A Rich Life

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

“Ideas Sink In and Come to Seem Less Strange Only After Repeat Exposure”

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Set forth below is the text of an e-mail that I sent to Mike Piper (author of the Oblivious Investor blog) on October 29, 2009, in response to the e-mail correspondence described in yesterday’s blog entry and other recent blog entries.

Mike:

I have continued to ponder the issues raised in our recent e-mail discussions. I have come up with a slightly far-out proposal which would make me perfectly happy. It’s something that I have zero right to demand of you. I thought that I would put the idea forward just on the off-chance that you found it a satisfactory approach for satisfying both the Passives and the Rationals (a small group today, to be sure, but one that I hope will be growing with time!) among your readership.

My sense is that your biggest concern is that regular iteration of the idea that Passive doesn’t work antagonizes a good percentage of your readers. I believe you are right about this. My counter is that it is critical that the indexing community as a whole take Bogle’s ideas in a new direction and it is not possible to do this without having people regularly exposed to the new ideas. People are rarely convinced of something by seeing it argued one time. Ideas sink in and come to seem less “strange” only after repeat exposure. So I feel that it is critical that indexers have some means of hearing about the argument against Passive on a repeating basis.

My view is that the most natural way to give people regular exposure is by giving the Rational perspective each time you advance a blog entry giving the Passive perspective. It is not at all my intent to make people feel uncomfortable or to be disruptive or anything along those lines. As you have pointed out, it defeats my purpose if people have a negative reaction to seeing my name in the Comments section.

You asked two good substantive questions during our e-mail exchanges: (1) Why is it that I say that Passive can never work even though you can identify many people for whom it HAS worked?; and (2) Why is it that I say that Passive Investing CAUSED the bubble when Passives argue for remaining at a CONSTANT stock allocation?

My thought is — What if you gave me space on a once-per-month basis to write a Guest Blog Entry making the case for Valuation-Informed Indexing (the strategy I favor) or Rational Investing (the model I favor) in which I would address some question about the strategy or model put forward by you or by one of your pro-Passive readers? You could of course put forward introductory language saying that you do not endorse these ideas but are merely permitting them to be aired at your blog. Your readers could agree with the arguments or disagree with them or ignore them as they pleased.

If your readers were being exposed to the ideas in a high-profile way and on a regular basis, my concerns that they are not being permitted to hear about them in a meaningful way would be addressed. In those circumstances, I would be happy to agree to refrain from putting up comments finding
fault with your Passive claims on all the other days of the month (I would of course continue to put forward comments on the many aspects of Oblivious Investing re which we are in solid agreement).

Again, please do not think that I am making a demand. I am asking for an unusual arrangement for what I view as an unusual set of circumstances. My intent is to put forward a suggestion that makes sense only if it would make
you happy to proceed this way. I am trying to come up with an approach that leaves us both feeling that the Oblivious Investor blog community is being well served.

I would be grateful if you would let me know your reaction. You will not hurt my feelings if you respond simply by saing “no, thanks.” If you have alternate ideas along these lines, I of course would be happy to hear about them.

Rob

“I Haven’t Been Ducking These Questions”

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Set forth below is the text of an e-mail that Mike Piper (author of the Oblivious Investor blog) sent me on October 28, 2009, in response to the e-mail that I sent to him that was set forth in yesterday’s blog entry.

Rob-

Sometimes two thinking, reasonable people can disagree about something. Surely you know this.

I haven’t been “ducking these questions.” I’ve been neglecting to respond to your comments for the same reason that I’m asking you to stop posting them: We already discussed/addressed your claims on your original guest post. And yet, we still disagree. I’ve seen the data you’re referencing, and yet I disagree as to how to respond to it.

I think we’re well past the point where further discussion of the topic is going to be beneficial. (And my readers’ emails tell me that they feel the same way.) And that is why I’m asking you to stop bringing it up on my blog.

That’s really all I have to say about this.

Thank you.

-Mike

I responded with an e-mail that stated: “I am going to continue to post honestly, Mike.”

I followed up shortly thereafter with an e-mail asking Mike if he objected to me posting the full texts of his e-mails at this blog. He responded by saying: “Feel free.”

