A Rich Life

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

“The Right of Contributors to Post Their
Sincere Views Must be Respected”

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Retired at 48 recently announced at the Vanguard Diehards board that he has entered negotiations with Morningstar.com to deal with the abusive posting problems that have plagued the board in recent years. Set forth below is an e-mail that I sent to Retired at 48 offering to help out in this effort. I have received a response from Retired at 48. We have not made a decision as to whether to go public with any future correspondence.

Retired at 48:

This is Rob Bennett. I posted as “hocus” at the Vanguard Diehards forum from July 2005 through February 2007.

I saw your note at the board concerning your talks with Morningstar to open the forum up to honest posting by community members coming at things from various points of view. That’s good and important work.

I don’t know how much you know about my background. It was my honest posting on the safe-withdrawal-rate topic (and other valuation-related topics) that caused formation of the Bogleheads.org forum in the first place (the board was formed to provide the dogmatics an escape from Morningstar, which was not willing at the time to go along with a ban on honest posting). Here’s a link to an article at my site that provides some background re the thoughts of other community members on the tactics used to enforce the ban:

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

Here’s a link to an article that sets forth the text of an e-mail that I sent to my congressman on this matter:

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

Here’s a link to a blog post setting forth the text of an e-mail that I sent to my local police department and that I discussed in telephone conversations with a Virginia state police official who deals with internet crimes (Mel often invited contributors to the Greaney board to the Vanguard Diehards board to help intimidate those seeking to post honestly and two long-time contributors to the Greaney board were named “moderators” for the Bogleheads board on the day it was formed):

http://arichlife.passionsaving.com/2009/01/22/my-e-mail-to-the-virginia-police-re-the-campaign-of-terror-against-our-board-communities/

I wish you luck with your endeavors. I believe that the internet discussion board is an important communications medium of the future but that to achieve its potential the right of contributors to post their sincere views must be respected; that is, site owners must honor the promises they make to those who build their boards to protect them from intimidation tactics. If there is ever anything that I can do to help move things in a positive direction, please let me know.

Rob

Don’t Give Up on Stocks!

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It’s the “experts” who got us into our current economic mess. It’s does not make too much sense to think that it’s going to be the “experts” who are going to get us out.

We need new ideas. New ideas come from new places.

That’s why my first choice of a partner for my initiative on getting the word out to middle-class investors about what we have learned about the realities of stock investing over the past seven years was the author of the Frugal Dad blog. Frugal Dad is a smart fellow, a hard-working fellow, a caring fellow. Best of all, he doesn’t view himself as a stock-investing “expert.” That’s what we need! We need someone who is smart and hard-working and caring and who isn’t so caught up in defensiveness over the bad investing advice he has been giving for decades as to be unable to accept how much human misery he has caused with the bad investing advice he has been putting forward for years now. It’s probably not going to be Passive Investing advocates who turn this ship around. It’s going to be people who know enough about personal finance to understand that prices always matter — when spending money and when investing it too.

I don’t know why Frugal Dad is today uninterested in taking on this new job. It may just be that he is up to his neck in responsibilities already taken on (I know the feeling!). My guess is that it’s probably partly that and partly a feeling that he doesn’t possess enough “expertise” to be advancing a new model for understanding how stock investing works. The first possible reason I of course fully understand — that’s just one of those things and we can of course continue contacting good candidates until we find the person who is well-qualified for the task and who happens to have the time available to take it on. The second possible reason is the one that worries me — if Frugal Dad feels that he is not qualified, there are going to be lots of other qualified bloggers who feel that they are not qualified and that’s a highly disturbing thought for all concerned re where the U.S. economy may be headed in coming years.

We have needed to open up discussions of investing to new ideas for decades now. In the past six months, that need has become critical. I think of myself as Frodo taking the Passive Investing ring that binds them all to Mount Doom for its destruction even though I would prefer eating two breakfasts each day with my fellow hobbits in the Shire. I need a Pippin to help out! I need a Merry! (Fortunately, John Walter Russell has done an amazing job serving in the Samwise role.) If you know of a possible Pippen or a possible Merry, please identify these potential victims for me (I mean, please let me know of the individuals who you think might want to take advantage of this wonderful opportunity!).

