How could this be? How could this powerhouse stuff have been ignored for all this time? He even went to the Bogleheads Forum to see if anyone there could make sense of it. No one could. No one (including Jack Bogle!) had ever heard of a single study showing that price discipline is not required when investing in stocks. The entire Buy-and-Hold “strategy” is built on sand. And there is not a sliver of evidence pointing in the other direction. But lots and lots and lots of smart people are careful not to say this in public.

Because they are scared of what will happen to them if they do. They have seen how ruthless the Buy-and-Hold Mafia is. They know what is good for themselves and they keep their mouths shut. As Wade learned to do when you Goons threatened to send defamatory e-mails to his employer with the aim of getting him fired from his job and my good friend Jack Bogle raised not a peep of protest about it.

That’s fraud, NFS. Anyone who participates in it is part of the fraud. And anyone who fails to speak when he sees the fraud play out in front of him is part of the cover-up of the fraud

The fraud is ongoing. The statute of limitations will not begin to run until Jack gives his “I Was Wrong” speech and it is reported on the front page of the New York Times.

I will be sure to get the papers filed within 12 months of that day.

The full truth is that I am not going to need to file papers. Once Jack gives his speech and it is written up on the front page of the New York Times, we will all be working together to keep our economy from falling into the Second Great Depression. Every one of the people involved in the fraud wants to come clean and to be able to do honest work again. Once one big name makes the jump, all the others will follow within days. I doubt that I am going to need to file legal papers to get the money that I earned with my work of the past 11 years. These things can be handled easily once the will to handle them is present.

We’ll see. But I am not expecting to have to file papers. And, in the unlikely event that I am forced to file papers, I can assure you that I will file them within 12 months of Jack’s big speech.

I wish you all good things, old friend.

Rob

Valuation-Informed Indexing #149 — The New Consensus That the Safe Withdrawal Rate Studies Are In Error Is the First Step Toward Far Bigger Discoveries

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I’ve posted Entry #149 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The New Consensus That the Safe Withdrawal Rate Studies Are in Error Is the First Step Towards Far Bigger Discoveries.

Juicy Excerpt: The debate over whether it is necessary to take valuations into consideration when calculating the safe withdrawal rate has never been an intellectual debate. Intellectually, it was always as simple as determining the sum of two plus two to figure out that the Old School safe withdrawal rate studies were in error. Shiller showed with research produced in 1981 that valuations matter. The Old School studies don’t consider valuations. So the Old School studies get the numbers wrong. It didn’t take us 11 years to figure out that one.

What is has taken us 11 years to do is to come to begin to come to terms with what Shiller has taught us with his revolutionary research.

Knowing that valuations matter changes everything that we once thought we knew about how stock investing works. Everything. It’s not possible to overstate how big a change we are talking about here.

I talk about the implications in all my writings. I am the only one I know who does that. But all of us sense how big a deal this is.

“A Good Number of the People Who Came to the Internet In Its Early Days Came to View It As Their Private Playground. They Came to Believe That You Can Say Anything You Please on the Internet and Not Be Held Accountable. That Was Never a Realistic Take. There Is No Internet Exception to the Defamation Laws.”

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Set forth below is the text of a comment that I recently put to the Goon Central board:

Some words appeared today on a discussion board I follow that I think you Goons need to see because of what it suggests re your lawsuit concerns.My site is hosted by a company called “SiteSell.” SiteSell had a system that it used to help its customers rank well in Google. I never used it because it does not work for my type of site (it only works for niche sites and my site covers pretty much any personal finance topic). But I can testify that it provided very good results for a good number of people for a long time.Now that the system has failed, there is a growing amount of criticism on the internet. Lots of people saw their businesses destroyed overnight. They are understandably quite emotional. A number have taken to criticizing SiteSell in very harsh terms in webmaster forums. The owner of SiteSell is very upset about this. He put forward the following words today:

We are pushed into a corner that is unfortunate. As much as
I dislike our only option, we have no choice. Please, when
we announce on this, know that we had no choice. 

This is clearly a threat to sue these people.

