A Rich Life

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

Wade Pfau (at the Bogleheads Forum): “My Comment Before [Suggesting That Rob Bennett Had Been Dogmatic in His Posting at This Forum] Was Completely Misguided and I Apologize to Him”

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Yesterday’s blog entry set forth the text of an e-mail that I sent to academic researcher Wade Pfau on December 17, 2010.

Wade sent me two responses the following day. The first contained a link to an article in Business Week which he characterized as “quite sympathetic to the point you were trying to make all along”.  In the second he reported that he had begun listening to my podcast and that he had put up a new post at the Bogleheads Forum containing an apology to me. In that post he stated that “my comment before was completely misguided and I apologize to him.”

Set forth below is the text of my response to the first of Wade’s two e-mails.

Wade:

Thanks for letting me know about the article. I certainly am glad to see some people giving more realistic and more prudent advice.

What the article is missing from my perspective is a focus on the valuations question. It is a downer to suggest that the SWR is ALWAYS 2 percent. Russell’s research indicates that it drops to 2 percent at times of super-high valuations but also
that it rises to 9 percent at times of super-low valuations (while being about 5 percent at times of moderate valuations). I view that as a more balanced and encouraging message.

The valuations-centered message has big strategic implications. If the SWR varies from 2 percent to 9 percent, then stocks obviously offer a dramatically different long-term value proposition at different times and investors need to be willing to vary their allocations to obtain good long-term results.

I do not think dogmatism is at all called for re any of the particular numbers. I think we need to have lots of people contributing lots of good thoughts on the particulars so that over time we all come to better informed takes.

My big push is for LESS dogmatism on the question of how much valuations matter. My take is that valuations matter far more than most of us today realize, perhaps so much that we react with shock even to look at the numbers. I am hoping
that we (the entire community of investors) get to a point where we are at least considering some far-out possibilities that we have not given much consideration to in the past.

I believe that, while the SWR may at times be very low, that does not need to cause any practical problem for individual investors willing to do what it takes to obtain good results regardless (by avoiding stocks when the long-term value proposition is poor and by investing heavily in stocks when the long-term value proposition is strong).

Rob

Wade Pfau: Bogle in Many Cases Has Said Things “Not All That Different From What You Said”

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Yesterday’s blog entry set forth the text of a an e-mail that I sent to academic researcher Wade Pfau on December 16, 2010. Wade responded the next day.

Wade said in his December 17 e-mail that: “In thinking about it further, I owe you further apology as my comment was based on a misunderstanding about your past claims.” He explained that: ” I understood that you meant this as the safe
withdrawal rate, but somehow I still confused myself into thinking that this number represented your prediction for the actual withdrawal rate.  If it was a prediction, then naturally you would need to indicate the uncertainty surround it.  But it is not a prediction.  It is just a lower bound that should be safe. So you don’t have to be so worried about its precise value. ” He speculated that the person who had suggested in an earlier thread at the Vanguard Diehards board that I had been dogmatic in my posting “made a similar mistake” and that this mistake “confused my ability to understand your response.”

He added that “actually I am a neophyte to the whole withdrawal rate debate.  I didn’t even know about Bengen or the Trinity study until July” but “now I am quite interested in this topic.”

Wade expressed confusion over “why some Bogleheads are so threatened by using valuations.” He noted that John Bogle has in many cases said things “not all that different from what you said.”

He concluded the e-mail with a kind compliment. He said: “I should also just say that you are a very good writer….Your writing really commands attention.”

The text of my response is set forth below:

Wade:

That all sounds good.

Please enjoy your week away. I expect to send you an e-mail next week that will provide a link re your question about the timing of John’s work and perhaps address a few other substantive points. But I of course understand that you will not see it until the following week.

Bernstein’s discussion of SWRs is on Page 234, if I recall correctly. I have cited it so many times over the years that I have the page number memorized. The claim that I often make is that the Old School SWR studies are “analytically invalid” and I often cite Bernstein’s words in support of this claim. One of my fellow community members who does not like me using that phrase sent Bernstein an e-mail asking him if he agrees that the Old School studies are “analytically invalid.” Bernstein said that “of course” they are analytically valid. But he followed that up by saying that anyone giving thought to using one of them to plan a retirement would be well-advised to “FuhGedDaBouDit!” That’s the point that I mean to convey with the claim that they are “analytically invalid”! The purpose of the studies is to help people plan retirements. They are not designed in such a way as to be able to do that effectively. So in my eyes they are analytically invalid. They do not the job that they were set up to do.