“In Ordinary Circumstances, Your Response Would Be to Stop Making the False Claims”

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Set forth below is the text of my October 28, 2009, e-,mail to Mike Piper (author of the Oblivious Investor blog) in response to the e-mail sent by Mike to me that was set forth in yesterday’s blog entry.

Mike:

My way of making the point is to point to the historical data showing that the claims that Passive Investing can work are false.

You are of course correct that in ordinary circumstances it would not be necessary to make these claims more than one or two times. In ordinary circumstances, your response would be to stop making the claims once you became aware of the errors in them. You have not done this. You continue to make the claims that have been demonstrated to be false at numerous boards and blogs for seven years now (there is a long historical record of these discussions available for your review and material summarizing the findings developed from them are available at my site). Thus, I am obligated out of concern as to what these false claims will do to you and your blog community to repeat the explanations of why they are false.

Some of your readers are uneasy because they are being told two opposite things. The situation calls for a resolution of the differences.  This is what you should be pursuing. You should be writing on and reflecting on these issues until you have figured them out. If you come to a conclusion that Passive cannot work, that obviously would resolve any problems. If you develop responses to my claims that are clear and strong, that also would obviously resolve the problems.

Until now you have been ducking these questions. It would make all the sense in the world for you to take things to the next natural step and get about the business of trying to resolve them. I will obviously do everything that I can possibly do to make such an effort succeed. That’s the best solution for you, for all your readers and for the indexing community in general.

I will continue to applaud you when you get it right (in my assessment) and I will continue to point out your errors when you get it wrong (in my assessment). That’s the job of an honest commenter at your blog community. If you do not see it that way, you should be asking yourself what you have gotten yourself mixed up in that has caused you to feel the way you do about it.

What if you are wrong and I am right, Mike?

Have you given thought to how many lives you will have destroyed through your words in that event? There are responsibilities that come with opening up a personal finance blog. Serious questions have been raised about claims that you put forward at your blog. You have a responsibility either to explore those questions or to stop making the claims that have been questioned. I have a responsibility to point out how wrong you are to fail to meet those responsibilities in the event that you do indeed fail to meet them.

I need to be able to face the man in the mirror when I wake up in the morning, Mike. That’s the bottom line re all this. Millions of retirements have been positioned to fail in years to come because of the failure of the Passives to acknowledge their mistakes for 28 years now. Millions of businesses are positioned to fail. Millions of marriages are under strain. Our political system is feeling the strain.

Marketing considerations are important. Marketing considerations should not be primary for those putting forward advice on how people should invest their retirement money.

That’s my sincere take re all this.

Rob

“It’s Generally Regarded As Rude to Repeatedly Disagree With the Blogger”

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Set forth below is the text of an e-mail sent to me by Mike Piper (author of the Oblivious Investor blog) in response to my e-mail to him set forth in Friday’s blog entry.

Rob:

To be clear, my issue (and the issue voiced by my readers) has little if anything to do with your claims about passive investing and lots to do with the way you’re going about making those claims.

Quite simply, there are certain social norms regarding blogs. One of them is that (at least as far as I can tell) it’s generally regarded as rude to repeatedly disagree with the blogger in question, assuming your disagreement has already been recognized and discussed.

To ignore those norms is to invite failure for the success of your message–at least if your method of spreading that message is via the blogosphere.

To give an example: If you disagree with another blogger, but you want that blogger to help spread your ideas, I’d suggest the following:

  • Write a post on your own blog explaining why you disagree with a point made by that blogger. (Be sure to link to the post you’re disagreeing with.)
  • Let the blogger know (via email or twitter) about your post.

If your method is simply to repeatedly voice your disagreement with the blogger, you’re going to alienate both the blogger and his/her readers. (My blog being a case in point.)

Again, I sincerely encourage you to continue writing about your investment beliefs and the facts/studies/research they’re based upon. I just ask that you refrain from bringing up (on my blog) our point of disagreement given that we’ve already been over it so many times. 