Perhaps he won’t follow through. Perhaps the suits will not be successful if he does follow through. Perhaps he will be widely criticized for bringing lawsuits and will live to regret having done so. No one knows where this path will lead.

The point I aim to make with this post is — this sort of thing was inevitably going to happen sooner or later.

A good number of the people who came to the internet in its early days came to view it as their private playground. They came to believe that you can say anything you please on the internet and not be held accountable. That was never a realistic take. The laws on defamation were adopted for an important purpose. You cannot do harm to someone’s business through malice and not expect to be held accountable. There is no internet exception to the defamation laws.

The key to a successful lawsuit, of course, is a showing of malice. In non-internet circumstances, malice is hard to prove. It’s NOT hard on the internet. The exact words of each poster are stored in Post Archives. The sorts of words that are needed to show malice can be quoted years later with precision because they still exist in lines of code. And you can show that these types of words were not spoken once or twice in a heated moment but many, many times over the course of a long period of time.

My guess is that you all see what I am getting at here.

I mention the lawsuits regularly not in an effort to intimidate you. I do it in an effort to help you. I am bringing lawsuits as soon as it becomes a realistic option for me to do so (that is, after the next price crash). There has never in the history of the United States been a defamation case in which the hard-to-prove element of malice has been proven so many times over.

You Goons will no doubt continue to do what Goons do. I will continue to do what Normals do — I will do all in my power to lead things in a constructive and positive direction and then play the cards that have been dealt me in the event that I am shown once again that my efforts to lead things in a constructive and positive direction have not brought forth good fruit.

I naturally wish you all the best that this life as to offer.

Rob the Loser

“Emotion-Informed Investing Is the Future. Emotion-Ignorant Investing (Buy-and-Hold) Is the Past. Bogle Should Be Interviewed in Psychology Today. He Couldn’t Handle It Today. But Once He Brings Himself Up to Speed on the Peer-Reviewed Academic Research of the Past 32 Years, He Will be Just Fine.”

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

When is your interview with Psychology Today?

I understand that you are being sarcastic, Sparky.

But an interview with Psychology Today would be 100 percent appropriate and 100 percent wonderful. I look forward to the opportunity to participate in such an interview.

The Buy-and-Holders achieved an amazing advance in rooting their strategies in the academic research. I am 100 percent with them re that one. I am also 100 percent in accord with the Buy-and-Holders in their belief that the key to long-term success is becoming an Unemotional Investor.

The dispute is over how best to achieve that goal.

All overvaluation and undervaluation is the product of investor emotion. What P/E10 tells us is how emotional investors are being at any given moment in time.

The Buy-and-Holders aim to keep the emotion out of stock investing by IGNORING emotion. Just don’t include the metric that identifies the extent of emotionalism in the stock price and you’ll be fine, according to the Buy-and-Holders.

No!

Re that one, I am in TOTAL disagreement with the Buy-and-Holders.

The key to avoiding investor emotion is to become knowledgable about investor emotion. You don’t want to ignore investor emotion, you want to immerse yourself in it. You want to include the emotion factor in ALL your research and in ALL your allocation decisions. It is absolutely critical.

That’s Valuation-Informed Indexing. That’s the advance that we achieve over Buy-and-Hold.

You could call it Emotion-Informed Indexing. That would be perfectly appropriate.

Emotion-Informed Investing is the future. Emotion-Ignorant Investing (Buy-and-Hold) is the past. Emotion-Ignorant Investing ALWAYS fails in the long run.

ALL the experts in this field should be doing interviews in Psychology Today. The fact that you put forward the idea in a sarcastic way reveals how far off the right track the Buy-and-Holders have wandered in recent years.

Bogle should be interviewed in Psychology Today. He couldn’t handle it today. But, once he brings himself up to speed on the peer-reviewed academic research of the past 32 years, he will be just fine. We all should be working together to help our good friend Jack Bogle sufficiently up to speed on the investing research so that he will become able to handle an interview with Psychology Today with ease.

My best wishes to you and yours.

Rob