A Rich Life

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

“I Don’t Think Buy-and-Hold Can Ever Work for a Single Investor in the Long Term and I Can Point to Academic Research Showing That to Be the Case. That’s the ‘Controversy'”

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Set forth below is the text of a comment that I recently put to the Invest It Wisely blog:

I found him to be…not insane.

Thanks, Kevin. I’m going to use that endorsement on the back cover of my book on investing!

I’m joking around, of course. I think it would be helpful if we all did our part to try to see the lighter side of this never-ending “controversy.” The reality, of course, is that there have been differences of opinion about stock investing going back to the day the first market opened for business, and that the entire idea that there is some sort of “controversy” here rather than just a difference of opinion is 100 percent manufactured. I don’t think Buy-and-Hold can ever work for a single investor in the long term and I can point to academic research showing that to be the case. That’s the “controversy.”

If you have a reasoned rebuttal of his views, I’ll be happy to link out to it as well.

These words are also exceedingly helpful. We need to hear BOTH sides. But of course we only want to hear those willing to construct civil and reasoned presentations of their case. Civil and reasoned criticisms of Valuation-Informed Indexing (the alternative to Buy-and-Hold that I advocate) help us all. I am obviously not God and I obviously am every bit as capable of getting things wrong as any Buy-and-Holder. I need to hear civil and reasoned criticisms of my work as much or perhaps even more than everyone else does.

Um — Thanks for your contribution too, Blogwatcher.

I think!

Rob

 

Financial Highway Article #15 — It Doesn’t Cost Much More to Have a Retirement Plan That Lasts Forever

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I’ve posted Article #15 to my monthly column on Valuation-Informed Indexing at the Financial Highway site, It’s called It Doesn’t Cost Much More to Have a Retirement Plan That Lasts Forever.

Juicy Excerpt: How much do you think it will change the withdrawal rate to change the portfolio balance choice so that 50 percent of the initial portfolio balance remains at the end of 30 years? No one guesses right re this one.

$4,000.

Lower your annual takeout from $54,000 to $50,000 and you can be 95 percent sure of having $500,000 remaining in your portfolio at the end of 30 years. Pretty cool, huh?

Let’s take it a step farther.

What if you want to have a permanent retirement plan, one that will not run our of money in 30 years or 60 years or even in 300 years or 600 years? How much more will you have to reduce spending to achieve that goal?

Guess. Again, you won’t get it right. But it’s fun to try.

It would take another $4,000 spending reduction.

Rob Bennett to Dallas Morning News Columnist Scott Burns: “Perhaps I Am One of the Unfortunate Humans Who Cannot See His Own Flaws Even When They Are Pointed Out to Him…. I Feel That I Can Say That We Are Friends Again.”

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I reported yesterday on an e-mail sent to me by Dallas Morning News Columnist Scott Burns on the Wade Pfau matter. Set forth below is the text of my response, sent on October 9, 2012.

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Scott:

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Thanks much for your response. It is super to be able to hear your voice up close and personal once again.
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I of course agree with much of what you say, as I have ALWAYS agreed with much of what you say. I believe I have told you before how, when I was collecting materials to use to put together my retirement plan, I created an entire binder to hold my favorite Scott Burns columns. I certainly consider myself a big fan of you and your work product. I hope that always comes through in my communications with you.
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I especially like your statement that: “We’re all struggling to find real information and less noise, but no one is yet in possession of Diogene’s lantern.” That’s a perfect statement in every way. I certainly do not say that I am the sole possessor of Truth. I would disassociate myself in every possible way from anyone who said such a thing. I have an article at my site titled “The Case Against Valuation-Informed Indexing.” ( http://www.passionsaving.com/valuation-informed-indexing-case.html ) The entire purpose of such an article is to signal to my readers that I do NOT view myself as in possession of all Truth and that I think that anyone who comes to believe that I am is making a terrible mistake.
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I DO believe that I have raised many important questions and at least put forward a sincere effort at setting forth some tentative answers to those questions. I DO believe that investing is a highly emotional endeavor and that just about everyone’s views of how stock investing works are influenced by whether we are in a bull market or a bear market at the moment the assessment is made. I DO believe that the Buy-and-Holders made huge contributions and advanced the ball in highly significant ways. I DO believe that the Buy-and-Holders are smart and good and hard-working people who are entitled to our gratitude and respect and admiration. I DO believe that many Buy-and-Holders become hyper-defensive when their core beliefs are challenged and that they have created huge problems in this field with their wildly inappropriate behavior.
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I DO believe that I have pitted myself against ignorance. I am a reporter. That’s the job. It is my aim to dispel ignorance with every word I write. I obviously do not succeed in every case. But that is always the aim. I hope that I balance my desire to dispel ignorance with an appreciation of the need to evidence warmth and balance and charity. I get the strong sense that you don’t believe that I measure up in that department. I have spent much time questioning myself as a result of your
numerous expressions of that belief. I cannot see where I have failed in that department. Perhaps I am one of the unfortunate humans who cannot see his own flaws even when they are pointed out to him. All I can say is that I sincerely do not see it your way at this time. I will continue trying to look inward and perhaps some day I will come along to your view of my behavior.
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Anyway, it makes me happy that you cared enough to send me a response. I feel that I can say that we are friends again.
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Please do not hesitate to ask me if there is ever anything I can do to help you out in any way or if there is ever a time when there is some question that you think I might be able to help you with. If my work has the value that I believe it has, it’s because of all that I learned from you and many others with whom you associate. I never forget those who have helped me learn. That’s a big deal to me. One of the things that my mother stressed to me over and over again is that you can lose just about anything you acquire in this life but that you never lose something you have learned. I am grateful for the many ways in which you have helped me throughout the years.
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Please keep doing what you do. You have my warmest wishes for your happiness and success and feelings of inner peace. Don’t let the bad guys get you down, man.
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Rob

Dallas Morning News Columnist Scott Burns to Rob Bennett: “If You Didn’t View Everything As a Highly Personal and Heroic Struggle Pitting You Against the Evil, Ignorance and Untruth of Anyone Who Didn’t Agree With You, You’d Have a Lot More Fun on the Playground”

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Set forth below is the text of an e-mail sent to me by Dallas Morning News Columnist Scott Burns on October 9, 2012, in response to my e-mail to him letting him know about the Wade Pfau story:

Rob,
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The first person to do valuation oriented period return work was Steve Leuthold. He found that periods starting with low PEs provided better returns, by far, than periods starting with high PEs. I mentioned this to you in some of our first correspondence. He did this work well before Bengen started the SWR conversation with his examination of safe withdrawal rates and his warning to Certified Financial Planners that stochastic methods were better than unreal deterministic calculations of retirement income.
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Leuthold was also disturbed, however, at the amount of noise in the valuation/return data— at both ends there were periods that did not fit the pattern. A consumate benchmarker, he still uses PE distribution data as a warning indicator. But he doesn’t make bald pronouncements from it.  I believe this degree of statistical noise is one of the reasons many have chosen to subscribe to the broad data, leaving the PE/performance data as an interesting foot note and sometimes warning flag.
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Rob Arnott has certainly paid a lot of attention to the initial- valuation side of long term returns and no one has shouted him out of the room. Ditto Easterling. And it wasn’t that long ago (2008) that Blanchett and Kasten (in the Journal of Pension Benefits) examined portfolio failure rates in the context of historical versus lower real returns. So lots of work is going on all around the issues of prospective returns and portfolio survival.
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As I have suggested before, if you didn’t view everything as a highly personal and heroic struggle pitting you alone against the evil, ignorance and untruth of anyone who didn’t agree with you, you’d have a lot more fun on the playground. We’re all struggling to find real information and less noise, but no one is yet in possession of Diogene’s lantern.
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Scott

“The Only Way It Could Be “Off-Topic” for Me to Try to Help My Friend Jack Bogle Learn About the Mistakes He Has Made and To Get on the Right Track Is If Bogle Was a 100 Percent Corrupt Individual Going Back To the First Day”

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Set forth below is the text of a comment that I recently put to the Investor Junkie blog:

And yes Mr. Bennett, that very much and emphatically includes you.