-Mike

“This Cannot Be Put Off Indefinitely”

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Set forth below is the text of an e-mail that I sent on October 27, 2009,  to Mike Piper (author of the Oblivious Investor blog) in response to the e-mail set forth in yesterday’s blog entry.

Mike:

Neal and you are writing about different investing approaches. He is not part of the same community.

You and I are writing about the same approach. Both of us are writing about the approach based on Bogle’s idea to use the academic research to formulate a long-term approach to the use of index funds. We are part of the same community.

The friction comes from the fact that The Stock-Selling Industry failed to reform its description of what works in response to Shiller’s research showing that valuations affect long-term returns. When your model is rooted in the academic research, you need to keep up with the academic research and let people know when ideas you once believed in have been discredited by the research. This was not done back in 1981 and it is the failure of a large number of Passive Investing advocates to do this that has caused all this friction.

This cannot be put off indefinitely. If you are going to have base your model on academic research, you need to report what the academic research says accurately. The academic research shows that valuations affect long-term returns. If valuations affect long-term returns, Passive obviously cannot work. If valuations affect long-term returns, investors need to change their allocations or else they are permitting their risk profiles to get wildly out of whack. That is obviously not Stay the Course investing.

If you have some personal theory that it is better for investors not to change their allocations despite changes in valuations because you think that they will make bad decisions, it is of course proper for you to share your theory with your readers. But that doesn’t change the fundamental reality that the theory on which Passive Investing is based (that the market is efficient and thus sets the price properly) was discredited by the academic research 28 years ago. I can point you to scores of articles published since the crash that note that the Efficient Market Theory has been entirely discredited.

Rob Arnott has said that the conventional advice of today is rooted in “myth and urban legend.” I think it is fair to say that that Bogle was not seeking to promote myth and urban legend in the early days of his promotion of the indexing concept. The Passive Investing of today is a betrayal of Bogle’s vision in the days when he kicked off the Indexing Revolution (because what the academic research tells us about the realities of long-term indexing has changed so dramatically).

All of the friction results from the fact that this reality is not widely enough known. We all need to be spreading knowledge of this reality as widely as we possibly can. Once everyone is up to speed, the problems all go away. Right now, we are living in a twilight zone in which the academic research has shown that Passive cannot work but many of the people using this approach do not know this. That’s not my doing, Mike.  I am doing all that I can to make people aware of the realities.

If you don’t want people at your blog to point out that Passive does not work, you need to make claims re Passive in a reasonable and fair and accurate way. For example, you should not be saying “timing doesn’t work” but that “short-term timing never works and long-term timing always works.” If you say it that way, there is nothing for anyone to take issue with. It is the slippery way of putting things that has become characteristic of the promotion of Passive Investing in recent years that is causing the trouble. If you say things properly, I do not have to point out the problems in my comments.

The historical data is available for anyone to check, Mike. We all should be reporting what the historical data says accurately. I hate to think that even the idea of reporting accurately what the historical data says has become a matter of “controversy” among advocates of Passive at this point! If so, I think it is fair to say that someone somewhere  put the Passive Investing Train on a terribly, terribly, terribly wrong track.

Rob

“There Is Something Rude About Disagreeing With Me Repeatedly At My Own Blog”

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Set forth below is the text of an e-mail sent to me on October 27, 2009, by Mike Piper (author of the Oblivious Investor blog) in response to my e-mail to him set forth in yesterday’s blog entry.

Rob-

The fact that you disagree with me isn’t the point. I completely agree that diversity of opinion is a wonderful thing in general and that it’s an integral part of what makes our financial markets work. The issue is that you feel the need to continually bring up your disagreement and that you do so on my blog.

To illustrate, let me bring up Neal Frankle (aka Wealth Pilgrim). His investing viewpoints contrast my own far more than yours do. (He’s an advocate of short-term market timing using actively managed funds.) He invited me to write a guest post for his blog explaining my contrary viewpoint. I did so. He replied explaining why he disagreed. We talked it through in the comments. End result: Neal and I still disagree. Adamantly. Yet we don’t bring it up over and over at each other’s blogs.

What we do though is continually write about our own beliefs/philosophies/thoughts on our own blogs, putting forth the ideas that we’ve come to believe in. I write about why I think actively managed funds are a terrible choice. And Neal writes about why he thinks the opposite.