In all seriousness, we do need help. And I really do think that it needs to be someone who doesn’t feel a personal investment in the continued popularity of the Passive Investing model. If you do indeed know of a blogger who could help us bring these ideas to a wider audience, please do let me know.

We are seeing a much greater openness to the consideration of new ideas since the big price crash. That’s encouraging. My biggest worry today is that too many are electing to give up on stocks altogether rather than to learn about more effective ways of investing in stocks. Many are giving up not on Passive Investing, the failed approach to stock investing, but on stock investing itself! No! Becoming hostile to stocks is just the flip side of the emotional Passive Investing coin that causes us to be open to advice to overinvest in stocks at times of insanely dangerous price levels. Don’t give up on stocks! It’s not stocks’ fault! It’s Passive Investing’s fault!

Passive Investing violates all principles of frugality. Many of us have learned not to overpay for cars or houses or comic books or bananas. We have learned to resist marketing slogans seeking to entice us to enslave ourselves by doing so. So why should we be willing to put our retirement money in stocks when prices are so high that the long-term value proposition is poor? Giving up on Passive Investing makes all the sense in the world to anyone who has learned how to manage money effectively and who has not been compromised by years of advocacy of the Passive Investing gibberish.

Giving up on stocks is not at all a good idea, in my assessment. Give up on stocks and you delay the day you will achieve financial freedom by years or in some cases even by decades.  Why should we deny ourselves the benefits of the best asset class available to the middle-class investor? For what purpose?

Those of us who are trying to share the liberating ideas of frugality with others need to come to an understanding that frugality works its magic in the investing realm every bit as much as it does in the spending realm. We need to learn to distinguish between sensible stock investing strategies and nonsense stock investing strategies. Ignoring price is nonsense. We need to distinguish between the use of academic research to promote genuine insights and the use of academic research to promote marketing slogans. The claim that short-term market timing doesn’t work is a genuine insight. The claim that timing in all forms (including long-term timing) doesn’t work is a marketing slogan. This claim is a big help for those trying to sell stocks at times when they offer a poor long-term value proposition, but it is dangerous advice indeed for those investing in stocks with the hope of being able to finance middle-class retirements.

Frugal Dad pointed to the losses suffered by real live people that he cares about in explaining his disgust with stocks. That’s good stuff, that’s the real thing. Our job is to persuade people like Frugal Dad that his disgust needs to be focused on the irresponsible advice that has been used to sell stocks during the Passive Investing era. We need people like him applying his common-sense and compassion to making stock investing a good choice for the millions of middle-class investors who really cannot afford to give up on this fine investing choice for good.

Stocks are good. It’s Passive Investing that has done this to us.

Let’s get the word out!

Love! Courage!

I’ve read the last page of this saga. The good guys win in the end.

No, honestly!

“It Is the Result of a Mistake, Not a Lie”

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Tuesday’s blog entry set forth the text of an e-mail that I recently sent to the owner of the Frugal Dad blog proposing an arrangement in which we would work together to publicize the findings of the Retire Early and Indexing discussion-board communities from the first seven years of our investing discussions.

Set forth below is the text of a follow-up e-mail that I sent following the posting of a blog entry at the Frugal Dad site entitled Have We Been Sold a Bunch of Lies About Money? I’ll offer commentary in next Tuesday’s blog entry.

Frugal Dad:

This is Rob Bennett. I sent you an e-mail last week re the extensive investing research that I have done. I have not received a response, and so I assume that you do not have an interest in the idea that I advanced. That is of course fine. But your blog entry today is on precisely the topic that I have explored, and so I felt a need to try one more time to get you interested in exploring this question in some depth.

You are not too far off in suggesting that we have been sold a bunch of “lies” re investing. I think that use of the word “lie” is not appropriate. But it is certainly true that we have been misled in terrible ways. I can explain the entire story and provide links backing up my conclusions on just about all of the important points. I very much want to get this story out to a wider audience and I would be thrilled to work with you in doing so if you have any interest in the idea.