Thanks for including me, Hogie. The questions we are discussing here are of huge importance. I am confident we agree on that. The points made in your first comment are obviously sincere and intelligent. So I see considerable value in that comment and want to respond to it. I don’t see the point made in the second comment (that I posted off-topic — something I would never do in a million years) as being quite so obviously sincere. My take is that it is the product of cognitive dissonance. You believe it because you must believe it to maintain confidence in Buy-and-Hold. And so you have been able to persuade yourself that you really do believe it. Humans do this kind of thing ALL THE TIME in areas other than investing. I wish that we all could accept that it is likely that they do it in the investing realm as well.

You don’t say what it is that you believe that I ever said that is “off topic.” I can come up with only one guess — the majority of the board believes in Buy-and-Hold and I say that Buy-and-Hold doesn’t work. Is that it? My view is that Bogle himself doesn’t hold as a primary belief a belief in Buy-and-Hold. Bogle’s primary belief is that investing strategies should be rooted in the academic research. This belief led him to a belief in Buy-and-Hold because once upon a time the academic research really did support Buy-and-Hold. Now that the research supports Valuation-Informed Indexing (call it Buy-and-Hold 2.0 if that makes it easier to accept), Bogle should be disowning Buy-and-Hold and shifting to support of VII instead.

And he would! If only he would tolerate discussion of the research findings that show him to have been wrong in his early beliefs! My aim is to make him aware of how he got on the wrong track (and of course to make all other Buy-and-Holders aware of the same). How do I do that without describing what the research shows? I MUST do that to achieve my goals. And yet it is precisely my descriptions of what the academic research of the past 30 years shows that causes the Buy-and-Hold dogmatics to lose their cools and to dismiss me as “off-topic” and “abrasive” and worse. Do you see the problem I face?

I noted up above that I formed my friendships with Academic Researcher Wade Pfau as a result of my postings at the Bogleheads Forum. Wade found VII exciting and wanted to learn more about it for the purpose of doing research. He found that VII checks out in every possible way. He was so excited about his findings that he expressed a belief that he might win a Nobel prize in Economics as a result of it (I am personally convinced that he will). He told me that he was amazed that no earlier researcher had looked into the things he looked into. He marveled at his finding that we know today (by examining the data that our mutual friend John Bogle has been advising us for years to study for guidance) what we need to know to reduce the risk of stock investing by 70 percent! While greatly diminishing risk!

Here’s a link to an article at my site that tells the Wade Pfau story:

http://arichlife.passionsaving.com/the-buy-and-hold-crisis/academic-researcher-silenced-by-threats-to-get-him-fired-from-his-job-after-showing-dangers-of-buy-and-hold-investing-strategies/

I find it more than a little hard to believe that you could read that article and read Wade’s research (a link is provided in the article to the underlying research) and conclude that the work Rob Bennett did at the Bogleheads Forum was “off-topic” to the purpose that John Bogle intended to pursue when he began his career, Hogie.

It may be that those findings upset Bogle today, now that he has spent 30 years telling people a very different story. It hurts him because he wanted to do good work and because he is human and made a mistake and that mistake hurt millions of people who Bogle intended to help. But who is Bogle’s real friend — the people who continue the cover-up and thereby aid him in causing even more financial losses for the people he intended to help or the guy who has worked unceasingly for 10 years and without receiving a dime in compensation to get Bogle and all his followers back on the track that he and they had intended to pursue going back to the first day — using research and data to learn WHAT REALLY WORKS IN THE LONG RUN.

I am not an off-topic poster, Hogie. I’m not anything close. You’ve got the wrong guy re that one.