You wrote that “It makes me feel that there is something wrong or dirty or rude or not nice about challenging Passive Investing at your blog with the strongest arguments that I can muster against it.” There’s nothing wrong rude about disagreeing with me. And there’s nothing rude about disagreeing with me on my blog. But, frankly, I think there is something rude about doing so repeatedly on my own blog.

If you believe that you should repeatedly “make the strongest case” you can against what I’m recommending, then go for it. But, please, have the respect to do it on your own blog.

Thank you.

-Mike

“It Makes Me Feel There Is Something Dirty or Rude About Challenging Passive Investing at Your Blog”

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Set forth below is the text of an e-mail that I sent to Mike Piper (author of the Oblivious Investor blog) on October 27, 2009, in response to the e-mail that he sent to me that was posted as yesterday’s blog entry.

Mike:

The book The Wisdom of Crowds makes what I consider one of the most persuasive arguments that I have heard in favor of the idea that the market sets the price better than any one individual could set it. But the author advances a caveat on page 19 of the Introduction:

“Diversity and independence are important because the best collective decisions are the product of disagreement and contest, not consensus or compromise. An intelligent group, especially when confronted with cognition problems, does not ask its members to modify their positions in order to let the group reach a decision everyone can be happy with. Instead, it figures out how to use mechanisms — like market prices or intelligent voting systems — to aggregate and produce collective judgments that represent not what any one person in the group thinks but rather, in some sense, what they all think. Paradoxically, the best way for a group to be smart is for each person in it to think and act as independently as possible.”

The group that meets at your blog is a community. I have a role in that community. My role is to make the strongest case against Passive Investing that I am able to put forward. That helps the community in several ways. One, it helps those who have doubts about Passive Investing to develop their thinking about why they have doubts. Two, it helps some of those who in the past have had no doubts by causing them to experience the first stirrings of doubt, And, three, it helps those who have had no doubts before and who continue to have no doubts to gain confidence in their contrary views by seeing them challenged effectively and by seeing that challenge fail in their eyes.

Yes, I CERTAINLY view your earlier e-mail as an act of intimidation. It makes me feel that there is something wrong or dirty or rude or not nice about challenging Passive Investing at your blog with the strongest arguments that I can muster against it. Do you respond with that sort of e-mail to community members who agree with you on Passive Investing? Your role as a writer and commenter is also to make your case as effectively as you can make it. Your role as a MODERATOR is very different. Your role as a moderator is to play it straight down the middle, not to slant things in favor or against the Passives and not to slant things in favor or against the Rationals.

You shouldn’t be merely PERMITTING me to make a strong case against Passive at your blog. You should be ENCOURAGING  me to do so. You should of course argue effectively against me when you disagree. But you should never raise even a hint of a suggestion that there might be some sort of punishment to follow if community members put up posts not in agreement with your own views. Those comments help you more than the ones that say “attaboy!” on every word you put forward. It is those who challenge you who bring on your greatest learning experiences. Those who challenge your thinking often end up being your best friends, Mike.

You should be writing about the fact that you have community members who are upset to hear criticisms of Passive Investing. That’s part of the story. That’s news. Discussion of that reality is likely to bring on a learning experience for everyone concerned. To the extent that you share these feelings, you should say so. But you should NEVER indicate to anyone at the blog that you have given thought to punishing those with different viewpoints. That i so far over the line that I cannot even describe how far over the line it is.

You have indicated that you don’t believe that you could ever change your mind on these issues. I don’t think that’s right. There was a time when I thought Passive Investing was just peachy. I obviously changed my mind, right? I wouldn’t have predicted in advance that that would happen because I hadn’t yet worked through the changes that I needed to work through to get me to where I am today. You need to open yourself to arguments and ideas that you today cannot today imagine supporting because it is only by opening your mind to the possibility of changing your mind that you will even be able to hear the arguments with a fair mind.