It may make you feel better to know that John Walter Russell also made the mistake of confusing the number that is at the lower bound of the confidence interval (the SWR) with the number most likely to turn up. John and I exchanged about 10 e-mails on this point a long time ago. I agree with you that there’s a good chance that the other poster in the thread you read was making a similar mistake. This is not intellectually difficult stuff (at least not the parts that I understand — I have no background with the statistical tools). But there is an undercurrent here that is EXTREMELY counter-intuitive. I have seen it throw many smart and good people off track. I of course would like to be able to figure out how to communicate the points in a way that avoids the confusion that enters into just about every discussion of these matters. I have picked up some clues as to how to do that over time. But it is the hardest job that I have ever tackled in my life. The way to spin this in a positive way is to observe that, if the confusion is today very deep, the prospect of making a giant leap forward in our understanding of how stock investing works once we overcome the confusion is also great.

Your words about John Bogle are 100 percent right on! It was by reading Bogle’s “Common Sense on Mutual Funds” in the mid-1990s that I got on the track that I am now on. I am the biggest Boglehead in the world. The investing strategy that I recommend is called Valuation-Informed Indexing. It is a mix of Bogle’s best ideas and Shiller’s best ideas. I say that Bogle and Shiller go together like chocolate and peanut butter. The thing that I say that some view as anti-Bogle is that Bogle made the biggest mistake in the history of personal finance when he said that it is possible to “Stay the Course” without being willing to change your stock allocation in response to big valuation shifts. But I don’t see it as being such a big deal that Bogle made a mistake. We obviously all make mistakes and Bogle’s ideas have led to many breakthroughs (including Valuation-Informed Indexing — there clearly would not be any VII today without the insights contributed by Bogle).

It may be that some of the anger felt by some of the Bogleheads is BECAUSE my ideas are so influenced by Bogle’s. The angry ones could dismiss my ideas easily if they differed in many ways from Bogle’s. Because they are so closely related,
it is hard for them to dismiss them. Yet the strategy recommendations are very different. In January 2000, a Valuation-Informed Indexer would probably have been going with a stock allocation of about 10 percent. A Buy-and-Holder would
probably have been going with 70 percent. That’s a big difference! My only difference with Bogle is over the valuations question, but valuations are so important that we often end up in very different places.

As you note, it’s not that Bogle rejects the idea that valuations affect long-term returns. I learned this from him! It’s that Bogle does not IMPLEMENT the insight. He SAYS that valuations matter. But his allocation recommendations do not take valuations into account. That’s the entire deal. That’s the only real question in dispute in the eight-year-long debate.

Bogle said in an interview that he thinks VII can work:

http://arichlife.passionsaving.com/2009/07/28/bogle-says-valuation-informed-indexing-can-work/

But when I sent him an e-mail asking for his help in dealing with the abusive posting, he did not respond:

http://arichlife.passionsaving.com/2009/07/30/my-hope-is-to-persuade-you-to-steer-the-indexing-revolution-to-a-more-promising-path/

Please have a great week away from all this and perhaps we will be able to talk over some ideas for further research when you get back. There are all sorts of possibilities. I can assure you that I had zero idea what I was getting into when I put up that first post back on the morning of May 13, 2002. This is a deep well!

One last point. Over the years I have had a number of people ask me about international SWRs. It sounds like your recent paper will go a long way to answering their questions. I will definitely be checking it out and linking to it in future days.

Rob

“We ‘Know’ All Sorts of Things About Investing Today That We Do Not Want to Acknowledge That We “Know. My Aim Is to Harvest This Unappreciated Knowledge.”

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Yesterday’s blog entry described an e-mail that I received on December 16, 2010, from academic researcher Wade Pfau. Set forth below are the words of my response.

Wade:

Thanks for your response.

All is forgiven from my end. All of the points you make in your response make sense to me. There is no question that this is explosive stuff and it is hard at times to say things perfectly. I of course struggle with that same issue. So long as there is good intent, things work their way to a good place. I can assure you that there is good intent on my end. I am reassured by the words of your response that there is good intent on your end.
Differences on fine points are of course not a problem. Those sorts of differences are to be expected and are healthy.