And I ain’t anti-John Bogle either. I rate John Bogle as the second most important investing analyst in history (I rank only Robert Shiller higher). The only way it could be “off-topic” for me to try to help my friend Jack Bogle learn about the mistakes he has made and to get on the right track is if Bogle was a 100 percent corrupt individual going back to the first day and never even intended to help a single middle-class investor but just to get rich himself exploiting their weaknesses. I don’t believe that for two seconds and I am 100 percent confident that you don’t believe that for two seconds either.

So our only difference of opinion is whether Bogle was wrong in saying that it is not necessary for investors to practice long-term timing. Wade’s research shows that he was very. very. very wrong. There would be no problem here if you had any confidence that Wade messed up. If you thought Wade had messed up, you could hold a view different than mine and we could still be friends. The problem is that somewhere in your consciousness you entertain at least a small belief that perhaps Wade (And Rob! And the hundreds of our fellow Bogleheads who have written warm and enthusiastic endorsements of my work!) is on the right track. I have a funny feeling that, once you work up the courage to give those thoughts the serious consideration they merit, we are going to be working together to discover some very exciting truths about how stock investing actually works in the real world.

I wish you all good things, Hogie. It would make me feel greatly encouraged if you could say in your next comment here that you feel the same way about me and about the hundreds of our fellow Bogleheads who have said that they found great value in my thousands of “off-topic” posts at the Bogleheads forum. Take care, man.

Rob

“The Answer Is for People to Accept That There Are Two Models and Not Be So Defensive. We All Need to Acknowledge That the Other Guy Is a Friend and Someone Who Is Trying to Help.”

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Set forth below is the text of a comment that I recently put to the Investor Junkie blog:

 can say from what I’ve seen people often claim you are let me put it in a nice way.. abrasive. While I have no issue with your viewpoint, I think many object to the methodology of how you do it.

Thanks for sharing your thoughts, Larry. There are lots of people who say that. Even people who support me say that. I’ll try to explain what I think is really going on.

I believe in 90 percent of what the Buy-and-Holders believe. There is only one point of disagreement. I say that valuations have to be taken into consideration in all calculations. They say that they should never be considered. If valuations were a small factor, this would not be a big deal. But the valuations effect is so big that whether you take them into consideration or not makes a HUGE difference.

I am 100 percent polite and warm and kind in my interactions with Buy-and-Holders. Always. No exceptions. The thing that is “abrasive” is that I say “Well, you got the numbers wildly wrong in that retirement study and the error is going to cause millions of people to suffer failed retirements.” It hurts people’s feelings for me to say that. But, if it is true that valuations matter, what I am saying is so. There’s no soft way of making the point. If you believe that valuations matter, you are either “abrasive” or dishonest. There are no other options.

I think the answer is for people to accept that there are two models and not be so defensive. We all need to acknowledge that the other guy is a friend and someone why is trying his best to help. I accept that there are lots of good and smart people who really believe in Buy-and-Hold. They have a right to believe what they believe. But if I were to say that I believe in Buy-and-Hold, it would be dishonest. There never should have been even a tiny bit of pressure applied to me to persuade me to post dishonestly. My right (and the right of all Valuation-Informed Indexers) to post honestly should be respected.

The Buy-and-Holders were the top dogs for a number of years. They are not accustomed to being challenged. They have to accept that those days are over. People learn new things over time and we move on to new and better ideas.

I say all the time how much I like and respect the Buy-and-Holders. It’s a rare event when one of them says that about me or about any of the Valuation-Informed Indexers. I have had Buy-and-Holders threaten to kill my wife and children. Never have I made any such threats in return. So who is truly the “abrasive” one?

People need to hear both sides to be able to make informed decisions of their own. As of today, the Valuation-Informed Indexers need to stand up for themselves to even be able to speak (as evidenced by the 15 bans!). I am 100 percent happy always to praise the Buy-and-Holders for their many legitimate insights and I always am sure to do so. I am NOT willing to say that I agree with them. I shouldn’t be pressured to do so. And my unwillingness to do so should not be perceived as “abrasive.” My view is that it is the abusive tactics of the Buy-and-Hold dogmatics that are truly “abrasive.”