The purpose of the First Amendment is not to protect majority viewpoints from criticism. Majorities can generally take care of themselves. The purpose is to protect minorities. Minorities NEED protection. Minority viewpoints are often hated. It is often the case that they are hated not because they are wrong but because they are right. Think slavery. The idea that slavery should be abolished was once hated with the same passion that a good number of people today feel for the idea that Passive Investing is dangerous investing. We have a First Amendment not because hearing the other side always feels good. We have it because we have learned from experience that it is in our long-term best interest to keep the door open to new ideas. The stomping out of minority viewpoints has in the past often ended up causing more harm to the majority than it did to the minority. We often cannot see how it could ever end up that way. But it has ended up that way many times in history. The First Amendment is there to protect us from our own worst inclinations to stomp out the voicing of minority viewpoints.

We need to bring about Normalization of these discussions. I don’t mean just at your blog, I mean across the entire internet. We don’t get there through further bannings or through further threats of bannings. You should put out of your mind even the idea of ever banning anyone for anything except abusive posting. Those of us who want to see the blog achieve its highest possible potential (that obviously includes both Mike Piper and Rob Bennett) should be working together to make that happen. It cannot happen by silencing the anti-Passive Investing viewpoint. There are probably lots of constructive things that could be done to further that objective and I am happy to work with you to advance any positive options. But I don’t think we can get to Step A until we banish even the idea that a ban on honest posting could ever be  good idea. Yes, the advancing of that idea intimidates. It poisons the atmosphere for any community member to feel that he might be excluded from a community solely because he puts forward his honest take on the subject under consideration.

I want to work to make your blog the best blog it can be. That’s why I share my thoughts on Passive Investing at your blog. I want to be able to feel that you WARMLY WELCOME my contributions regardless of whether they happen to be in agreement with your views or not. When we achieve that, I believe that the rest will be downhill sledding. I don’t put forward my words with the aim of winning popularity points (although I of course believe in interacting with others in a spirit of friendship and warmth). I put them forward with the aim of helping us all to learn more about the realities of stock investing. That should be enough to win a hearty endorsement from you for my continued active and honest participation, in my view.

Rob

“To Say That Any Market Collapse Is Caused By Passive Investing Doesn’t Make Sense to Me”

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Set forth below is the text of the e-mail that Mike Piper (author of the Oblivious Investor blog) sent me on October 27, 2009, in response to me e-mail to him set forth in yesterday’s blog entry.

Rob-

Here is where we disagree. I have seen many investors achieve very real success utilizing long-term passive investing strategies. I therefore disagree strongly with the statement that it doesn’t work and never works. I’ll freely admit that there are strategies which have earned higher returns in the past, some of which may likely earn higher returns in the future. But I cannot agree with the statement that it has “a zero chance of ever working in the real world.”

Further, as I explained in reply to your original guest post on my site, to say that any market collapse or market bubble is caused by passive investing doesn’t make sense to me. If literally everybody were to execute a passive investing strategy (i.e., buying and holding index funds, with only very gradual changes in asset allocation), there would be no sudden spikes or declines in demand for stocks–and there would therefore be no bubbles or collapses. (Not to say that everybody should follow a passive strategy, or that the world would be a better place if everybody did…I’m just pointing out that by its nature, passive investing cannot cause volatility.)

As to banning you, I will openly admit that I’d rather not. I’d rather not ban anyone, frankly. (I would hope this would be obvious given that I approached you about the matter openly and directly rather than simply banning you.) I sincerely hope that you don’t think that what I’m doing here could be described as “intimidation tactics.”

Also, I believe that you’re misunderstanding people’s motivations when you say that their emails are motivated by hurt feelings. I don’t think that’s the case. As I mentioned in a previous email to you, I believe it has much less to do with the actual content of your comments and much more to do with the frequency with which you bring the topic up. 

Again, as I mentioned in the prior email, I sincerely believe that you’d have more success with spreading your message if you brought it up less frequently and/or with less fervor. As it is, I think your methods tend to alienate people rather than win them over. If you’d like to publish this email, you may. But I have to doubt how constructive it would be to post it. It seems to me that the only thing it would achieve is sensationalizing the matter and further alienating people who are currently passive investors. (And after all, these are the people whom you would hope to persuade to be “value-informed investors,” correct?)