There has been HUGE interest at that board in SWRs in the past. I believe that the reason why you did not see a response is that people there feel shame over how the board has handled this issue. Part of it is how they interacted with me and part of it is how they misled people re the issue (it is a reality that people were misled — the best interpretation that can be put on it is that the people putting forward the misleading stuff were suffering from cognitive dissonance).

The personality clash is with SOME Bogleheads, not all Bogleheads. There are some great people over there who would love to have me participate in the discussions held there. They are (understandably) afraid to speak up. When a segment of a board community fears stating its honest views, the board had lost its intellectual integrity; people are not hearing both sides. It doesn’t make me happy to say this. But it needs to be said.

I am grateful for you spelling out the cause of your concern by saying: “The thing that troubled me was how sure you were about your predictions.” I believe that there is a misunderstanding here. I am NOT dogmatic about the particular predictions. I do not believe that dogmatism re that aspect of the question is justified. I love it when someone like yourself puts forward a different reasonable take. That gets people thinking. We need more debate, and dogmatism will not get us that.

My guess is that the thing that I was being dogmatic about in the comments you have in mind was the idea that SOME adjustment must be made for valuations. I do see it as being irresponsible to make no adjustment for valuations whatsoever given the consequences that follow for retirees who place their confidence in SWR studies that get the numbers wrong. My view is that there is an INSANE level of dogmatism coming from some of the defenders of the Old School studies. If they could just acknowledge that there is more than one reasonable point of view, we could all be friends.

Anyway, I very much do NOT believe that dogmatism is justified re these matters. It does indeed sting for me to hear myself described as being dogmatic here because I have invested so much in the way of blood, sweat and tears into efforts to bring the dogmatism to an end and to get things pointed in a more positive direction.

There’s an awful lot of material at those links. I certainly don’t expect you to look at all of it. You probably would prefer to focus on materials that deal with substantive matters (most of those materials focus on the process questions). I will get some links on substantive matters to you within the next few days.

Still, you might want to spend a little bit of time looking at the links that focus on the process questions. I have spent an awful lot of time on the SWR matter and on related matters and I have come to believe that the full reality is that there ultimately is a great deal of overlap between the substance issues and the process issues. I am going to put forward one illustration of what I mean by this just to give you a sense of what I am getting at.

You mentioned that you were not aware of the SWR controversy until September of this year. That should not have been the case! Bill Bernstein does rough calculations in his book “The Four Pillars of Investing” showing that the SWR at the top of the bubble was somewhere near 2 percent. Unfortunately, even most people who have read the book are not aware of this because he wrote it up in such a way as to downplay the finding. And of course the finding was not front-page news in the major papers, as I very much believe it should have been.

There are all sorts of issues like this. We “know” all sorts of things about investing today that we do not want to acknowledge that we “know.” My aim is to harvest this unappreciated knowledge. I do not by any stretch of the imagination believe that I have all the answers. But I do believe strongly that we need to launch a debate. I had a reputation prior to my involvement in the SWR debate of being a “teddy bear” poster. I am likely one of the least confrontational people you know. My problem re this matter is that there are a good number who object violently even to the idea of having  a discussion. And discussion boards at which critically important issues may not be discussed rarely achieve their full potential.

I regret that you have had to sort through all this drama. But I will direct a phrase to you that you have used in reference to me. There is something in you that saw an issue of some importance when you happened across the thread on SWRs. YOU are really on to something in seeing the significance there (many smart people have failed to see it). I hope that perhaps I will be able to point you to some things that perhaps will spark further fruitful investigations.

No dogmatism. That’s out! The aim here is exploration of potentially exciting new realities. It’s been my goal since the first day to bring out the positive in all this (which in my assessment is so far-reaching that it is scary) and to leave the boring, time-wasting stuff behind. That’s what I’ll be trying to pull off in future communications.

Thanks again for responding to a challenging e-mail in a warm and honest and frank and encouraging way. That gives me some hope (combined with a few other recent developments) that this saga may be taking a bit of a turn in a life-affirming direction.

Rob

Wade Pfau: “I Was Trying to Pay Tribute to Your Accomplishments in What I Knew Would Be a Hostile Environment”

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Yesterday’s blog entry contained the text of an e-mail that I sent to academic researcher Wade Pfau on Dec. 16, 2010.