Rob

Kevin at the Invest It Wisely Blog: “I Don’t Usually Mind a Little Bit of Controversy, But I Was Contacted by the Person in Question (Academic Researcher Wade Pfau) and Asked to Take It Down”

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I’ve recently been sending e-mails to many people (I’ve sent 650 so far) in an effort to make them aware of The Wade Pfau Story and thereby to bring the economic crisis to an end and to open up honest posting on the realities of stock investing at every investing board and blog on the internet. I sent one to my friend Kevin at the Invest It Wisely blog. Kevin was kind enough to link to the article.  This naturally caused a freak-out at Goon Central, the site owned by John Greaney (the individual who led the effort to intimidate Wade into agreeing not to publish further research showing the superiority of Valuation-Informed Indexing by threatening to have a number of Goons send defamatory e-mails to his employer).

Kevin late last night sent me the following words:

Hey Rob,

I think this one touched a personal nerve. I don’t usually mind a little bit of controversy, but I was contacted by the person in question and asked to take it down, and if they can verify their identity I’ll probably comply (I know that ties right into the theme of your post, haha… but I don’t want to take sides here — I’m more interested in the theories themselves rather than any personal disputes). I’ll swap the post for another one that’s “less personal” if you don’t mind.

Thanks!

Kevin

This morning I sent Kevin an e-mail containing the following words (I have also added an Addendum to the Wade Pfau article linking to this blog entry):

Kevin:

Every single person involved (including Wade) is more concerned about the theory than about any personal disputes. That’s true of me. That’s true of you. That’s true of Lindauer. That’s true of Greaney. That’s true of Bogle. That’s true of Shiller. That’s true of every single person affected by the economic crisis and of every single person who at one time or another was taken in by the Buy-and-Hold mumbo jumbo.

The question is — How do we turn to a discussion of the theory now that we have collectively as a society spent 10 years covering up the errors in the Old School safe withdrawal rate studies that became public knowledge on the morning of May 13, 2002? If you or any of the people named above offer me any suggestions for making that happen without them incurring hundreds of billions of dollars in legal liabilities for the failed retirements they have already caused, please know that I am 100 percent in.

Unless someone comes up with something, the only effect of a further continuation of the cover-up is to expose all the people named above to even larger financial liabilities and to even longer prison sentences. Is that what you want for people like Wade and Bogle and Lindauer and Greaney and possibly even Shiller (Shiller has said that he has never told us all he knows about stock investing because he fears what the Buy-and-Holders will do to his reputation if he does so — How are the millions of people who are in the process of suffering failed retirements going to feel when they learn that and how are we going to restore confidence in our economic and political system without taking  into consideration how those millions of people are going to feel about what has been done to them?). It is sure not what I want for them. I am going to do all that I can to keep both their legal liabilities and their prison sentences as limited as possible.

Thanks for all the help you have offered. I know you are sincere and that you are trying and that you are scared. I believe that we are all sincere in our own ways and we are all trying in our own ways and we are all scared in our own ways. I believe that there will come a day when one of us will come up with the magic words that takes us all to the place where we all feel safe and where we are are all moving forward together on a daily basis and where we have all put the ugly side of this matter 100 percent behind us.

I am of course happy to submit guest blog entries for posting at your site at any time you are willing to host them. It obviously is a positive step for you to host them. But it is also obvious that those guest posts will have 1,000 times the positive effect they have today after we have together taken those steps we all need to take to put the ugly side of this matter 100 percent behind us and to spend the remainder of our days exploring together all the amazing investing insights that are opened up to us once Wade and hundreds of other academic researchers in this field feel free to do honest and productive work once again.

Please have confidence that we are collectively working up the courage to take this to a positive place. If you think it is possible for you to say anything to Wade to reassure him, I hope you will do that. He is obviously in a very dark place today. He has done work that will win him a Nobel prize and make him known as a hero to all of us. Those of us who love the guy need to reach out to him and show him that we care and that we are there to help in a real and truly effective way.

