A Rich Life

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

Only You Can Prevent Forest Fires — And Bull Markets

by

I recently wrote a Guest Blog Entry for the Improve the Quality blog entitled Only You Can Prevent Forest Fires — and Bull Markets!

Juicy Excerpt: We cannot wait until prices are insanely high to warn people that they must sell their stocks, however. By then, people are too caught up in the fantasy thinking that characterizes bull markets to listen to reasonable advice. I think we need a change in our mindset toward stock investing. We need to think of the stock market as a community asset, something we all benefit from and that we all should try to protect.

Podcast #90 — Irrational Exuberance Explains It All

by

I’ve added Podcast #90 to the “RobCasts” section of the site. It’s called Irrational Exuberance Explains It All.

When the time comes to complete my income-tax forms, I suddenly am aware of a great need to get all my record albums in alphabetical order. Dealing with the Passive Investing problem makes us all uncomfortable. But it won’t end up being nearly as difficult in reality as we now imagine it will be. And it will actually help us get our economy back on track.

Timing Doesn’t Work — Does It?

by

I recently wrote a guest blog for the Free Money Finance blog entitled Timing Doesn’t Work — Or Does It?

Juicy Excerpt: Too many investing experts have fallen into the lazy habit of saying that timing doesn’t work without making the distinction between short-term timing and long-term timing.

A community member named “Brian S.” offered an extremely helpful comment.

Juicy Excerpt: David Swensen, the investment manager for the Yale Endowment, discusses this in his book “Unconventional Success: A Fundamental Approach to Personal Investment.” It appears that he has used this approach rather successfully, helping Yale acheive some pretty good returns over the last decade.

Podcast #89 — The Equity Risk Premium Explained! (Perhaps)

by

I’ve added Podcast #89 to the “RobCasts” section of the site. It’s called The Equity Risk Premium Explained! (Perhaps)

Academics have long been puzzled by the 6.5 percent real return paid to long-term stockholders; they say that the risk premium is too high. It may be that the reason why the nominal risk premium is so high is that only a small percentage of stockholders (Rational Investors) earn the average return or better in the real world; most investors follow a Passive Investing approach and are forced to sell in the huge price crashes that result when highly emotional strategies become popular.

Podcast #88 — Predicting Presidential Success Using P/E10

by

I’ve added Podcast #88 to the “RobCasts” section of the site. It’s called Predicting Presidential Success Using P/E10.

When P/E10 is low, the odds are better that the economy will be flooded with funny money from temporary stock-market gains. That makes the economy look better for a time and gives a president political running room on other issues.

“God Wants to Steer Us in the Right Direction by Insisting We Follow His Ten Helpful Suggestions”

by

An earlier blog entry (Do We Like What Comes from Telling Lies to Ourselves re What Our Stock Portfolios Are Worth?) reported on my recent correspondence with my friend Brian. Brian recently sent a follow-up e-mail. The text of my response to the follow-up e-mail is set forth below.

Brian:

Your thought that people often gain more from losing money than from accumulating it is a far-reaching one. 

I agree in part but I strongly disagree in part too.

The title of my blog is “A Rich Life.” The suggestion is that I am trying to teach people not just to accumulate dollars but to strengthen their souls and thereby to enhance the enjoyment they obtain from each dollar they possess (so that followers of the ideas can be more content with their lives even in cases where they end up with lower net worths).

It certainly is true that there are circumstances in which losing money pays off bigger in a long-term sense than does accumulating money. We agree on that much.

That said, I have made it my life’s work to help people INCREASE their wealth. That’s the job. If I didn’t believe that that is a good thing, I would have been wrong to have taken on this work.

I do NOT agree with the claim that “Money is the root of all evil.” What the Bible really says is that LOVE of money is the root of all evil. I believe that having more money is a good thing. It CAN be a bad thing and there certainly are many cases where it becomes a bad thing. But all else being equal, I believe that having more money is a good thing. I am seeking to help people learn how to accumulate more money and thereby to achieve financial freedom earlier in life.

What I try to do is to teach people how to accumulate more money WITHOUT doing damage to their souls. When conventional ideas run the risk of soul damage, I reject them. There are a good number of conventional personal finance ideas that do this, in my assessment. So I feel that I add something by putting forward a point of view that incorporates both a love of money (you must love money to achieve financial freedom early in life, in my view) with a concern re the loss of soul that is too often correlated with achieving success in financial terms. I speak out against the excessive love of money itself. But I encourage my readers to love the good things that money can add to life and to appreciate that doing good in this world requires money. It’s a bit of a balancing act.

I think that we may someday look back at this economic crisis as having been a wonderful thing. It is a huge learning opportunity. I view the promotion of Passive Investing (the idea that the price we pay for stocks doesn’t matter) as a narrow-minded and hateful thing. I think of the advocacy of Passive Investing as financial porn. I find it yucky and dirty and smelly and anti-human. I want nothing to do with it.

If the pain we experience during this economic crisis causes us as a people to hate the Passive Investing concept, it will have accomplished a wonderful purpose. To that extent, I agree with your point that losing money can be more of a positive than accumulating it.

However, I don’t believe that God hates us and wants to punish us for our sins. I believe that God loves us and wants to steer us in the right direction by insisting that we follow his Ten Helpful Suggestions (that’s a joke!). I see the economic crisis as a gift, an opportunity. It will crush us if we ignore the lesson that we very much need to learn. But learning why Passive Investing can never work in the real world could end up making us richer than we have ever imagined ourselves in coming years. If we become a richer people as a result of learning the lesson that this economic crisis is trying to teach us, I will not say that that is a bad thing just because being rich can sometimes be a bad thing. That will be wealth that we have earned by suffering and by reconciliation to the realities of life. That will be wealth that we will properly be able to take pride in and laugh about and learn lessons  from and think back on with great pleasure and satisfaction.

My belief is that wealth itself has the potential to do great good. But it’s up to the humans to make sure that it does that and not the opposite. Passive Investing was a mistake. Passive Investing was a move to the dark side. Now that more of us see that we have an opportunity to turn back to the light and to transform all the negative energy generated during the Passive Investing era into a positive force.

The other thing is that a general recognition that Passive cannot work in the real world would probably help me sell a whole big bunch of books. So I see this as a win/win/win/win with no potential downside.

Rob

The More You Know About Investing, the Less You Know About Investing

by

I recently wrote a Guest Blog Entry for the My Journey to Millions blog. It’s called The More You Know About Investing, the Less You Know About Investing.

Juicy Excerpt: The experts can learn new things faster than I can. They have all sorts of tools available to them to keep up with developments in the field. They’re driving 90 miles per hour while I’m poking along at 25. Still, I possess an edge. I’m driving at a far slower speed but in the right direction. It makes a difference!

The Goons took a shot at this one, but the site owner shut them down.

Juicy Excerpt: I am all for open discussion, so please elaborate. The first link is an article that Rob wrote. Do you agree or disagree?

We go about building up the same way we went about tearing down — as a community. Of course overcoming the crash means doing the opposite of all the stuff we did to cause it!