Sincerely,

Mike

“Having a Successful Blog Is Not Going to Mean Much If We See an Economic Depression”

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Set forth below is the text of my October 27, 2009, response to the e-mail from Mike Piper (author of the Oblivious Investor blog) set forth in Friday’s blog entry.

Mike:

Holy moly! Another one goes to the dark side!

I do not respect the viewpoint you express in this e-mail (although I of course respect the good things that you have done with your blog aside from your promotion of the long-discredited Passive Investing model).

Passive Investing is reckless investing. The academic research has shown for 28 years now that there is precisely zero chance of it ever working in  the real world. The continued promotion of this “idea” for three decades after we learned that it cannot work has caused the greatest loss of middle-class wealth in the history of the United States. We are now suffering through an economic crisis which stands a good chance of bringing on the second great depression. We have seen significant damage to our political system.

All of us who have enjoyed benefits from our economic and political system have a responsibility to do what we can to help get us out of this economic crisis as quickly as possible. The single most important step is to start shooting straight with middle-class workers about the failure of the Passive Investing model and to get about the business of building a new and more realistic one.

The very fact that you have received e-mails from readers expressing happiness that a post that reported on an important investing reality in an entirely appropriate and helpful way was deleted from the blog should tell you that something is terribly, terribly wrong with this model. Why is it that Passive Investors feel such shame about the damage that has been done by the reckless promotion of this model for years after it was discredited by the academic research? It is because humans have within them a desire for honesty and because we feel a natural compassion for our fellow investors (and for ourselves!) and feel a revulsion over our own bad behavior when it causes such human misery. I cannot support this kind of thing.

I of course agree that we should be taking the feelings of those who have endorsed Passive Investing or followed Passive Investing principles into account when making the transition to the Rational Investing model. It is critical to move forward in a spirit of charity. But it is also critical that we do indeed move forward. Allowing further promotion of Passive Investing (or, worse, allowing the promotion of Passive Investing while NOT permitting honest posting on the dangers of this “strategy”) helps no one. It makes a very bad situation worse.

You have responsibilities not only to those of your readers who are so emotionally damaged by their earlier belief in Passive Investing that they cannot bear to hear the realities publicly expressed. You also have responsibilities to those who today possess a desire to learn the realities. I know from long experience discussing these matters that there are such readers at your blog (I also know that there are indeed not a small number who are feeling real pain about the mistakes they made at earlier times). If it becomes a question of working with you to proceed in the most constructive and positive way possible for your entire readership and for the entire community of people who see the value in Bogle’s many good ideas, I am happy to do whatever I can to move the process forward. If it has become a question of pretending that there is some alternate universe in which the continued promotion of Passive Investing will not continue to do great harm to all involved, I am not able to participate.

There will of course be no problem with investors “latching on” to timing ideas that do not work if most personal finance blogs and most investment advisors simply unite in telling investors the straight story. There are millions of investors who today believe the nonsense claims that The Stock-Selling Industry has been pushing on us for three decades now. That reality has of course caused huge financial losses and made investors about 50 times more emotional about these matters than they would be if we were all reporting the realities accurately. The concern you express here is one of the many problems caused by the reckless promotion of Passive Investing. The obvious solution to the problem is to stop promoting Passive Investing and to made it a point to regularly point out the dangers of buying into the dangerous “idea” that valuations do not affect long-term returns.

I cannot say with certainty whether I would eventually change your mind or the minds of many  of your readers in the event that you continued to permit honest posting at your blog. I believe that you and your readers would eventually come around as the benefits of Rational Investing are so great and the downsides to Passive Investing are so great. I know one thing for certain. If more people do not work up the courage to report honestly on these questions, our chances of changing minds (and of thereby salvaging our economic and political system) are slim indeed.

If you looked at the history of what the promotion of Passive Investing has always done to us in the past and then considered how out of control things got this time, I think you would agree that, whatever are the odds of success, we have no choice but to put our best efforts to doing what we can. Having a successful blog is not going to mean much if the economy goes into  depression. If a world war follows, as it well might, I think it would be fair to say that having a successful blog would come to mean just about zero.