Most of all, please understand that there is no “dispute” between Wade and me any more than there is any dispute between you and me or between Mel and me or between John and me or between Jack and me. We all want the same things. We all want to  learn how to invest effectively and to do what we can to teach others to invest effectively. We all want to bring the economic crisis to an end. We all want to do what we can to limit the civil liabilities and criminal penalties of those who have participated in the 10-year Campaign of Terror against our board and blog communities.  It’s a question of us working up the courage to show our desire for those good things with actions that are positive and helpful and life-affirming.

Hang in there, man. I read the last page of the story before I dared to put forward the May 13, 2002, post. It gets better. A LOT better. The ugly side of this gets blown away in the wind in time. The insights we mine together make all of our lives richer and fuller and better for many, many years to come. The smart and good and hard-working young man who contacted you wins a Nobel prize on the last page of the story. Remind  him of that. That’s been a dream of his for many years now and he needs to get back on the path leading to realization of that dream to start feeling good about himself again. He needs to keep that in mind to keep his spirits up when the world seems to be closing in on him because of mistakes he made in the sorts of weak moments we all experience from time to time.

Wade once told me how he was was looking forward to watching with his wife a version of Season Six of the Lost television show with Japanese subtitles. If you talk to him, please tell him that I recommend that he consider the advice that Jack took to heart at the end of that season — Sometimes it is best to just “let it go.” There are times when it is best to continue the fight and there are times when the only possible way forward is just to let it go.

And please tell him that there are people in this world who love him and who are wishing all good things for him and look forward to having a beer with him on the day he is awarded his well-deserved Nobel prize.

Rob

Addendum: Kevin sent me a response e-mail after I posted this blog entry. He said:: “I hope you two can make it up someday! I’m definitely not scared of publishing stuff that other people disagree with, but I do try to respect other’s feelings and he seems to be taking it personally. I’ll still be happy to link to non-personal posts from you that don’t call out anyone in particular.”

I sent a reply saying: “I understand your decision. He IS taking it personally. That’s for certain. And we WILL make it up. Wade’s a great guy. He has two small children for whom he has responsibility. He is afraid of what will happen to them. My guess is that Bogle’s heart will melt a bit following the next price crash and we will all be on the same page at that point.”

Kevin then wrote: “Thanks for understanding, Rob. I appreciate it!”

“People Have Been Dropping Veiled Hints for 30 Years and There Are Still People Pushing Buy-and-Hold Today…We Need to Do the Wild Thing!”

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

it’s just that not enough folks have yet been introduced to your insanity profound insights in order to create a tipping point which will make the Hocomania Wave unstoppable!  

Yes, it’s a Tipping Point thing.

EVERYONE (including you, Yip!) knows that GRQ is garbage. That’s close to universal.

Virtually no one knew that Buy-and-Hold was GRQ garbage in 1974, when A Random Walk Down Wall Street was published.

We are today living through the transition period from believing as a society that Buy-and-Hold was the first research-based strategy (a perfectly reasonable belief in its day) to understanding that human knowledge was lacking re one critical question in 1974 (that long-term timing always works and in fact is required for any investor hoping to have a realistic hope of long-term investing success) to believing as a society that Buy-and-Hold was rooted in a mistaken understanding of how the market works and that Valuation-Informed Indexing (Buy-and-Hold with the unfortunate GRQ element removed) is the first true research-based strategy. The hold-up is that millions have been done great financial harm by the mistaken belief and saying out loud what we now know causes those people to experience a great deal of emotional pain. Most of us humans have elected to hold back from saying anything, hoping that things will work themselves out somehow. A few of the braver souls (Wade Pfau is in this category, as are Bogle and Bernsteinzz) drop veiled hints. Dropping veiled hints makes sense in that it offers a means to get the truth out without getting your head knocked off. BUT IT DOESN”T GET THE JOB DONE. People have been dropping veiled hints for 30 years and there are still people pushing Buy-and-Hold today, even after the onset of a freakin’ economic crisis. The Rob Bennett take is that we must go BEYOND veiled hints to the Valley of Death where we do the wild thing of reporting the SWR (and lots of other important numbers, to be sure) accurately and honestly. Imagine!