What happened is that there was exciting research done in the 1960s and 1970s showing that short-term timing (changing one’s stock allocation in response to price changes with the thought that this would bring good results within a year or two) does not work. Many “experts” interpreted this to mean that ALL forms of timing (both short-term and long-term) do not work. The result was the investing advice that became the conventional wisdom for the past 30 years — always invest heavily in stocks, even when prices go to insanely dangerous levels. This is the worst possible advice that could have been offered. But it is the result of a MISTAKE, not a lie.

We need to fix the mistake. I have found this to be a tough business. Many “experts” are highly reluctant even to consider the possibility that they made such an obvious mistake that caused such great human misery. Still, the evidence is very strong that this is what happened. It is important that the mistake be corrected before too many more investors become so disillusioned with stocks that they take all their money out. Many people are coming to conclusions along the lines of your own, and this could cause stock prices to drop another 50 percent over the next few years. This could lead us to an economic depression. The stakes here are as high as they could possibly be,.

I hope you will not consider me a pest for writing again. I hope that you will give some thought to my idea. Your readers need to learn the realities. The “experts” have indeed let us down. But it is not right to conclude that they are liars and it is not right to conclude that stocks are a bad investment even when purchased at reasonable prices. If you change your stock investing strategy to one in line with the research of the past 20 years, you can obtain the benefits that stocks really do offer while reducing your risk to a fraction of what applies for those following the strategies that became popular during the past 30 years.

If you have doubts about anything that I am saying, please ask questions. I really can tell the whole story, it really is an important story, and it really is a story that you can understand if you spend just a little bit of time getting up to speed on realities that it took me years to uncover.

I am sorry about your losses. If you check my well-documented record, you will see that I have been warning about this stock crash for a long time. I have worked this incredibly hard for a long time. There IS a good deal to be said for the Your Money or Your Life approach (reading that book’s treatment of investing led me to asking the questions that sparked all of my research into these questions) but the YMYL approach has flaws of its own. I have been working with hundreds of people to come up with something a lot better and we have enjoyed a great deal of success in the work we have done. Our one big problem has been on the publicity side. You obviously could be a huge help in that area.

Rob

“I Want to Launch an Effort to
Publicize the Ideas on the Internet”

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Set forth below is the text of a e-mail that I sent to the owner of the Frugal Dad blog on January 14. I did not receive a response.

On January 19, Frugal Dad posted a blog entry entitled Have We Been Sold a Bunch of Lies About Money?  He stated in this blog entry that “My 401(k) has been demolished” and “family members’ 401(k)s have been demolished, even those in target retirement funds that should have been comprised of more conservative options based on their upcoming target retirement date.” He concluded that: “After watching these wild market swings, I’m starting to wonder if I really have the stomach for it” and indicated that he may move to a less risky investing strategy, one not involving the purchase of stocks. I posted a comment to the blog entry and responded to questions put forward by several community members (a few at the end of the thread are abusive, but several earlier in the thread raise reasonable points or ask good questions). I also sent a follow-up e-mail.

I will post the follow-up e-mail as Thursday’s blog entry. I will offer commentary in next Tuesday’s blog entry.

Frugal Dad:

This is Rob Bennett, publisher of the “A Rich Life” blog at www.PassionSaving.com. We exchanged e-mails a ways back in connection with your article re paying off the mortgage (you linked to an article of mine). I hope things are going well with you.

I am looking for a partner to help spread the word re some exciting investing ideas that have been developed in the Retire Early and Indexing discussion-board communities in recent years. Based on what I have seen from following your blog, I think you would be a great person to work with (I am looking for someone with an audience that is large and active but that is not comprised of people primarily interested in investing issues).

The investing strategies that are today conventional wisdom (“timing doesn’t work, “stocks for the long run,” “buy-and-hold,” etc.) have been increasingly discredited by the academic research of the past two decades. There is truth in all these ideas, but not complete truth; there is good in them but there is also danger in them. I have been reporting on these realities for close to seven years now and have produced  a wealth of material related to them (including three unique calculators, over 50 podcasts, scores of articles, and tens of thousands of discussion-board posts). I have communicated with hundreds of middle-class investors who showed great excitement to have found for the first time a description of how investing works that truly makes sense. Unfortunately, these ideas have also met with intense opposition among people who view themselves as “expert” in their understanding of the discredited, conventional ideas. Abusive posting by the defensive group has blocked the efforts of many to learn about these ideas (I call the strategy that I recommend “Valuation-Informed Indexing”) for years now.