I will continue to post honestly at your blog until such point as I am banned from participating. People who threaten bans do not always follow through. I think that the right thing to do is to force you to push the button before saying publicly that you have banned honest posting at your site.

I would like to post both your e-mail and my response to it at my blog for the obvious news value they possess for those hoping to see the internet opened to honest posting on investment topics in days to come. If you object, please let me know and I will post only a summary of the points made in your e-mail.

I will be contacting numerous political blogs and policymakers in days to come in an effort to organize an effort to have legislation opening the internet up to honest posting on the failure of the Passive Investing model and on the intimidation tactics that have been used to mislead millions of middle-class investors about the realities of stock investing as revealed by the academic research and the historical data. In the event that you do indeed ban honest posting, I will of course be required to report that fact as part of the story and to urge those concerned about the future of our economic and political system to demand that you reopen your blog to honest posting (or else to at least expressly explain in the rules of the blog that honest posting on the failure of the Passive Investing model has been banned, so that people reading the blog understand that they are not hearing the straight story).

I will of course note in my comments re you that we had good dealings for a time, that I believe that your  personal belief in Passive Investing is sincere, and that I believe that you have done good work on many topics not related to the one of whether  honest posting should be permitted on the failure of the Passive model.

I hope that we will remain friends in the event that you do follow through with your plans to ban honest posting. If ever there comes a time when you have questions about what we have learned in the Retire Early and Indexing communities over the past seven years, please feel free to ask them. You are a fine writer and I sincerely believe that at least a part of you would like to take things to a better place than where they stand today. If ever I can be of help in giving more strength to the part of you that got you interested in investing issues in the first place many years ago, I want to do all that I can to make that happen. You are in a position to have a huge positive influence if you ever elect to take the other path.

Thank you for letting me know that the readers who wrote you believe that I proceed with the best of intentions and also for saying that you believe this yourself. It is a kindness for you and for them to say that given the circumstances that apply here. That sort of thing makes a difference. I see those words as a bright spot in an otherwise very dark message.

Rob

“I’d Rather Not Ignore Requests of What Appears to Be a Significant Portion of My Readership”

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Set forth below is the text of an e-mail that Mike Piper, author of the Oblivious Investor blog, wrote me on August 27, 2009.

Hi Rob.

Last week, after deleting your comment, I got multiple e-mails from readers thanking me for doing so. The message expressed in each email was that the reader was tired of hearing about Valuation-Informed Investing. Today, after your comment, I received another email from a reader asking me to request that you stop bringing it up.

Two of the emailers explicitly noted that you appear to have the best of intentions with your writings. I’d agree with that statement.

However, I’d rather not ignore the requests of what appears to be a significant portion of my readership. (I’ve always suspected that if a few people take the time to email about something, there are others who have been thinking the same thing, but don’t bother to say so.)

I’ve read Schiller’s “Valuation Ratios and the Long-Run Stock Market Outlook” as well as the 2001 update of that paper. I’m not trying to argue against the historical correlation between future price changes and current P/E 10 ratios. I wouldn’t fault you for integrating current P/E 10 ratios into your asset allocation plan, nor would I fault you for recommending that others do the same.

The primary reason I don’t actively recommend it is that I’m not convinced it’s worth the additional possibility for errors. The issue isn’t that I believe it would be particularly difficult to implement. I’ve just found that investors tend to latch onto the idea that it’s possible to beat the market, and once they latch onto that idea, they don’t have very good ways of separating reasonable methods from unreasonable methods. So they choose between methods by doing the obvious: They compare past performance, which can lead to all sorts of poor investment decisions. Instead, I suggest accepting market returns.

I fully encourage you to continue writing about Valuation-Informed Investing on your blog. I would, however, ask that you refrain from bringing it up on my own. You know where I stand on the topic, and I (and my readers) know where you stand. We discussed it pretty thoroughly in your guest post, and it’s been discussed to varying degrees in other comment threads. I respect your viewpoint on the matter, and I hope that you respect mine. However, I don’t think either of us is going to change the other’s mind at this point, and I’m doubtful as to whether anything would be gained by our continuing to discuss it.

Sincerely,
Mike