There is not one soul alive who is hurt by us doing this. Even The Stock-Sellig Industry is far better off if we do the wild thing. You’d be surprised how much people cut back on stock purchases in a Great Depression! The question is — How do we get from Point A (economic crisis) to Point B (the place where we all want to be in our hearts, where the risk of stock investing is reduced by 70 percent)? That is indeed a Tipping Point question. People want to be able to make a buck telling the truth about stock investing. They don’t want to have people making death threats against them or threatening to get them fired from their jobs. We need to have enough people telling the truth that the idiots (this means you, Yip!) who are making death threats are the ones who feel social pressure, not the good guys trying to help us all. Wade would never have stopped doing honestzzz research if Old Saint Jack had had Lindauer banned from the Bogleheads Forum when Mel first threatened Wade. It was Bogle’s silence that caused Wade to feel pressured to flip to the Goon side. Bogle needs to be made to feel that he cannot get away with associating with Mel Lindauer or those who post in “defense” of him anymore. And of course everyone else needs to feel that way too.

It is not an intellectual problem we face. Intellectual work is 20 percent of the work I have done over the past 10 years. The hard issues are emotional issues. We don’t need more insights, we need more COURAGE. People develop confidence in speaking up when they see others speaking up and being rewarded for it. We need to start rewarding those putting forward research-based strategies and putting the heat on those who pump out GRQ garbage.

Once we hit the tipping point, we have 30 years of insights to mine together. Think where the electronics industry would be if the makers of Pong had had the power back in 1974 to stop all advances in the field because it made them feel bad for people to learn that their product was not the last word in electronic advances? That’s where we are in the investing field. We have seen powerful investing insight after powerful investing insight for 30 years now. But few benefit from the insights because we are all afraid of what the Buy-and-Holders will do to us if we give voice to our sincere beliefs. Once there are enough of us sticking together that the Buy-and-Holders can no longer intimidate us, that comes to an end and we move from economic crisis to the greatest period of economic growth ever experienced in our history.

I cannot wait! (And the full truth is that even you Goons will be glad we made the change once we get over The Big Black Mountain of legal battles and prison sentences and all that sort of thing.)

Rob

 

“I Cannot Put On a John Bogle Mask and Say the Words He Needs to Say and Have That Act Achieve the Effect We Need to Achieve Here. I Need Bogle’s Help. I Need Your Help in Securing Bogle’s Help.”

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Set forth below is the text of a response post that I put to the blog entry titled Retired at 48: “I Would Occasionally Get a Response Post Saying I Was “the Best Since Hocus Challenged Us to Think'”

What happened is that I pointed out the errors in the Old School safe withdrawal rate studies in a post that I put to the Motley Fool site on the morning of May 13, 2002. The point that I made was undeniable. Either the studies contain a valuation adjustment or they do not. Anyone who cared to could check. The studies do not contain a valuation adjustment.

This means that Buy-and-Hold has failed. Most people invest specifically for the purpose of financing their retirements. If the Buy-and-Hold Model gets the retirement numbers wildly wrong, Buy-and-Hold has failed us and needs to be replaced. Valuation-Informed Indexing is the obvious replacement. It contains all the elements of the Buy-and-Hold Model that have stood the test of time but deletes the Get Rich Quick element (the idea that investors need not engage in long-term timing) that has caused so much economic destruction.

Lots of people are emotionally addicted to Buy-and-Hold today. This point has been well-established by the 10 years of discussions. So our discovery that Buy-and-Hold has failed caused many people a good deal of emotional pain. I get that. It obviously was not my intent to cause people pain but it is obviously the case that large numbers of people felt such pain and continue to feel it to this day. The question is — What to do?

I say we need to move forward. We need to ACKNOWLEDGE that Buy-and-Hold has failed and move on to the model that actually works — Valuation-Informed Indexing. We are the luckiest group of investors who ever walked Planet Earth. We know what we need to know to reduce the risk of stock investing by 70 percent. We are fools if we do not take advantage of the huge opportunities that have been presented to us.