Wade sent me an e-mail in response saying that: “I’m sorry for offending you. I’ve removed that post from Bogleheads. I will think about adding a new post to start over later and to express your accomplishments differently.”

Wade told me that he did not view his post as defamatory. He said that he had read enough material at the Bogleheads board to know that I was not well liked “by them” and noted that I had been referred to at the board as a person who could not be named. He added that he tried to be respectful to me in his post. He argued that most of his comments about me were positive and explained that “I was just trying to give you credit for your contributions in the context of knowing that this will not be well received at Bogleheads.”

Wade maintained that the negatives he used in reference to me “I don’t think are so negative” because “I think you were really on to something.” However, he added that “the thing that troubled me was how sure you were about your predictions, and how you asserted the correctness of those predictions in the face of criticism.”

At that point, the e-mail turned to a specific point. John Walter Russell’s research showed that, at the top of the bull market, the safe withdrawal rate for a retirement portfolio with an 80 percent stock allocation was 1.6 percent real. Wade observed that: “That 1.6 is not a point estimate from the regression, but the lower bound of a confidence interval that has to be defined in a fuzzy way because correct confidence intervals cannot be estimated due to the overlapping observations problem.  That means there has to be some doubt about the correct number. ”

Wade concluded his e-mail by apologizing for offending me but suggested that I had overreacted. Overall, “I was trying to pay tribute to your accomplishments in what I knew would be a hostile environment.”

Finally, the e-mail states that “I think we are basically on the same side.” Wade said that he had not looked at the links set forth in my e-mail to him but that he hoped to do so soon.

Rob

Wade Pfau: “I Just Became Aware of Your Past Research in September…. I Always Find Your Writing to Be Very Interesting and Intriguing”

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I will over the next few weeks be putting forward here summaries (in the case of Wade’s end of the conversation) and full texts (in the case of my end of the conversation) of my e-mail correspondence with Wade Pfau, Associate Professor of Economics at the National Graduate Institute for Economic Studies.

Our communication (and friendship) began with a comment that Wade put to the blog on December 16, 2010. Wade on that day put a post to the Bogleheads Forum that was influenced by the work that I have been doing since May 2002 on safe withdrawal rates and on the Valuation-Informed Indexing model for understanding how stock investing works.

Wade wrote: ” I just became aware of your past research in September.  Since then, I’ve read archives from many Discussion Boards and websites, and I always find your writing to be very interesting and intriguing….” Wade described retirement research he had done and linked me to the research, saying “I do cite you and John Walter Russell in my paper as the earliest and strongest advocates of this approach.” He solicited my comments, noting that there was still time to make improvements to the research before submitting it to a professional journal (the version at the link was a draft version).

I responded by sending Wade an e-mail containing the following words:

Wade:

I was excited to see your comments re the safe withdrawal rate issue this morning. I also was happy to see you express a desire to discuss some of these issues in more depth. I think that would be wonderful. I would like to help in any way
possible. We have done extremely important work in the Retire Early and Indexing communities over the past eight years and we need to get more professional research done and to get the word out to people whose retirements are at grave risk of going bust due to the analytical errors made in the Old School SWR studies.

I was shocked and appalled to see the words you put to the Bogleheads.org board this morning. You said: “After reading through lots of historical message board threads and personal websites, I understand that this topic can be rather controversial, though I think much of that controversy was due to a personality clash between the main supporter of using market valuations (who remained rather dogmatic and sure of the absoluteness of his predictions) and everyone else. It seems that this person is no longer mentioned by name, though I do cite him in the paper and I do think he was on to something important, even if he did not always convey his message very well.”

The person you are referring to is obviously me. The words you use to describe me and the role that I have played in The Great Safe Withdrawal Rate Debate are 100 percent inappropriate. My guess is that you are merely repeating defamatory comments that you have heard from abusive individuals posting to discussion boards. It is not appropriate for you to do that. If you have not checked the truth of a claim, it is wrong for you to repeat it as if you had. By doing so, you give the impression to others that there may be some truth to the claim.

I will provide here some links to help you come to a better understanding of the background of the Campaign of Terror that was led by Mel Lindauer (co-author of the book “The Bogleheads Guide to Investing”) and John Greaney (the author of the Old School SWR study posted at the www.RetireEarlyHomePage.com site) in an effort to shut down honest discussion of the SWR matter at all boards and blogs on the internet.