There has been a big change in discussions of investing since the big price crash. There is greater interest now than before in new ideas and those inclined to dismiss new  ideas are feeling increasingly defeated by real-world events. I want to launch an effort to publicize the ideas on the internet. If you have an interest, your blog would be a great place to do this. My guess is that your readership is concerned about the recent stock-market developments and would love to hear informed and straight-talk answers to their many questions. But your readership is not comprised of the sort of people who would become defensive on being exposed to some unconventional takes on how stock investing works.

If you think this idea holds any potential, I propose that you explore it a bit by directing a question or two of your own to me. I would respond, using the research that I have done with John Walter Russell (owner of the www.Early-Retirement-Planning-Insights.com site) over the past seven years as the basis for my answers. If you found the discussion helpful to your understanding, you could share what you learned from it with your readers in any of several ways: (1) you could write up articles summarizing the discussions; (2) you could post the actual words of the discussions if you thought that a better approach; (3) you could invite your readers to put forward their own questions and seek responses from me re those questions; or you could follow some other approach of your choosing.

The goal would be to inform your readers of what is happening in the stock market, why it is happening (none of what has happened is the least bit surprising to those familiar with the literature of the past 20 years, much of which unfortunately is rarely discussed in the conventional media), and what they need to be doing to invest more effectively. Ultimately, I hope to see this debate over the future of investing spread to other blogs and other sites. I believe that we need a national debate on the errors that caused the greatest loss of middle-class wealth in the history of the United States. Your “promotion” of my work would obviously bring attention to my site. My belief is that it would also enhance the value of your blog by offering great benefits to your readers and ultimately would gets lots of other people talking about some issues that very much need to be talked about more at this time.

If you have no interest, I of course understand that this is an unusual request and one that you might for perfectly good reasons not see much appeal in; I’d be grateful if you would just send an e- mail saying “no thanks” so that I would know. If you have a limited interest but also have questions, please ask. I have all sorts of resources that I can point to in response to just about any question you can ask. And this project is my baby — I have been preparing for the launching of this initiative by working 10 hour days six days a week re this matter for close to seven years now. I am more than happy and prepared to point you to materials showing the legitimacy of all of the claims that I put forward.

I of course would not expect you to be willing to endorse any of these ideas unless you were confident that there was merit to them. My thought is that you might serve as a go-between for your readers. Your questions are probably to a large extent their questions. If you found my answers convincing, you could forward them (perhaps with your own take attached). If you did not, you could of course elect not to report on them or to report negatively on them.

Please understand that none of the questions that I address are complicated ones. I address the BASICS of investing, the stuff that the typical middle-class worker needs to understand. Unfortunately, it is at the basics level that the conventional advice is most flawed.

I’ll leave you with a few links that will give you a general sense of the issues involved:

1) This is the Podcasts section of my site:

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

2) The Stock-Return Predictor is key to making the Valuation-Informed Indexing approach work:

http://www.passionsaving.com/stock-valuation.html

3) Here is a nicely balanced write-up of the Predictor by Felix Salmon that appeared at the Market Movers blog:

http://www.portfolio.com/views/blogs/market-movers/2008/07/08/a-look-at-long-term-stock-valuations#blogComments

4) “Elizabeth’s Story,” which appears at this link, provides a good indication of how these ideas have affected some typical middle-class workers (I can provide many more such stories if they help you make sense of all this):

http://www.passionsaving.com/finding-life-purpose-page-three.html

Rob

Podcast #56 — “Time” Is Not a Four-Letter Word

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I’ve added Podcast #56 to the “RobCasts” section of the site. it’s called “Time” Is Not a Four-Letter Word.

It’s not that timing works. It’s that timing is required for those hoping to achieve long-term investing success.

Now can those of us who know this please stop apologizing for letting others know how critical it is that they begin learning how to time the market effectively?