But the key that turns the lock is the Buy-and-Holders saying The Three Magic Words. For so long as there are people trying to rationalize not taking price into consideration when setting their stock allocations, there are going to be people feeling great emotional pain every time we discuss what the academic research of the past 30 years tells us about how stock investing works. We all need to be united in getting Bogle and other leaders in this field to publicly acknowledge that Buy-and-Hold has failed and that it is time to move on.

The turmoil we have seen on the boards is not the result of me telling the truth about what the academic research says. That is a wonderful thing. I need to be sure to never, never, never stop doing that. The turmoil has been caused by the failure of the Buy-and-Holders to say The Three Magic Words.

I have done everything I can think of to encourage them to take this step. I need help. I need you doing what you can do. I need Bogle’s help. I need Bernstein’s help. I need Obama’s help and Romney’s help. I need the New York Times writing all this up on the front page. I need my fellow bloggers uniting in an effort to open every blog on the internet to honest discussion of these issues.

When we get there, there is no more turmoil. There is no down side to learning the realities of stock investing. There is no down side to bringing the economic crisis to an end. There is no down side to reducing the risk of stock investing by 70 percent. The shift from Buy-and-Hold to Valuation-Informed Indexing is a win/win/win/win/win.

All the turmoil comes from the failure of the Buy-and-Holders to acknowledge the mistake they made. I cannot do this for them. I can advise. I can encourage. I can implore. But I cannot put on a John Bogle mask and say the words he needs to say and have that act achieve the effect we need to achieve here. I need Bogle’s help. I need your help in securing Bogle’s help.

Please help, What.

I of course wish you the best of luck in all your future endeavors in any event. Take care, old friend.

Rob

Invest It Wisely Blog Links to My Article on the Intimidation Tactics Employed by the Buy-and-Holders to Silence Academic Researcher Wade Pfau

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I was thrilled to see Kevin at Invest It Wisely link in this post to my article on the intimidation tactics employed by Buy-and-Holders to silence Academic Researcher Wade Pfau.

It is my belief that this is the most important article published in the fields of economics and politics in my lifetime. I believe that the day that the New York Times writes up the story told in this article is the day that we will begin to put today’s economic crisis behind us and begin the move to the greatest period of economic growth experienced in U.S. history. When that day comes, Kevin will be able to say he had it first. He has earned our gratitude and affection and respect with his show of courage re this matter.

The Wade Pfau article is here.

Juicy Excerpt: There is now 30 years of academic research showing that the claim that it is not possible to time the market is false. There really is a wealth of research showing that short-term timing (changing your stock allocation because of a guess at to how stocks will perform over the next year or two) does not work. There is zero research showing that long-term timing (changing your stock allocation in response to big valuation shifts with an understanding that you may not see a benefit for doing so for as long as 10 years) doesn’t work. To the contrary, there is now a mountain of research showing that long-term market timing ALWAYS works. There has never been one time in 140 years (that’s as far back as we have records) when long-term timing did not produce far higher returns at greatly reduced risk.

This article exposes the cover-up. It shows how the academic researchers in this field are pressured to perform only research that helps the industry big shots and to refrain from doing research that would help millions to invest more effectively when publishing such research would undermine the industry’s most cherished marketing slogans (the phrase “timing never works” has been repeated so many times that millions of investors assume that there MUST be research supporting the claim).

The public policy implications are huge. In ordinary circumstances, stock-market prices are self-regulating. When prices get high, the long-term value proposition of owning stocks drops. That should cause investors to sell and the sales should bring prices back to fair-value levels. The relentless promotion of Buy-and-Hold strategies made the market dysfunctional. Stock were overpriced by $12 trillion in 2000. Prices always return to fair-value levels over the course of about 10 years. So we knew in 2000 that consumers were going to lose about $12 trillion in buying power by the end of the first decade of the 21st Century. There’s your economic crisis!