1) My bio is here:

http://knol.google.com/k/rob-bennett/rob-bennett/1y5zzbysw7pgd/4

2) This is a link to the home page of my blog. Down the left-hand side of the page, you will see 85 comments by both big-name experts and ordinary people who have become aware of my work and are appreciative of the insights they have picked up:

http://arichlife.passionsaving.com/

3) Here is a link to an article at my site titled “Investing Discussion Board Ban Honest Posting on Valuation!” It sets forth 101 comments by community members who have expressed a desire that honest posting be permitted at the Vanguard Diehards board (this is the board where the community that now meets at Bogleheads.org met before Mel Lindauer became incensed at Morningstar’s refusal to ban honest posting on the SWR topic and encouraged community members to form a new site where he could enact a ban on his own):

http://www.passionsaving.com/investing-discussion-boards.html

4) This is a link to a similar article quoting comments made by community members at an earlier stage of the debate, when the discussions were being held at the Motley Fool site:

http://www.passionsaving.com/community-comments-on-the-great-safe-withdrawal-rate-debate.html

5) This is a link to the site owned by John Greaney, the author of one of the discredited studies and one of the leaders of the Campaign of Terror against our board communities. Greaney was the first person to make death threats against community members who dared to “cross” him by posting honestly on the SWR matter. When hundreds of community members at the Vanguard Diehards board expressed a desire that honest posting be permitted, Lindauer invited Greaney and his Goon Squad to that board as part of his effort to intimidate and smear those posting honestly:

http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?board=HOCO

6) Here is a link to the text of an e-mail that I sent to Rep. Frank Wolf seeking his help with the problems raised by the internet sewer rats who have put forward posts in “defense” of Lindauer and Greaney:

http://www.passionsaving.com/internet-harassment.html

7) Here is a link to RobCast #190, titled “Lawsuits.” This podcast discusses my plans to bring lawsuits (and to encourage lawsuits by other parties who have suffered financially) against those who have aided or defended or supported the efforts of the internet sewer rats to block the desires of the thousands of my fellow community members who have expressed a desire that honest posting be permitted on the internet on SWRs and on many other important valuation-related investment topics.

http://www.passionsaving.com/personal-finance-podcasts-page-twenty-four.html

I am very excited about the possibility of working with you on constructive projects. I think you will understand after reviewing these materials why I have precisely zero willingness to get involved in any way, shape or form in efforts to employ defamation, deception, intimidation, harassment, smear campaigns and threats of physical violence to block honest posting on SWRs and other important valuation-related topics on internet discussion boards and blogs. I am confident that you agree that such sick ugliness has no place in discussions of important investment topics.

I would be grateful if, after reviewing these materials, you would let me know how you plan to proceed re this matter.

Rob

The Buy-and-Hold Myth

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I posted as Guest Blog Entry at the Married (with Debt) blog yesterday. It’s called The Buy-and-Hold Myth.

Juicy Excerpt: In the used-car market, the price of the car being sold is the result of a battle waged between the car seller and the car buyer. The seller wants a high price. The buyer wants a low one. Each side has to give something or risk seeing the negotiation fall through. The end result of the battle is usually a price that is more or less right. The car-selling market works.

It doesn’t work that way in the stock-selling market.

Have you ever heard anyone cheer low stock prices? The magazines love bull markets. So do the experts. So do the bloggers. So do your friends and neighbors and co-workers. So do you.

So the stock market is not really a market. Or, if it is, it is a very unbalanced market. A market in which everyone is pushing for higher prices. A dysfunctional market.

Juicy Comment #1: Buy and hold is not true for all the scenarios but Buy Intelligently and Hold should hold for most of the scenarios.

Juicy Comment #2: I’ll keep my thoughts to myself because we can just agree to disagree.

Juicy Comment #3:  I tend to agree that ‘buy & hold’ is largely an invention of the Wall Street marketing machine rather than a true, science-based strategy. However, telling people to abandon buy & hold without also providing a CONSISTENTLY RELIABLE mechanism for judging when prices are ‘high’ or ‘low’ is rather unhelpful, don’t you think?

Juicy Comment #4: I enjoyed reading your article, and I always think it’s good to read opposing viewpoints on a topic, it gives the reader additional information and provides a new perspective on the issue.

Juicy Comment #5: I think there is a middle ground here, isn’t there?

Juicy Comment #6: This implies that I can’t just invest my money and walk away for 30 years when I retire, this implies that I have to take charge and watch the market and act accordingly. Ugh.

Beyond Buy-and-Hold #86 — It’s Not That Big a Deal WHEN You Change Your Stock Allocation So Long as You Are Certain to Change It From Time to Time

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I’ve posted Entry #86 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called It’s Not That Big a Deal WHEN You Change Your Stock Allocation So Long as You Are Certain to Change it From Time to Time (Kevin used a slightly different headline).

Juicy Excerpt:  Chill. You need to make the allocation changes. You don’t need to get them 100 percent right. The key to long-term investing success is making those allocation changes. Get them roughly right and you will be far, far ahead of the Buy-and-Holders who aren’t making allocation changes at all.

Beyond Buy-and-Hold #85 — The Last 11 Years Have Been Lucky Ones for Stock Investors

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I’ve posted Entry #85 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called The Last 11 Years Have Been Lucky Ones for Stock Investors.

Juicy Excerpt:  Say that we were back in January 1981, the beginning of the 30-year time-period that ended in January 2011. The realistic expectation would be that we would see an annualized 30-year return of something in the neighborhood of 6.5 percent real. That’s the long-term return that has applied for stocks going back as far as we have records. So I plugged that number into the calculator as the 30-year return that would apply for the time period from 1981 through 2010.

Then I plugged in the returns we actually saw appear from 1981 through 1999, the 19-year returns sequence that was set in stone at the beginning of the 11-year time-period we are examining in this article. For the first results column in the calculator, I entered the returns we actually saw from 2000 through 2010. I let the calculator complete the second column, with the aim of bringing the annualized return for the entire 30-year period to 6.5 percent real, the long-term annualized return that has applied for U.S. stocks throughout history.

Assuming an investor had a $10,000 portfolio in 1981 and added $10,000 to his account in each of the 30 years, his portfolio amount at the end of 30 years for the Column One return pattern (the one we saw play out in real life) was $921,287. The Column Two return pattern (the most realistic one that could have been anticipated) generated a final portfolio value of $737,497. That’s a difference of over $180,000 in portfolio value.

VII #89 — Keeping Your Stock Allocation Constant Might Be the Riskiest Choice Of All

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I’ve posted Entry #89 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Keeping Your Stock Allocation Constant Might Be the Riskiest Choice Of All.

Juicy Excerpt:  Market timing earned a bad reputation in pre-Shiller days, when people did not know how to do it right. But many investors have drawn the wrong conclusions from their negative timing experiences. It’s not timing that is bad. It is guessing which is bad. The form of timing that involves guessing (short-term timing) really is bad. The kind of timing that does not involve guessing (long-term timing) is very, very, very good.

If valuations affect long-term returns, it is staying at the same stock allocation at all times that increases risk to unacceptable levels. If  valuations affect long-term returns, stock risk is not a constant but an ever-changing thing. Close your mind to the need to engage in long-term timing and you insure that your stock allocation will be wildly off the mark through most of your investing lifetime.

VII #90 — The Correlation Between P/E10 Values and Long-Term Returns Is Stronger Than Most Realize

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I’ve posted Entry #90 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Correlation Between P/E10 Values and Long-Term Returns Is Stronger Than Most Realize.

Juicy Excerpt: The stock price that applies on any given day is a COMBINATION of short-term and long-term effects. If the theory behind the VII model is correct, the short-term effects should always be pulling the data in the direction of showing no correlation and the long-term effects should always be pulling the data in the direction of showing a perfect correlation. The combined effect of the two contrary forces should be data showing a strong but imperfect correlation and one that grows as the time-period lengthens.

That is precisely what we see when we look at the 140 years of data.

If the VII model properly explains how stock investing works, we should not be expecting to see a perfect correlation when we compare the P/E10 value that applies on the day of a purchase and the long-term return produced in the years following that purchase. We should be expecting to see a strong but less than perfect correlation. That’s the correlation that appears on our computer screens when we generate graphics showing to us in pictures the story that the historical stock-return data has been trying to tell us for 140 years now.